Committee for the Abolition of Illegitimate Debt

The WB World Bank
WB 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.

adds: “Surging 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. have intensified debt vulnerabilities in all developing countries. In the past three years alone, there have been 18 sovereign defaults in 10 developing countries—greater than the number recorded in all of the previous two decades. Today, about 60 percent of low-income countries are at high risk of debt distress or already in it.”

The World Bank is therefore sounding the alarm: a new debt crisis has begun. Vast quantities of money are being used to pay off debts, rather than addressing the increasing needs of hundreds of millions of people who desperately need support. According to another World Bank report quoted by the Financial Times [2], between 2019 and 2022, over 95 million more people have fallen into extreme poverty.

The World Bank acknowledges that in 2022 private lenders began to turn off the tap of credit to developing countries, while squeezing the lemon to get the most repayments. In fact, according to the WB, new loans granted by private lenders to public authorities in developing countries fell by 23% to 371 billion dollars, their lowest level in ten years. On the other hand, these same private creditors collected $556 billion in repayments. This indicates that they collected $185 billion more in loan repayments in 2022 than they disbursed. According to the World Bank, this is the first time since 2015 that private creditors have received more funds than they injected into developing countries.

The World Bank does not provide an explanation for this since doing so would require questioning the economic model and system that it supports and believes to be the only viable choice. It would also entail unmistakably placing the blame at the feet of the Western European and North American central banks, and consequently at the hands of the leaders of the main Western powers that control the World Bank and the IMF 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.

http://imf.org .

 How can we explain how the weakest links in the global capitalist system are being affected by the current debt crisis?

This is the first time since 2015 that private creditors have received more funds than they injected into developing countries
We must examine the preceding 15 years in order to comprehend the current predicament.

From 2010-2012, the gradual reduction in 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. rates in the North reduced the cost of debt in the South. The central banks of the most industrialised countries lowered interest rates to 0%. The aim of this policy was to keep the financial markets afloat in particular and large private companies in general. It was also intended to make public debt in the North easier to manage and refinance. This policy of very low interest rates practised by the major capitalist powers encouraged the financing of spending through debt and led to a sharp increase in both public and private debt in the North and South of the planet. It has also reduced the cost of refinancing for developing countries. The governments of developing countries, including the poorest, were given a dangerous sense of security by this low-cost financing, the influx of capital from the North seeking better returns in the face of low interest rates in the North, and high export earnings (because the price of raw materials exported from the South to the North remained high). Sub-Saharan African nations in poverty that had never had the chance to print and sell their sovereign debt Sovereign debt Government debts or debts guaranteed by the government. on global financial markets were able to quickly find purchasers for their debt. Investment funds 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. and banks in the North bought the securities of the South because they offered a better yield Yield The income return on an investment. This refers to the interest or dividends received from a security and is usually expressed annually as a percentage based on the investment’s cost, its current market value or its face value. than US Treasury securities, Japanese, German, French or other European countries’ securities, all of which were close to 0% or no higher than 2 to 3%.

Without difficulty, poor countries have issued and sold their external debt on the international markets. Rwanda serves as a prime example. It is one of the world’s poorest nations, still scarred from the genocide of 1994, yet for the first time in its history, it was able to issue sovereign debt securities and sell them on Wall Street. This was the case in 2013, 2019, 2020 and 2021. Senegal was also able to issue six international bonds between 2009 and 2021, in 2009, 2011, 2014, 2017, 2018 and 2021. Ethiopia, also a very poor country, was able to issue an international bond Bond A bond is a stake in a debt issued by a company or governmental body. The holder of the bond, the creditor, is entitled to interest and reimbursement of the principal. If the company is listed, the holder can also sell the bond on a stock-exchange. in 2014. Benin had access more recently and issued 3 bonds on the international markets in 2019, 2020 and 2021. Côte d’Ivoire, which emerged from a civil war just a few years ago, also issued bonds every year from 2014 to 2021, even though it is also a highly indebted poor country. Other examples include Kenya (2014, 2018, 2019, 2021), Zambia (2012, 2014, 2015), Ghana (2013 to 2016, 2018 to 2021), Gabon (2007, 2013, 2015, 2017, 2020, 2021), Nigeria (2011, 2013, 2014, 2017, 2018, 2021, 2022), Angola (2015, 2018, 2019, 2022) and Cameroon (2014, 2015, 2021). This is unprecedented in the last 60 years. This reflects a very special international situation: financial investors in the North were flush with cash, and with interest rates very low in their region, they were on the lookout for attractive returns. Senegal, Zambia and Rwanda were promising yields of 6-8% on their securities, so they attracted financial companies looking to temporarily invest their cash, even if the risks were high. The governments of poor countries became euphoric and tried to convince their populations that happiness was just around the corner, even though the situation could dramatically turn the other way around. The world press reported that Afro-optimism will triumph over Afro-pessimism [3]. African leaders boasted of their success stories, attributed to their ability to adapt to neoliberal globalisation and open markets. They got plaudits from the World Bank, the IMF, and the African Development Bank (AfDB). However, these governments have amassed up huge debt without seeking input from the people. The financial situation drastically worsened when central banks decided to start raising interest rates in 2022.

 From the 2020s, the downward spiral towards another major debt crisis

The combination of the pandemic, the effects of the war in Ukraine, inflation Inflation The cumulated rise of prices as a whole (e.g. a rise in the price of petroleum, eventually leading to a rise in salaries, then to the rise of other prices, etc.). Inflation implies a fall in the value of money since, as time goes by, larger sums are required to purchase particular items. This is the reason why corporate-driven policies seek to keep inflation down. and interest rate rises by the central banks of the most industrialised countries triggered a new debt crisis in all the countries of the South

The combination of the pandemic, the effects of the war in Ukraine, inflation and interest rate rises by the central banks of the most industrialised countries triggered a new debt crisis in all the countries of the South. Since 2020 and especially 2022, we have been in a new situation, a new debt crisis of enormous proportions caused by four shocks to global capitalism. These are all shocks that are exogenous to the poorest countries. Firstly, the coronavirus pandemic, which has caused massive deaths around the world, widespread lockdowns, disruption of supply chains and so on.

Secondly, the economic crisis exacerbated by the pandemic. It has undermined the economies of developing countries, from Latin America to Asia and Africa. The suspension of air travel notably hurt nations like Cuba and Sri Lanka, whose economies relied heavily on tourism.

The present sovereign debt crisis was brought about by the combination of these two shocks. Governments had to raise public spending to combat the pandemic, but at the same time, their economies entered recessions, which reduced tax collections. Thus, sovereign debt skyrocketed.

The third shock was Russia’s invasion of Ukraine in February 2022. This immediately triggered massive speculative rises in the price of cereals such as wheat. Given that grain stocks in Russia and the Ukraine did not decline during the early months of the conflict, we may reasonably refer to a speculative rise. Grain costs skyrocketed. After that, exports were banned, which reduced supply and raised prices even further until a deal was made to let shipments to start again. The agreement in question was terminated at the close of July 2023. Along with oil and gas, the cost of chemical fertilisers has also increased.

Globally, prices have skyrocketed, especially in nations where the majority of food, fuel, and fertiliser are imported. The populations of Asian and African nations that were already severely impacted by the recession bore the brunt of inflation. A significant number of people found it difficult to keep up with the growing costs of fuel and food.

The fourth and certainly most important shock was the unilateral decision by the US Federal Reserve 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 : http://www.federalreserve.gov/ , the European Central Bank Central Bank The establishment which in a given State is in charge of issuing bank notes and controlling the volume of currency and credit. In France, it is the Banque de France which assumes this role under the auspices of the European Central Bank (see ECB) while in the UK it is the Bank of England.

ECB : http://www.bankofengland.co.uk/Pages/home.aspx and the Bank of England to raise interest rates. In the United States, the Fed raised rates from close to 0% to over 5%, the Bank of England and the Bank of Canada followed suit, while the European Central Bank ECB
European Central Bank The European Central Bank is a European institution based in Frankfurt, founded in 1998, to which the countries of the Eurozone have transferred their monetary powers. Its official role is to ensure price stability by combating inflation within that Zone. Its three decision-making organs (the Executive Board, the Governing Council and the General Council) are composed of governors of the central banks of the member states and/or recognized specialists. According to its statutes, it is politically ‘independent’ but it is directly influenced by the world of finance.

https://www.ecb.europa.eu/ecb/html/index.en.html raised rates to 4.5%.

These increases have had a devastating effect on the countries of the South. Countries such as Zambia and Ghana, which were considered to be success stories, went into suspension of payments. Investment funds, which had bought sovereign bonds in these countries, realised that the rise in interest rates in the North meant that they could obtain a higher rate of return by buying such bonds in the United States, Europe and Great Britain. Thus, we witnessed a financial capital repatriation from the South to the North.

Worse still, the investment funds told the countries of the South that if they wanted to refinance their debt, they would have to pay interest rates of between 9% and 15%, and in some cases as high as 26% (as in the case of Zambia and Egypt [4]), otherwise the funds would not buy their bonds. While the countries had no choice but to accept, many of them have no way of making their payments at such high rates. A fresh sovereign debt crisis is the outcome.

In contrast to the goals set forth by the Bretton Woods institutions and the purported advantages of capitalism, the gap between developing and wealthy nations has grown even more between 2008 and 2023

The World Bank admits that rising interest rates have a detrimental effect, but it is cautious to avoid criticising the central bankers of the nations that control the two Bretton Woods institutions.

The World Bank does not recommend that the governments of indebted countries protect themselves by declaring a coordinated suspension of debt payments. Under international law, however, they have every right to do so. In fact, they can invoke the fundamental change in circumstances caused by external shocks from the North, in particular the unilateral decision by the central banks of North America and Western Europe to radically raise interest rates.

In the event of a fundamental change in circumstances and external shocks, there is no obligation to continue to perform a borrowing contract and to continue to repay the debt.

Nor does the World Bank assume its responsibilities. It was the World Bank, along with the IMF, that encouraged the countries that are now in debt to take out as many new loans as possible and to open up their economies as much as possible, thereby weakening them in the face of the external shocks that have occurred in the space of three years.

If we adopt a long-term perspective and evaluate the operations of the World Bank and the IMF, which were established in 1944—nearly 80 years ago—we can only come to the conclusion that these two international organisations, whose goal was to support stable development and full employment, have entirely failed. A significant study that the IMF released in 2023 admits failure with devastating clarity. Indeed, in its April 2023 World Economic Outlook, the IMF states that it will take 130 years for developing countries to halve the gap between their per capita income and that of developed countries. 130 years to halve the gap between developing countries’ per capita income and that of rich countries! This comes at a time when humanity is facing immediate, shorter-term threats to its existence, due to the ecological crisis that has reached extreme proportions. To top it all off, the IMF estimated that it would take 80 years to close the relevant gap in its April 2008 World Economic Outlook.

The conclusion is straightforward: in contrast to the goals set forth by the Bretton Woods institutions and the purported advantages of capitalism, the gap between developing and wealthy nations has grown even more between 2008 and 2023.

We should also mention the 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).

IMF : http://www.worldbank.org/ policies that have led to the privatisation of health systems in the South, and greater dependence of these countries on imported cereals, inputs and other products. These policies, which have been bludgeoned for more than 40 years, have completely disarmed the countries of the South from coping with external shocks such as the Covid-19 pandemic, the global rise in the price of cereals or the rise in interest rates..

Two centuries ago, at the start of the capitalist industrial revolution, the difference in per capita income between what are now called developing and developed countries was very small. Today’s victorious capitalism on a global scale has increased the gap between nations as never before. Not to mention the gap within each nation, whether in the South or the North, between the richest 1% and the bottom 50%.

It is high time to dissolve the World Bank and the IMF and build another international architecture that respects human rights and nature. It’s high time we got rid of the capitalist system and embarked on an ecosocialist, internationalist, feminist revolution...