Five theses developed in the book “The Debt System”

3 June 2022 by Eric Toussaint , Martín Mosquera

Interview conducted by Martín Mosquera for the Latin-American magazine Jacobinlat [1].

Martín Mosquera (Jacobinlat) :Could you summarize some essential points from your book The Debt System: A History of Sovereign Debts and Their Repudiation?

Éric Toussaint : The Debt System was first published in French in 2017 then came out in Greek and Spanish in 2018, English and Italian in 2019 and Arabic and Polish in 2020 [2]. In the book, I hope I have managed to show the fundamental role of indebtedness as a means of subordinating States. Karl Marx makes several comments on the topic, adopting a particularly strong expression in Capital: “National debts, i.e. the alienation of the State – whether despotic, constitutional or republican – marked with its stamp the capitalistic era.” [3]

National debts, i.e., the alienation of the State. Source: Karl Marx, Capital

In the same passage on capital, Marx makes another remark which remains as pertinent as ever: “Hence, as a necessary consequence, the modern doctrine that a nation becomes the richer the more deeply it is in debt. Public credit becomes the credo of capital. And with the rise of national debt-making, want of faith in the national debt takes the place of blasphemy against the Holy Ghost, which may not be forgiven.”

Want of faith in the national debt takes the place of blasphemy against the Holy Ghost, which may not be forgiven.
Source: Karl Marx, Capital

In her 1913 book entitled Capitalist Accumulation [4], Rosa Luxemburg further develops Marx’s contribution regarding public debt, analysing the role of public debt at the time when Latin American countries achieved independence. She also analyses the role of public debt in Egypt during the second half of the 19th century, which led to Egypt’s colonization by Great Britain beginning in 1882. [5]

The fundamental role of indebtedness as a means of subordinating States

What I think I have brought to the analysis based on the study of the Latin American independences (contemporary with Greek independence) is that the way they become indebted signifies that they are immediately subordinated, as newly independent countries, to the imperialist centres, especially Great Britain. In other words, Latin America liberated itself from the Spanish Empire as did Greece from the Ottoman, only to fall under the control of the British government; and also of the French government, as the French were very active with their capital investments both in Latin America and on the shores of the Mediterranean (on Greece, Turkey and Tunisia, for example).

I also show the connection between indebtedness and the signature of free trade agreements from the earliest years of Latin American independence. This is important, as those two instruments of domination are still in place to this day. Of course, there are other forms of domination, via investments, via the exploitation of workers from the peripheral countries by national and transnational capital, but indebtedness is the most significant, following the logic of free trade agreements and unequal exchange first analysed by Marx. This is the primary theme of my book The Debt System.

Martín Mosquera (Jacobinlat) : Many left-wing analysts see the question of debt from the perspective of a North-South, Centre-Periphery contradiction. What is your opinion on that ?

The second thesisof my book shows that the contradictions inherent in the debt question should not be seen merely in terms of a conflict between the countries of the South fighting for their independence and the imperialist centres. Local ruling classes have played a key role since the 1810s and the1820s, at the decisive moment of independence struggles and just afterwards. And I am referring to the ruling classes, not the capitalist class, because the ruling classes were not yet composed entirely of modern capitalists, far from it. Among the local ruling classes there were the traditional land-owning class, the rich merchant sector and the sector of mine-owners. These three sectors eventually made up the modern bourgeoisie by the end of the 19th and early 20th century. Those traditionally dominant classes at the beginning of independences and the modern bourgeoisie [6] that ensued then became fundamental actors in the indebtedness process through the pressure they brought to bear, as much in favour of internal indebtedness as of external.

The local ruling classes organized, over the last two centuries, capital flight. It continues to this day. Take for instance what happened in Argentina in 2018. Former president Mauricio Macri asked 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.
for a loan of over 50 billion dollars. A very large portion of the sum disbursed by the IMF went abroad again thanks to the actions of Argentine capitalists. This is how it works: the State borrows money in foreign currency which is captured by the ruling classes who send a good deal of it to “safe” places such as the United States. The capitalists use the dollars placed in the North to buy public sovereign debt Sovereign debt Government debts or debts guaranteed by the government. bonds, thus procuring State-guaranteed revenue for themselves.

This is how it works: the State borrows money in foreign currency which is captured by the ruling classes who send a good deal of it to “safe” places such as the United States. The capitalists use the dollars placed in the North to buy public sovereign debt bonds, thus procuring State-guaranteed revenue for themselves.

This explains why, in Argentina, Ecuador, Venezuela, Colombia or Mexico there has never been a bourgeoisie which fought against repaying the debt.

One case where the debt was denounced, within a context of major popular struggle and regime change, was that of Benito Juárez of Mexico, the first time in 1861 and again in 1867. A third debt repudiation/ suspension also took place in Mexico during the 1910-1920 revolution, when the debt incurred by the dictator Huerta in 1913 (one of those responsible for assassinating President Madero who had brought Porfirio Diaz’s dictatorship to an end) was repudiated by President Venustiano Carranza. This also happened in Costa Rica, during the democratic revolution against the dictatorship of Tinoco in 1919. I analyse these important events in detail in The Debt System.

Repudiations or prolonged suspensions of payment of debt took place in times of popular uprisings and/or major disagreements between different sectors of the dominant classes.

We therefore need to understand the very important role of local ruling classes and, more recently, local big capital, which looks extremely favourably upon indebtedness. I mention this because there is a section of the Left who oversimplify matters, presenting the debt problem solely in terms of nation/empire contradiction without seeing that generally, the capitalist class is in favour of a recourse to public debt, both internal and foreign.

Martín Mosquera (Jacobinlat) : It is generally claimed in the mainstream media and by the creditors of the North that it is the over indebtedness of the South that gives rise to the debt crises. Your book provides a different explanation, does it not?

My third thesis deals with the fact that usually debt crises are generated by periods of ebb and flow of capital from the imperial centres. Thus, the debt crises in Latin America, like those of peripheral European countries or peripheries like Egypt, Tunisia or Asian countries, have been triggered by the financial crises in the imperialist centres.

Debt crises are usually generated by periods of ebb and flow of capital from the imperial centres.

This is also related to the long waves of simultaneous expansion and depression inherent in capitalist development, to borrow a concept developed by the Marxist economist, Ernest Mandel. [7] There is a difference here between my analysis and Rosa Luxemburg’s of the Baring crisis in Argentina in 1890. Rosa, influenced by the information that was available to her, believed that Argentina had somehow triggered the crisis, whereas in fact the problem emanated from London (the main global finance centre at the time) and the financial crisis in England. Periods of frenzied lending to recycle abundant capital are followed by financial crises and a halt in capital flow and repatriation, making it impossible to refinance the debt and thus leading to payment defaults, suspension of payments and so forth.

Periods of frenzied lending to recycle abundant capital are followed by financial crises and a halt in capital flow and repatriation, making it impossible to refinance the debt and thus leading to payment defaults, suspension of payment and so forth.

It is important to learn the lessons of the past, as they enable us to imagine new scenarios for the future. In the event of the central banks of the North significantly raising 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.
, causing renewed repatriation of capital to the United States or Europe, many peripheral countries could find themselves faced with huge problems of refinancing and enter another debt crisis cycle, with suspension of payments. At present we have an explosion of public and private debts which has not yet led to a generalized payment crisis. But that could happen in the months or years ahead, according to whether there is once more a financial crisis in the North or central banks increase 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 imperialist centres.

Sri Lanka, which has systematically applied neoliberal policies since the 1980s and made many agreements with the IMF entered into suspension of payments in April 2022. It is the first time since its independence in 1948 that the country has defaulted totally and it is the first Asian country to do so in the last 20 years. In the case of Sri Lanka, it is a succession of external shocks, in particular the enormous price-hike for foods and fuels, all of which it imports, that make it impossible to continue debt repayments. Those two external shocks have both been caused by the impact of the Russo-Ukrainian war on economies of the North and on the global economy in general. For its part, Pakistan is reaching a very difficult situation regarding its debt.

Martín Mosquera (Jacobinlat) : It is widely believed both in the South and the North that suspension or repudiation of debt payments automatically entails cessation of funding and would lead to economic catastrophe for the population of the country concerned. In your book you show that this is untrue.

The fourth thesis developed in The Debt System is that debt repudiation does not lead to economic and social catastrophe. And contrary to a common claim, countries which have had recourse to debt repudiation have not been excluded from sources of external funding for long.

Portugal, which repudiated its debt in 1837, mainly owed to French creditors, was able to carry on issuing public debt bonds on the financial markets throughout the 19th century. The same was true of the United States, where debts were repudiated on four occasions during the 19th century (in 1837, 1865, during the 1870s and in 1898). It was also the case for Mexico. In 1867, Mexico, after its first repudiation of 1861, repudiated the debt contracted with French bankers during the French occupation of 1862-1867 by the regime of Maximilian of Austria. Despite the repudiation, Mexico was immediately granted loans by the United States since, after the Civil War that ravaged the country from 1861 until 1865, the US government needed markets and clients. Consequently London, competing with Paris and the United States, also granted loans to Mexico. And fifteen years later France signed new treaties with Mexico. In other words, after repudiating its debt, Mexico was in no way excluded from foreign funding.

Let us take the case of Soviet Russia which repudiated the Tsarist debt in February 1918: it was not cut off from foreign funding for long either. At a conference held in Genoa in1922 on the debt that was being demanded of Russia, the Soviet delegation reiterated its repudiation, declaring in essence: “We could change our position if you - the governments of the creditor countries - would guarantee the investments for the reconstruction of Soviet Russia, if you would grant us a very big reduction in the amount you are asking for. In that case we could resume payments in 30 years, in 1952”. During the conference which lasted a month, the governments of the major powers refused this proposition. However later, in the years that followed, they all began to grant fresh loans to the USSR which emerged victorious from the situation.

The conclusion is obvious: not only can a government suspend payments, but it can also repudiate a debt and nevertheless find capitalists or governments ready to grant it loans, as is clearly demonstrated by the impressive cases of Mexico and Soviet Russia.

Martín Mosquera (Jacobinlat) : Most of the jurists who defend the capitalist system and big institutions like 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.

and the IMF claim that the notion of 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.
is without solid legal foundation. What would you say to them?

The fifth thesis presented in The Debt System shows the topicality of the doctrine of odious debt that was elaborated in the 1920s on the basis of the numerous legal disputes over sovereign debt that came up between the end of the 18th and the beginning of the 20th century, across the world.

The doctrine of odious debt elaborated by the jurist Alexander Sack [8] on the basis of a century and a half of legal disputes over sovereign debt consists of asserting that the principle of continuity of State obligations is not applicable in cases of odious debts and a change of government. If a debt is odious, it is null and void and should not be repaid.

According to the legal doctrine of odious debt as theorized by Alexander Sack, a debt is “odious” when two essential conditions are met:

  • The absence of benefits for the population: the debt was contracted not inn the interests of the people and the State, but against their interests and/ or in the personal interests of the leaders or people close to power.
  • The collusion of the lenders: the creditors knew (or were in a position to have known) that the money lent would not benefit the population.

According to the doctrine, whether the regime is of a despotic or a democratic nature is not considered relevant.

In the book The Debt System, I demonstrate that this doctrine is still current. Indeed the United States government invoked it in 2003 to convince the major powers to cancel 80 % of Iraqi debt, deemed odious.

Despite creditors’ opposition to this doctrine, in one way or another it has inspired many total or partial cancellations of debt during the second half of the 20th and the early 21st century. A series of examples are cited in The Debt System: the repudiation of debts by revolutionary China in 1949-1952; Indonesia’s repudiation of debts to the Netherlands in 1956; the repudiation of debts by Cuba in 1959-1960; the repudiation of colonial debts by Algeria in 1962; Iran’s repudiation in1979 of debts contracted by the Shah to buy weapons; the repudiation by the three Baltic Republics of debts inherited from the USSR in 1991; the cancellation of Namibia’s debt to South Africa by Nelson Mandela’s government in 1994; the cancellation of Timor-Leste’s colonial debt in 1999-2000; the cancellation of 80 % of Iraqi debt in 2004; the repudiation by Paraguay of debts owed to Swiss banks in 2005; Norway’s cancellation in 2006 of its loans to five countries (Ecuador, Peru, Sierra Leone, Egypt and Jamaica) relating to a sales contract for fishing boats in 2006; the cancellation in 2009 of part of Ecuador’s debt, identified as illegitimate by the Audit Commission in 2007-2008.

To sum up: in the book The Debt System, I show that since the 19th century, from Latin America to China through Haiti, Greece, Tunisia, Egypt and several other countries, public debt has been used as a weapon of domination and plundering. In the final analysis, it is the combination of indebtedness and free trade that has underpinned the subordination of entire economies since the 19th century. Local ruling classes have consorted with the big foreign financial powers in subjecting their countries and their people to a mechanism of permanent transfer of the wealth produced locally towards the lenders, whether they be nationals or foreigners. Crises erupt first of all in the most powerful capitalist countries or result from their unilateral decisions that by a rebound effect, trigger wide-reaching crises in the indebted peripheral countries. It is not excessive public spending that pushes indebtedness to unsustainable levels, but rather the conditions imposed by local and foreign creditors.
On numerous occasions throughout history, following mass popular mobilization and/or regime crises, there have repeatedly been instances of debt cancellation and repudiation.
There is no reason why that should not happen again, especially since more and more countries are faced with quite considerable increases of public debt and that once again, payment difficulties are starting to mount.

Translated by Vicki Briault


[1This interview was revised and enhanced by Éric Toussaint in May 2022.

[2Swedish and Turkish editions are in preparation.

[3Excerpt from Karl Marx, Capital – Volume I, Book One: The Process of Production of Capital, Part 8: Primitive Accumulation, Chapter 31: The Genesis of the Industrial Capitalist. In p.535. Accessed 1 June 2022.

This quote comes from a paragraph that begins: "The system of public credit, i.e., of national debts, whose origin we discover in Genoa and Veniceas early as the Middle Ages, took possession of Europe generally during the manufacturing period. The colonial system with its maritime trade and commercial wars served as a forcing-
house for it. Thus it first took root in Holland
." In this chapter, Karl Marx shows how various forms of primitive accumulation fit together in the genesis of the international capitalist system.

[4Rosa Luxemburg, The Accumulation of Capital(1913); Edited by Dr. W. Stark, London, Routledge and Kegan Paul Ltd; 1951. Available free of charge at:

[5Éric Toussaint, “Rosa Luxemburg and debt as an imperialist instrument

[6We also hear of the “comprador bourgeoisie”, used to designate the capitalist class or a significant part of it, in countries of the Global South, see for example:

[7Ernest Mandel, Late Capitalism, First published as Der Spätkapitalismus, Suhrkamp Verlag, Berlin 1972. Translated by Joris De Bres. This revised edition first published by New Left Books, London 1975.

[8Alexander Sack, Les effets des transformations des États sur leurs dettes publiques et autres obligations financières : traité juridique et financier, Recueil Sirey, Paris, 1927.

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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