Debt Against the People: an ABC

29 January 2020 by Eric Toussaint


Over the last ten years Greece has been a prime example of how a country and a people can be deprived of their liberty through clearly illegitimate debt. Since the 19th century, from Latin America to China, Haiti, Greece, Tunisia, Egypt and the Ottoman Empire public debt has been used as a coercive force to impose domination and pillage (Toussaint, 2017). Visibly, it is the combination of debt and free trade that constitute the fundamental factors subordinating whole economies as from the 19th century. Local elites allied themselves with big financial powers in order to subject their own countries and peoples permanently to methods of power that transfer wealth towards local and foreign creditors.

It is the combination of debt and free trade that constitute the fundamental factors subordinating whole economies as from the 19th century

Contrary to commonplace ideas, it is generally not the indebted weaker countries that are the cause of sovereign debt Sovereign debt Government debts or debts guaranteed by the government. crises. These crises break out first in the biggest capitalist countries or are the result of their unilateral decisions that produce effects of great magnitude in the indebted countries. It is not so-called “excessive” public spending that builds up unsustainable debt levels, but rather the conditions imposed by local and foreign creditors. Real interest rates Interest rates When A lends money to B, B repays the amount lent by A (the capital) as well as a supplementary sum known as interest, so that A has an interest in agreeing to this financial operation. The interest is determined by the interest rate, which may be high or low. To take a very simple example: if A borrows 100 million dollars for 10 years at a fixed interest rate of 5%, the first year he will repay a tenth of the capital initially borrowed (10 million dollars) plus 5% of the capital owed, i.e. 5 million dollars, that is a total of 15 million dollars. In the second year, he will again repay 10% of the capital borrowed, but the 5% now only applies to the remaining 90 million dollars still due, i.e. 4.5 million dollars, or a total of 14.5 million dollars. And so on, until the tenth year when he will repay the last 10 million dollars, plus 5% of that remaining 10 million dollars, i.e. 0.5 million dollars, giving a total of 10.5 million dollars. Over 10 years, the total amount repaid will come to 127.5 million dollars. The repayment of the capital is not usually made in equal instalments. In the initial years, the repayment concerns mainly the interest, and the proportion of capital repaid increases over the years. In this case, if repayments are stopped, the capital still due is higher…

The nominal interest rate is the rate at which the loan is contracted. The real interest rate is the nominal rate reduced by the rate of inflation.
are abusively high and so are bankers’ commissions. The indebted countries unable to keep up with repayments have to continually find new loans to repay old loans. In the past, when that became impossible, the great powers had licence to resort to military action to ensure they were repaid.

Debt crises and their outcomes are always directed by the big banks and the governments that support them.

Over the last two centuries, several countries have successfully repudiated debts by arguing that they were either illegitimate or odious. Mexico, the USA, Cuba, Russia, China and Costa Rica have all done this. Conflict involving debt non-payment has given birth to a judicial doctrine known as Odious Debt Odious Debt According to the doctrine, for a debt to be odious it must meet two conditions:
1) It must have been contracted against the interests of the Nation, or against the interests of the People, or against the interests of the State.
2) Creditors cannot prove they they were unaware of how the borrowed money would be used.

We must underline that according to the doctrine of odious debt, the nature of the borrowing regime or government does not signify, since what matters is what the debt is used for. If a democratic government gets into debt against the interests of its population, the contracted debt can be called odious if it also meets the second condition. Consequently, contrary to a misleading version of the doctrine, odious debt is not only about dictatorial regimes.

(See Éric Toussaint, The Doctrine of Odious Debt : from Alexander Sack to the CADTM).

The father of the odious debt doctrine, Alexander Nahum Sack, clearly says that odious debts can be contracted by any regular government. Sack considers that a debt that is regularly incurred by a regular government can be branded as odious if the two above-mentioned conditions are met.
He adds, “once these two points are established, the burden of proof that the funds were used for the general or special needs of the State and were not of an odious character, would be upon the creditors.”

Sack defines a regular government as follows: “By a regular government is to be understood the supreme power that effectively exists within the limits of a given territory. Whether that government be monarchical (absolute or limited) or republican; whether it functions by “the grace of God” or “the will of the people”; whether it express “the will of the people” or not, of all the people or only of some; whether it be legally established or not, etc., none of that is relevant to the problem we are concerned with.”

So clearly for Sack, all regular governments, whether despotic or democratic, in one guise or another, can incur odious debts.
which is to this day pertinent (See box).

Open box on odious debt

According to the odious debt doctrine theorised by Alexander Sack in 1927 a debt may be considered odious if it fulfils two conditions:

  1. The population does not enjoy the benefits: the debt was incurred not in the interests of the people or the state but against their interest Interest An amount paid in remuneration of an investment or received by a lender. Interest is calculated on the amount of the capital invested or borrowed, the duration of the operation and the rate that has been set. and/or in the personal interest of the leaders or persons holding power.
  2. Lenders’ complicity: the lenders had foreknowledge, or could have had foreknowledge, that the funds concerned would not benefit the population.

The democratic or despotic nature of a regime does not influence this general rule.

A debt may be considered odious if it fulfils two conditions: 1) The population does not enjoy the benefits; 2) Lenders’ complicity

The father of the odious debt doctrine clearly states that “ regular governments (may) incur debts that are incontestably odious”. Sack defines a regular government as follows: “By a regular government is to be understood the supreme power that effectively exists within the limits of a given territory. Whether that government be monarchical (absolute or limited) or republican; whether it functions by “the grace of God” or “the will of the people”; whether it express “the will of the people” or not, of all the people or only of some; whether it be legally established or not, etc., none of that is relevant to the problem we are concerned with. (my bold - ÉT). Source: Les effets des transformations des États sur leurs dettes publiques et autres obligations financières (The effects of the transformation of States on their public debt and other financial obligations), Recueil Sirey, Paris, 1927. Abridged document freely available on the CADTM website (in French)

Sack says that a debt may be considered odious if: “a) that the purpose which the former government wanted to cover by the debt in question was odious and clearly against the interests of the population of the whole or part of the territory, and
b) that the creditors, at the moment of the issuance of the loan, were aware of its odious purpose.”

He continues: “Once these two points are established, the burden of proof that the funds were used for the general or special needs of the state and were not of an odious character would be upon the creditors.” (see

This doctrine has been applied several times in history.

 Historical examples

Creditors, whether powerful states, multilateral organisations that serve them or banks, have become very adroit at imposing their will on debtors

Creditors, whether powerful states, multilateral organisations that serve them or banks, have become very adroit at imposing their will on debtors. From early in the 19th century Haiti, the first independent black republic, was an early testing ground. The island gained freedom from the yoke of the French empire in 1804, but Paris did not abandon its claims on the country and obtained from Haiti payment of a royal indemnity granted to the former colonial slave owners. The 1825 agreements signed by the new Haitian leaders created a monumental debt of independence untenable from 1828 and which took a full century to pay off, thus preventing any real development.

Debt was also used to subjugate Tunisia under France in 1881 [1] and Egypt to the British in 1882. [2] The lending powers used unpaid debt to impose their will on countries that had so far been independent. Greece too, was born in the 1830s with a burden of debt that held it in the sway of Russia, France and the British, [3] Newfoundland, which had become the first autonomous dominion of the British Empire in 1855, well before Canada and Australia, had to renounce its independence in 1933 because of the grave economic crisis in order to face up to its debts and was finally incorporated into Canada in 1949. Canada agreed to take charge of 90% of Newfoundland’s debt (REINHARDT and ROGOFF, 2010).

 Debt during the 1960s and 70s

The process was repeated after the Second World War, when the Latin American countries had need of capital to fund their development and first Asian, then African, colonies gained independence. The debt was the principal instrument used to impose neocolonialist relations. It became frowned upon to use force against a debtor country, and new means of coercion had to be found.

The massive loans granted as from the 1960s, to an increasing number of peripheral countries (not least those in which the Western powers had a strategic interest such as Mobutu’s Congo, Suharto’s Indonesia, the military regimes in Brazil, Yugoslavia and Mexico) oiled a powerful mechanism that took back the control of countries that had begun to adopt policies that were truly independent of their former colonial powers and Washington.

Three big players have incited these countries into debt by promising relatively low interest rates:

  1. the big Western banks seeking to put massive amounts of liquidities Liquidities The capital an economy or company has available at a given point in time. A lack of liquidities can force a company into liquidation and an economy into recession. to work;
  2. the developed countries seeking to stimulate their economies after the1973 oil crisis;
  3. the World Bank World Bank
    The World Bank was founded as part of the new international monetary system set up at Bretton Woods in 1944. Its capital is provided by member states’ contributions and loans on the international money markets. It financed public and private projects in Third World and East European countries.

    It consists of several closely associated institutions, among which :

    1. The International Bank for Reconstruction and Development (IBRD, 189 members in 2017), which provides loans in productive sectors such as farming or energy ;

    2. The International Development Association (IDA, 159 members in 1997), which provides less advanced countries with long-term loans (35-40 years) at very low interest (1%) ;

    3. The International Finance Corporation (IFC), which provides both loan and equity finance for business ventures in developing countries.

    As Third World Debt gets worse, the World Bank (along with the IMF) tends to adopt a macro-economic perspective. For instance, it enforces adjustment policies that are intended to balance heavily indebted countries’ payments. The World Bank advises those countries that have to undergo the IMF’s therapy on such matters as how to reduce budget deficits, round up savings, enduce foreign investors to settle within their borders, or free prices and exchange rates.

    seeking to increase US influence and to fend off the increasing expansion of the private banks.

Local elites also encouraged higher debt and made gains, contrary to the populations, who derived no benefit.

The theoretical rants promoting high foreign debt

In neo-classical theory, savings should precede investment and are insufficient in the developing countries. This means that the shortage of savings is seen as a fundamental factor explaining why development is blocked. An influx of external funding is required. Paul Samuelson, in Economics (SAMUELSON, 1980), took the history of US indebtedness in the 19th and 20th centuries as a basis for determining four different stages leading to prosperity:

  1. young borrowing nation in debt (from the War of Independence in 1776 to the end of the Civil War in 1865);
  2. mature indebted nation (from 1873 to 1914);
  3. new lending nation (from the first to Second World Wars);
  4. mature lending nation (1960s).

Samuelson and his emulators slapped the model of US economic development from the late 18th century until the Second World War onto one hundred or so countries which made up the Third World after 1945, as though it were possible for all those countries to quite simply imitate the experience of the United States

As for the need to resort to foreign capital (in the form of loans and foreign investments), an associate of Walt W. Rostow, Paul Rosenstein-Rodan, found the following formula: “Foreign capital will be a pure addition to domestic capital formation, i.e. it will all be invested; the investment will be productive or ‘businesslike’ and result in increased production. The main function of foreign capital inflow is to increase the rate of domestic capital formation up to a level which could then be maintained without any further aid”. This statement contradicts the facts. It is not true that foreign capital enhances the formation of national capital and is all invested. A large part of foreign capital rapidly leaves the country where it was temporarily directed, as capital flight and repatriation of profits.

It is not true that foreign capital enhances the formation of national capital and is all invested. A large part of foreign capital rapidly leaves the country where it was temporarily directed

Paul Rosenstein-Rodan, who was the assistant director of the Economics Department of the World Bank between 1946 and 1952, made another monumental error in predicting the dates when various countries would reach self-sustained growth. He reckoned that Colombia would reach that stage by 1965, Yugoslavia by 1966, Argentina and Mexico between 1965 and 1975, India in the early 1970s, Pakistan three or four years after India, and the Philippines after 1975. What nonsense that has proved to be!

Development planning as envisaged by the World Bank and US academia amounts to pseudo-scientific deception based on mathematical equations. It is supposed to give legitimacy and credibility to the intention to make the developing countries dependent on obtaining external capital. There follows an example, advanced in all seriousness by Max Millikan and Walt W. Rostow in 1957: “If the initial rate of domestic investment in a country is 5 per cent of national income, if foreign capital is supplied at a constant rate equal to one-third the initial level of domestic investment, if 25 per cent of all additions to income are saved and reinvested, if the capital-output ratio is 3 and if interest and dividend service on foreign loans and private investment are paid at the rate of 6 per cent per year, the country will be able to discontinue net foreign borrowing after fourteen years and sustain a 3 per cent rate of growth out of its own resources" (MILLIKAN and ROSTOW, 1957) More nonsense!

In fact, these authors who favoured the capitalist system, dominated by the US, refused to envisage the deep reforms that would have allowed a form of development that was not dependant on external funding.

 The debt crisis of the 1980s

At the end of 1979 the US decided to increase its interest rates. This had an effect on the rates applied to indebted Southern countries whose borrowing rates were variable and had already been subject to sharp rises. Coupled with low export commodities Commodities The goods exchanged on the commodities market, traditionally raw materials such as metals and fuels, and cereals. prices (coffee, cacao, cotton, sugar, ores, etc.,) which caused reduced revenues for the countries, the trap was sprung.

A new form of colonialism sprang up. It was no longer necessary to maintain an administration and an army to put the local population to heel; the debt did the job of creaming off the wealth produced and directing it to the creditors

In august 1982, Mexico, among other countries announced that they were unable to assure debt repayments. So, the International Monetary Fund IMF
International Monetary Fund
Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.
(IMF) was asked, by the creditor banks, to lend the countries the necessary funds at high interest rates, on the double condition that they continue debt repayments and apply the policies decided by the IMF “experts”: abandon subventions on goods and services of primary necessity; reduce public spending; devalue the currency; introduce high interest rates in order to attract foreign capital; direct agricultural production towards exportable products; free access to interior markets for foreign investors; liberalise the economies, including the suppression of capital controls; introduce a taxation system that aggravates inequalities, including VAT increases; preserve capital gains and privatize profitable publicly owned industries; this list is not exhaustive.

These structural adjustment Structural Adjustment Economic policies imposed by the IMF in exchange of new loans or the rescheduling of old loans.

Structural Adjustments policies were enforced in the early 1980 to qualify countries for new loans or for debt rescheduling by the IMF and the World Bank. The requested kind of adjustment aims at ensuring that the country can again service its external debt. Structural adjustment usually combines the following elements : devaluation of the national currency (in order to bring down the prices of exported goods and attract strong currencies), rise in interest rates (in order to attract international capital), reduction of public expenditure (’streamlining’ of public services staff, reduction of budgets devoted to education and the health sector, etc.), massive privatisations, reduction of public subsidies to some companies or products, freezing of salaries (to avoid inflation as a consequence of deflation). These SAPs have not only substantially contributed to higher and higher levels of indebtedness in the affected countries ; they have simultaneously led to higher prices (because of a high VAT rate and of the free market prices) and to a dramatic fall in the income of local populations (as a consequence of rising unemployment and of the dismantling of public services, among other factors).

loans were aimed at the suppression of independent economic and financial policies in the peripheral countries and tying their independence to the World markets. Also, to ensure access by the industrialized economies to the raw materials and they needed. By gradually putting the developing countries into competition with each other the economic model based on exports and the extraction of raw materials for foreign markets is reinforced, which in turn reduces production costs and increases profits, favouring the developed economies.

So, a new form of colonialism sprang up. It was no longer necessary to maintain an administration and an army to put the local population to heel; the debt did the job of creaming off the wealth produced and directing it to the creditors. Of course the colonialists continued to interfere in local politics and economic policies whenever they considered that it suited them.

 Developments in the 2000s

As from 2003-04, in a context of strong world demand, commodity prices started to increase. Exporting countries improved their foreign exchange incomes. Some developing countries increased their social spending but most preferred to buy US treasury bonds and so put their increased means at the disposal of the principal economic powers. This increase in developing countries’ incomes whittled down the weight of the World Bank and the IMF.

Since 2018-19 a new debt crisis is hitting countries like Argentina, Venezuela, Turkey, Indonesia, Nigeria and Mozambique

Another factor was the Chinese economic expansion. China had become the world’s principal sweatshop and was accumulating important financial reserves and using them to significantly increase funding to developing countries in competition with the offers of funding from the industrialised countries and the multilateral institutions.

During the 2000s, the reduction of interest rates by the Central Banks in the industrialized countries in the North decreased the costs of the debt in the South. Because of the 2007-8 financial crisis in North America and Western Europe massive amounts of liquidities were injected into the financial system to save the big banks and corporations that were too heavily indebted themselves. A decrease in the costs of financing the debts of the developing countries followed naturally and the governments of developing countries gained a false sense of security.

The situation began to degrade in 2016-17 when the Fed FED
Federal Reserve
Officially, Federal Reserve System, is the United States’ central bank created in 1913 by the ’Federal Reserve Act’, also called the ’Owen-Glass Act’, after a series of banking crises, particularly the ’Bank Panic’ of 1907.

FED – decentralized central bank :
started to raise its interest rates, from 0.25% in 2015 to 1.5% in October 2019 and tax breaks were granted by the Trump administration to big business to attract US foreign investment back to the US. What’s more, commodities prices slipped and exporter countries’ revenues slipped with them making debt repayments in strong

 General view of the debt in the South

These last years have have seen a significant increase in constant values of foreign debt; between 2000 and 2017 it has tripled. The greater part is in the private sector.

Table1. - foreign debt by regions ($ billions)

1980 1990 2000 2012 2017
Latin America and the Caribbean 230 420 714 1258 1501
Sub-Saharan Africa 61 176 213 331 535
MENA [4] 64 137 144 177 294
South Asia 37 126 163 501 706
East Asia & Pacific 61 234 497 1412 2461
Central and Eastern European countries, Turkey & Central Asia 58 101 234 1150 1570
Total 510 1194 1966 4830 7070

Foreign public debt has also increased although less abruptly than in the private sector.

Table 2. foreign public debt by regions ($ billions)

1980 1990 2000 2012 2017
Latin America and the Caribbean 126 314 385 577 721
Sub-Saharan Africa 42 144 162 200 342
MENA 54 114 112 121 178
South Asia 32 108 135 215 330
East Asia & Pacific 36 173 271 354 550
Central and Eastern European countries, Turkey & Central Asia 34 80 118 297 517
Total 323 932 1184 1766 2640

 Debt in the Global South

Whatever the World Bank and the IMF may cheerfully repeat, the debt of developing countries is still a major obstacle to meeting their inhabitants’ basic needs and safeguarding human rights. Inequalities have sharply increased and progress in terms of human development has been very limited.


Whatever the World Bank and the IMF may cheerfully repeat, the debt of developing countries is still a major obstacle to meeting their inhabitants’ basic needs and safeguarding human rights

In sub-Saharan Africa, outgoing flow of capital via debt service Debt service The sum of the interests and the amortization of the capital borrowed. and corporations garnering their profits are significant. In 2012, the profits repatriated from the poorest area on earth amounted to 5% of its GDP GDP
Gross Domestic Product
Gross Domestic Product is an aggregate measure of total production within a given territory equal to the sum of the gross values added. The measure is notoriously incomplete; for example it does not take into account any activity that does not enter into a commercial exchange. The GDP takes into account both the production of goods and the production of services. Economic growth is defined as the variation of the GDP from one period to another.
vs 1% in public aid to development. In this context, it is legitimate to raise the question: who is helping who?

If we take into account the plundering of Africa’s natural resources by private corporations, the brain drain of African intellectuals, embezzlement of goods by the African ruling class, manipulations of transfer prices by private corporations and other misappropriations, we cannot but be aware that Africa has been drained dry.

EU relations with Africa illustrate the continuation of neocolonial policies. These have developed beyond the framework of the ACP Cotonou Agreements. [5] Nowadays, the EU has enforced other frameworks that are more significant in its relation with Africa such as an EU partnership framework for migration (the Valletta Action Plan with the Khartoum and Rabat processes), to which we should add the bilateral frameworks and agreements that European countries have with African countries or regions. Not forgetting the CFA currency for 15 African countries, soon to become the Eco for eight of them, without significant change of policy.

Many European citizens have no idea of the extent to which conditions and clauses imposed under such agreements are setting the ground for a new debt crisis in the developing countries. Some basic facts that are not known by most people are that whereas the total volume of aid received annually by Africa from Europe stands at around $21 billion, African migrants in Europe remit around $30 billion to their families in their home countries, almost 50% more than the amount of the European aid; or funds currently available from the European Investment Fund Investment fund
Investment funds
Private equity investment funds (sometimes called ’mutual funds’ seek to invest in companies according to certain criteria; of which they most often are specialized: capital-risk, capital development funds, leveraged buy-out (LBO), which reflect the different levels of the company’s maturity.
for the whole African continent that stand at $3.3 billion, which is equivalent to the cost of one mid-sized infrastructure project like a port. Furthermore, the new EU proposed budget for 2021-2027 plans to allocate more than $34.9 billion to various mechanisms of migration control. [6] It will end up costing Europe more to patrol its borders than what is allocated to Africa as development aid or what Africa is suffering from trade losses with Europe. The impact of these agreements on trade results is also remarkable. From 2003 to 2014, Africa always had a trade surplus with Europe, whereas since 2015, the trend has reversed amounting to close to a $30 billion deficit.

 Latin America and the Caribbean

Table 3. Debt and resources devoted to repayment (in billions USD): Latin America and the Caribbean

External debt Incl. public external debt
Debt stock Debt stock The total amount of debt in 1970 8 8
Debt stock in 2012 1200 492
Debt stock in 2017 1502 722
Repayment 1970 - 2012 2679 1547
Repayment 1970 - 2017 3707 1937
Total external debt:
Public external debt and guarantee:

Latin America has one of the highest negative external debt balances among developing continents for 1985-2017.

Table 4. Net transfers on external debt 1985 - 2017 (in billions of USD): Latin America and the Caribbean

Net transfers on external debt (in bn USD)1985 - 2017
External debt -14
Public external debt -127
Public external debt and guarantee: [data no longer available]
External debt: [data no longer available]

Impact of debt payment on the way public resources are used

Table 5. Distribution of expenditure in national budgets (as % of GDP and as % of the budget) in Latin America in 2013  [8]

% of GDP % of the Budget
Public debt servicing Public expenditure for education Public expenditure for health care Public debt servicing Public expenditure for education Public expenditure for health care
Argentina 9,6 1,8 1,0 38,4 7,3 4,0
Brazil 22,7 1,8 2,1 42,2 3,9 3,4
Columbia 6,3 3,5 1,6 24,3 13,4 6,2
Ecuador 3,7 7,1 3,1 8,3 15,9 6,8

If we take into account the evolution of public expenditure of some fifty low-income countries from 2015 to 2017, we notice an increase of expenditure related to debt repayment, a decrease of health-related expenditure and a stagnation in terms of education (see chart 1).

Chart 1 – Public expenditure in low-income countries for public debt servicing, education and health care [9] (as % of the GDP)

Source: UNCTAD secretariat calculations based on World Bank World Development Indicators data and International Monetary Fund DSA LIC country reports published between 2015 and 2018.

From 2015 to 2017 we also notice an increase in public expenditure related to debt repayment in Africa, South Asia and in general for Least developed countries Least Developed Countries
A notion defined by the UN on the following criteria: low per capita income, poor human resources and little diversification in the economy. The list includes 49 countries at present, the most recent addition being Senegal in July 2000. 30 years ago there were only 25 LDC.
(see chart 2).

Chart 2 – Expenditure of public debt servicing in Least developed countries countries in large regions (as % of the GDP)

Source: UNCTAD secretariat calculations based on International Monetary Fund DSA LIC country reports published between 2015 and 2018.

122 are actually in a critical debt situation

According to Milan Rivié, who uses IMF information, in July 2019, among low income countries, nine were over indebted and 24 were on the brink of being over indebted, i.e. 39% of them. [10] As evidence of the inability (and the lack of determination) of international financial institutions (IFIs) to find an adequate and sustainable response to over indebtedness, half of those countries had strictly applied the adjustment policies of the Heavily Indebted Poor Country (HIPC Heavily Indebted Poor Countries
In 1996 the IMF and the World Bank launched an initiative aimed at reducing the debt burden for some 41 heavily indebted poor countries (HIPC), whose total debts amount to about 10% of the Third World Debt. The list includes 33 countries in Sub-Saharan Africa.

The idea at the back of the initiative is as follows: a country on the HIPC list can start an SAP programme of twice three years. At the end of the first stage (first three years) IMF experts assess the ’sustainability’ of the country’s debt (from medium term projections of the country’s balance of payments and of the net present value (NPV) of debt to exports ratio.
If the country’s debt is considered “unsustainable”, it is eligible for a second stage of reforms at the end of which its debt is made ’sustainable’ (that it it is given the financial means necessary to pay back the amounts due). Three years after the beginning of the initiative, only four countries had been deemed eligible for a very slight debt relief (Uganda, Bolivia, Burkina Faso, and Mozambique). Confronted with such poor results and with the Jubilee 2000 campaign (which brought in a petition with over 17 million signatures to the G7 meeting in Cologne in June 1999), the G7 (group of 7 most industrialised countries) and international financial institutions launched an enhanced initiative: “sustainability” criteria have been revised (for instance the value of the debt must only amount to 150% of export revenues instead of 200-250% as was the case before), the second stage in the reforms is not fixed any more: an assiduous pupil can anticipate and be granted debt relief earlier, and thirdly some interim relief can be granted after the first three years of reform.

Simultaneously the IMF and the World Bank change their vocabulary : their loans, which so far had been called, “enhanced structural adjustment facilities” (ESAF), are now called “Growth and Poverty Reduction Facilities” (GPRF) while “Structural Adjustment Policies” are now called “Poverty Reduction Strategy Paper”. This paper is drafted by the country requesting assistance with the help of the IMF and the World Bank and the participation of representatives from the civil society.
This enhanced initiative has been largely publicised: the international media announced a 90%, even a 100% cancellation after the Euro-African summit in Cairo (April 2000). Yet on closer examination the HIPC initiative turns out to be yet another delusive manoeuvre which suggests but in no way implements a cancellation of the debt.

List of the 42 Heavily Indebted Poor Countries: Angola, Benin, Bolivia, Burkina Faso, Burundi, Cameroon, Central African Republic, Chad, Comoro Islands, Congo, Ivory Coast, Democratic Republic of Congo, Ethiopia, Gambia, Ghana, Guinea, Guinea-Bissau, Guyana, Honduras, Kenya, Laos, Liberia, Madagascar, Malawi, Mali, Mauritania, Mozambique, Myanmar, Nicaragua, Niger, Rwanda, Sao Tome and Principe, Senegal, Sierra Leone, Somalia, Sudan, Tanzania, Togo, Uganda, Vietnam, Zambia.
) initiative launched by the G7, the World Bank and the IMF in 1996. And according to a German NGO, 122 are actually in a critical debt situation. [11]

 It is possible not to repay an illegitimate debt

It is quite possible to resist creditors, as evidenced by Mexico under Benito Juárez, who in 1867 refused to repay loans contracted by emperor Maximilian from the Société Générale de Paris two years earlier in order to finance the occupation of Mexico by the French army. [12] In 1914, at the height of the revolution, when Emiliano Zapata and Pancho Villa were victorious, Mexico completely suspended payment of its external debt, which was considered to be illegitimate; the Mexican government only repaid symbolic amounts from 1914 to 1942, just in order to pacify creditors. From 1934 to 1940, President Lázaro Cárdenas nationalized the railway and the oil industry without any compensation; he also expropriated over 18 million hectares of landed estates to give them over to indigenous communities. His tenacity paid: in 1942, creditors renounced about 90% of the debt value and said they were satisfied with limited compensations for the companies they had been evicted from. Mexico was able to undergo major social and economic development from the 1930s to the 1960s. Other countries such as Brazil, Bolivia and Ecuador successfully suspended debt repayment from 1931. In the case of Brazil, selective suspension of repayment lasted until 1943, when an agreement made it possible to reduce debt by 30%.

Refusing to repay illegitimate debt is a necessary measure, but it is not enough to generate development. A consistent development programme must be implemented.

More recently, in July 2007, in Ecuador, President Rafael Correa set up a committee to audit public debt. After fourteen months of work, its findings gave evidence that a large part of the country’s public debt was illegitimate and illegal. In November 2008, the government decided to unilaterally suspend repayment of debt securities sold on international financial markets and maturing in 2012 and 2030. Finally, the government of this small country won its case opposing North-American bankers who held those securities. It bought for USD 900 million securities that had been worth USD 3.2 billion. Through this operation Ecuador’s public Treasury saved about USD 7 bn on the borrowed capital and the remaining interests. It could then free resources to finance new social spending (as shown in table 5). Ecuador has not been targeted by international reprisals. [13]

It is obvious that refusing to repay illegitimate debt is a necessary measure, but it is not enough to generate development. A consistent development programme must be implemented. Financial resources have to be generated through increasing the State’s resources through taxes that respect social and environmental justice (Millet and Toussaint, 2018).

Translated by Snake Arbusto, Mike Krolikowski and Christine Pagnoulle


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[1See Éric TOUSSAINT, “Debt: how France appropriated Tunisia”,, 13 June 2016:

[2See Éric TOUSSAINT, “Debt as an instrument of the colonial conquest of Egypt”,, 6 June 2016:

[3See Éric TOUSSAINT, “Newly Independent Greece had an Odious Debt round her Neck”,, 26 April 2016 :

[4Middle-East and North Africa

[5The ACP-EU Partnership Agreement, signed in Cotonou on 23 June 2000, was concluded for a 20-year period from 2000 to 2020. It is the most comprehensive partnership agreement between developing countries and the EU. Since 2000, it has been the framework for the EU’s relations with 79 countries from Africa, the Caribbean and the Pacific (ACP). In 2010, ACP-EU cooperation has been adapted to new challenges such as climate change, food security, regional integration, State fragility and aid effectiveness. See here:

[6“EU will spend more on border and migration control than on Africa”. Euractiv. 1st August 2018. See here:

[7Repayments cover the total of depreciation and debt interests.

[8Source: Data for Argentina at governmental level are provided by the Nation’s General budget for 2013: Ministry of economy and public finance, Nation’s Presidency (Argentina), Presupuesto 2013 Resumen, Buenos Aires, 2013,;
data for Brazil’s central government for 2014 are provided by the Citizens’ Audit of the Debt: Maria Lucia Fattorelli, “Dívida consumirá mais de um trilhão de reais em 2014”, Auditoria Cidadã da Dívida,;
data for Columbia are provided by the Nation’s General Budget for 2013: Ministerio de Hacienda y Crédito Público, República de Colombia, Presupesto general de la Nación, 2013,;
data for Ecuador by the Nation’s General Budget for 2012: Ministry of finance, national Government of the Republic of Ecuador, Presupuesto General del Estado, 2012,

[9This applies to some fifty low-income countries.

[10List of overindebted countries on 31 July 2019: Congo-Brazzaville, Gambia, Grenade, Mozambique, Sao Tomé and Principe, Somalia, Sudan, South Sudan and Zimbabwe. List of the twenty-four countries with high risk of overindebtedness: Afghanistan, Burundi, Cameroon, Cap verde, Djibouti, Dominique, Ethiopia, Ghana, Haiti, Marshall Islands, Kiribati, Laos, Maldives, Mauritania, Micronesia, RCA, Samoa, Sierra Leone, St Vincent les Grenadines, Tajikistan, Chad, Tonga, Tuvalu and Zambia. See IMF, “List of LIC DSAs for PRGT-Eligible Countries. As of july 31, 2019”. Accessed on 15 August 2019. Available at and United Nations, Financing for Sustainable Development Report 2019. Available at

[11Jürgen Kaiser, “Global sovereign debt monitor”, Erlassjahr & Misereor, 2019, p.4. Available at

[12See Éric TOUSSAINT, “Mexico proved that debt can be repudiated” 22 July 2017

[13Eric Toussaint, Eleni Tsekeri, Pierre Carles, “Équateur : Historique de l’audit de la dette réalisée en 2007-2008. Pourquoi est-ce une victoire ?” (“Ecuador: History of the debt audit conducted in 2007-2008. Why is it a victory?”) (14-minute video, in French)

Eric Toussaint

is a historian and political scientist who completed his Ph.D. at the universities of Paris VIII and Liège, is the spokesperson of the CADTM International, and sits on the Scientific Council of ATTAC France.
He is the author of Greece 2015: there was an alternative. London: Resistance Books / IIRE / CADTM, 2020 , Debt System (Haymarket books, Chicago, 2019), Bankocracy (2015); The Life and Crimes of an Exemplary Man (2014); Glance in the Rear View Mirror. Neoliberal Ideology From its Origins to the Present, Haymarket books, Chicago, 2012, etc.
See his bibliography:
He co-authored World debt figures 2015 with Pierre Gottiniaux, Daniel Munevar and Antonio Sanabria (2015); and with Damien Millet Debt, the IMF, and the World Bank: Sixty Questions, Sixty Answers, Monthly Review Books, New York, 2010. He was the scientific coordinator of the Greek Truth Commission on Public Debt from April 2015 to November 2015.

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