World Debt Figures 2015 : Introduction

From the South to the North of the planet: a short history of the debt crisis and structural adjustment programmes

23 February 2015 by Eric Toussaint , Daniel Munevar , Pierre Gottiniaux , Antonio Sanabria

Since the 1980s, public debt, both in the Third World countries and in the industrialised nations, has been systematically used to impose austerity policies in the name of 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).

. [1] Accusing their predecessors of ‘living beyond their means’ through overuse of loans, most governments in power since then have imposed an adjustment of public spending, and in particular social spending, which forces people to tighten their belts.

In the Third World and Eastern Europe, the formidable growth of public debt began at the end of the 1960s and led to a debt crisis that started in 1982. The parties responsible for that indebtedness are known. They are essentially in the industrialised nations—the private banks, 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 governments of the North, which literally churned out loans of hundreds of billions of Eurodollars [2] and petrodollars. [3]

To invest their surplus capital and merchandise, these different players in the North lent at very low 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.
. Public debt in the countries of the Third World and Eastern Europe increased twelvefold between 1968 and 1980. In the industrialised countries, public indebtedness also increased greatly during the 1970s as governments attempted to respond to the end of the post-war boom [4] using Keynesian policies to re-launch the economic machinery.

A historic turning point was reached between 1979 and 1981 when Margaret Thatcher in the UK and Ronald Reagan in the US came to power, both of whom began applying, on a large scale, the policies the neoliberals had been dreaming of. The US immediately hiked up 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 order to slow 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 the massive flight of dollars. This unilateral increase, imitated by numerous countries, forced indebted public authorities to transfer colossal amounts to private financial institutions and other holders of debt instruments.

From that moment, on a planetary scale, payment of public debt became a powerful mechanism for extracting part of the wealth created by workers and small producers to the benefit of the wealthiest 10%, and in particular capitalists. These policies, dictated by the neoliberals, were the beginning of a huge offensive by capital against labour. The indebted governments began reducing social spending and public investments, to ‘balance Balance End of year statement of a company’s assets (what the company possesses) and liabilities (what it owes). In other words, the assets provide information about how the funds collected by the company have been used; and the liabilities, about the origins of those funds. ’ their accounts. Then they resorted to new loans to keep up with the increasing interest rates. This is the famous ‘snowball effect’, which means taking out new loans to pay off earlier ones.

To pay back public debt, governments made abundant use of taxes, the structure of which was modified in a regressive way beginning in the 1980s-1990s. The share of tax revenues from tax payments on revenue from capital decreased, while at the same time, the share of tax revenues from taxes paid by workers increased, as did taxes on mass consumption, by the generalisation of the value-added tax (VAT).

In other words, the State took from workers and the ‘poor’ to give to the ‘rich’, to capital—exactly the opposite of a redistribution policy, which should be the primary concern of public authorities.

The strategic importance of structural adjustment in the periphery countries

While 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.
, the World Bank, and the US government first denied the existence of a debt crisis, structural adjustment policies began to be applied in the late 1980s under the direction of the IMF, which imposed its conditions in exchange for loans to indebted governments. These policies amounted to continuing, under a new form, the offensive that had begun during the previous decade with the policies instituted by the military dictatorships in Chile, Argentina, Uruguay, and other countries.

For the strategists of the Northern governments and the multilateral financial institutions that serve them, beginning with the World Bank (see points 4.2 and 4.3 on the distribution of voting rights within the IMF and World Bank), a challenge needed to be met: the loss of control over a growing portion of the periphery. From the 1940s to the 1960s, one country after another gained independence from the former European colonial powers, the Soviet bloc imposed its influence on eastern Europe, the Chinese and Cuban revolutions triumphed, and populist and nationalist policies implemented by capitalist regimes in the periphery emerged—from Peronism in Argentina, to Nehru’s Congress in India, and pan-Arabism under Nasser in Egypt. In short, new movements and organisations had developed all around the world, all of which represented dangers to the domination of the major capitalist powers in the context of the ‘Cold War’ with the Soviet bloc.

The massive loans granted to a growing number of periphery countries starting in the 1960s (beginning with the strategic allies, Mobutu’s Congo, Indonesia under Suharto, Brazil, then under military dictatorship, and countries such as Yugoslavia and Mexico) acted as the lubricant for a powerful mechanism designed to take back control. These targeted loans were aimed at forcing these countries to abandon their nationalist policies and strengthen the ties of the economies of the periphery to the worldwide market dominated by the centre. The purpose was also to ensure the supply of raw materials and fuel to the economies of the centre. By gradually putting the periphery countries in competition with each other, by inciting them to ‘strengthen their export model’, the goal was to lower the prices of the products they export and consequently to reduce production costs and increase the rate of profit Profit The positive gain yielded from a company’s activity. Net profit is profit after tax. Distributable profit is the part of the net profit which can be distributed to the shareholders. in the North.

Admittedly, we cannot go so far as to say that this amounted to a conspiracy on the part of the private banks, the World Bank, and the governments of the North. Yet an analysis of the policies of the World Bank and the governments of the major industrialised countries as regards loans to the periphery demonstrates that those policies were not devoid of strategic intent. [5]

A little more assistance ?

The 1982 crisis

The crisis that broke out in 1982 was the result of the combined effect of the drop in the prices of products exported by the periphery countries to the worldwide market and the explosion of interest rates. Overnight, more had to be repaid with decreasing revenues. The result was strangulation. The indebted countries announced that they were experiencing repayment difficulties. The private banks in the centre immediately refused to grant new loans and required that the old ones be paid off. The IMF and the major industrialised capitalist countries extended new loans so that the private banks could recoup their investments and to prevent a succession of bank failures.

Since that period, the IMF, with the support of the World Bank, has imposed structural adjustment plans. An indebted country that refuses the structural adjustment is threatened with suspension of loans from the IMF and the governments of the North. We can now say without fear of contradiction that those who were proposing back in the 1980s that the periphery countries cease reimbursing their debts and create a united front of debtor countries, were right. Had the countries of the South created such a front, they would have been in a position to dictate their own conditions to the creditors, whose backs were to the wall.

By choosing the path of repayment and putting themselves at the mercy of the IMF, the indebted countries transferred the equivalent of several Marshall plans [6] to the financial capitals of the North. In submitting to the adjustment policies, they gradually abandoned key elements of their national sovereignty. For these countries, that has meant greater dependence on the industrialised countries and their multinationals. None of the countries that have applied structural adjustment policies have been able to sustain a high level of growth. In all of them, social inequalities have increased. Not a single ‘adjusted’ country has fared well.

The IMF’s adjustment programmes pursue three goals: 1) ensure that the debts contracted are paid back; 2) implement structural reforms aimed at liberalising the economy, opening it up to the international markets, and reducing the presence of the State; 3) gradually make it possible for the indebted countries to have access to private loans from the financial markets, while still remaining indebted.

What exactly does ‘adjustment’ entail?

Structural adjustment includes two main types of measures:

The devaluations are aimed at making exports from the countries more competitive (as a result of the reduction in the value of the local currency compared to other currencies) so as to increase the flow of hard currency needed to pay back the debt. Another advantage, and not a negligible one from the point of view of the interests of the IMF and the industrialised countries, is that they bring about a reduction in the price of the products exported by the countries of the South.

For the latter, they also have deleterious effects—they cause an explosion in the prices of products imported onto their own markets, and at the same time have a negative impact on internal production. Thus, not only do their production costs increase, both for agriculture and for industry and crafts—all the more since they now incorporate numerous imported inputs due to the abandonment of ‘self-reliance’ policies—, but the purchasing power of the great mass of consumers stagnates or erodes (since the IMF prohibits any indexing of wages).

Regarding the debt itself, since the value of revenues (in the local currency) decreases as that of the loans increases vis-à-vis external creditors (in hard currency, which has now become more expensive), the actual amount of the debt increases. As for the policy of high interest rates, it does nothing but increase the domestic recession—farmers or artisans who must borrow in order to purchase the inputs they need to produce goods can no longer do so because of the increased cost of credit. Rentier capital, on the other hand, prospers. The IMF justifies these high interest rates by claiming that they will attract the foreign capital the country needs. In practice, the capital that is attracted by such rates is volatile and disappears at the first sign of a problem or as soon as a better prospect for profit appears somewhere else.

Other adjustment measures specific to the periphery countries are the removal of subsidies for certain basic goods and services, and agrarian counter-reform. In most Third World countries, the staple food (bread, corn tortillas, rice...) is subsidised so as to protect it against large price increases. Public transportation, electricity, and water also often receive such subsidies. The IMF and the World Bank systematically require that such subsidies be removed, which results in the impoverishment of the poorest segment of the population, and has on occasions resulted in food riots.

Regarding land ownership, the IMF and the World Bank have launched a long-term offensive aimed at causing the disappearance of any form of community property. For example, they succeeded in obtaining the modification of the article of the Mexican Constitution that protects communal lands (called ejido). Likewise, one of the major projects the two institutions are currently striving to implement is the privatisation of communal or state lands in sub-Saharan Africa. In recent years, the land grabbing by major foreign corporations has accelerated thanks to the support of the World Bank and the IMF.

Adjustment measures found in the North and in the South

The following measures are seen throughout the world in varying doses depending on the relative strength of labour movements. Reducing the role of the public sector in the economy, reducing social spending, privatisations, tax reforms that favour Big Capital, deregulation of the labour market, the abandonment of essential aspects of state sovereignty, the removal of controls on foreign exchange, stimulating investment-based retirement plans, deregulating trade, and encouraging stock-market Stock-exchange
The market place where securities (stocks, bonds and shares), previously issued on the primary financial market, are bought and sold. The stock-market, thus composed of dealers in second-hand transferable securities, is also known as the secondary market.
operations.... What is striking is that from Mali to Greece, from Spain to Brazil, from France to Thailand, from the US and Belgium to Russia, we observe a profound similarity and complementarity between so-called ‘structural adjustment’ policies in the developing countries and what are called ‘austerity’ or ‘convergence’ policies in the developed countries.

Everywhere, the public-debt crisis, or at the very least a strong increase in public debt, is having the effect of an infernal machine that transfers wealth to the holders of capital.

François Chesnais sums up the situation as follows:
« The markets for public-debt securities (public 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. markets), put in place by the major countries that benefit from financial globalization and imposed on the other countries (most often without much difficulty), are, in the words of the International Monetary Fund itself, the ‘cornerstone’ of financial globalization. Translated into understandable language, this means very precisely that through financial liberalisation, a powerful mechanism has been put in place for transferring the wealth of certain classes and social strata and of certain countries to other countries and classes. Attacking the foundations of the power of finance presupposes dismantling that mechanism, and therefore cancelling public debt—not only that of the poorest countries, but also of all countries whose vital social forces refuse to allow governments to continue imposing budgetary austerity on the citizens so they can pay interest on public debt. [8] »

Structural adjustment plans and austerity plans combine to form a war machine aimed at destroying all mechanisms of collective solidarity (from community property to universal pension systems) and subjecting all of human activity to the logic of the market.

The deeper meaning of structural adjustment policies is the systematic suppression of all historical and social obstacles to the free deployment of capital to enable it to pursue its logic of immediate profit, regardless of the human or environmental costs.

Developments from the 2000s to 2014

The following important changes have taken place since the end of the 1990s.

1) Several developing countries have moved away from neoliberal policies After more than twenty years of neoliberal policies, in the late 1990s and early 2000s, thanks to major mobilisations, several Latin America countries have rid themselves of neoliberal presidents, and elected heads of state who implemented policies more in line with the people’s interests. This has been the case in Venezuela, Bolivia, and Ecuador. [9] The government of Ecuador took a remarkable and very positive initiative in 2007-2008 by conducting, with the active participation of delegates from social movements, a complete audit of its debt. [10] Based on that audit, repayment of part of the debt identified as being illegitimate was suspended and the creditors were pressed to agree to a large reduction of the debt. [11] This action enabled an important increase in social spending. In another positive move, the governments of these three countries also increased the taxes levied on the revenues of the big foreign companies that exploit their natural resources, Tax revenues were greatly increased and increases in social spending followed.

The citizens of these three countries democratically adopted, new Constitutions which provide that all elected representatives may be revoked at the middle of their term.

We should add that Bolivia, Ecuador, and Venezuela have made the very wise decision of withdrawing from the International Centre for Settlement of Investment Disputes (ICSID ICSID The International Centre for the Settlement of Investment Disputes (ICSID) is a World Bank arbitration mechanism for resolving disputes that may arise between States and foreign investors. It was established in 1965 when the Washington Convention of that year entered into force.

Contrary to some opinions defending the fact that ICSID mechanism has been widely accepted in the American hemisphere, many States in the region continue to keep their distance: Canada, Cuba, Mexico and Dominican Republic are not party to the Convention. In the case of Mexico, this attitude is rated by specialists as “wise and rebellious”. We must also recall that the following Caribbean States remain outside the ICSID jurisdiction: Antigua and Barbuda, Belize, Dominica (Commonwealth of) and Suriname. In South America, Brazil has not ratified (or even signed) the ICSID convention and the 6th most powerful world economy seems to show no special interest in doing so.

In the case of Costa Rica, access to ICSID system is extremely interesting: Costa Rica signed the ICSID Convention in September, 1981 but didn’t ratify it until 12 years later, in 1993. We read in a memorandum of GCAB (Global Committee of Argentina Bondholders) that Costa Rica`s decision resulted from direct United States pressure due to the Santa Elena expropriation case, which was decided in 2000 :
"In the 1990s, following the expropriation of property owned allegedly by an American investor, Costa Rica refused to submit the dispute to ICSID arbitration. The American investor invoked the Helms Amendment and delayed a $ 175 million loan from the Inter-American Development Bank to Costa Rica. Costa Rica consented to the ICSID proceedings, and the American investor ultimately recovered U.S. $ 16 million”.
), the World Bank’s tribunal.

2) Increases in raw material prices and currency reserves. In 2003-2004, the prices of raw materials and agricultural products began to increase [12] in a context of strong international demand. This situation enabled the countries that export such products to increase their revenues, especially in strong currencies (dollar, euro, yen, and pound ). Certain developing countries used this opportunity to increase social spending, while most invested this revenue in purchases of US Treasury Bonds—thus contributing to financing the leading world power. In other words, they increased their loans to the world’s principal economic power, thus contributing to maintaining its domination by providing it with the means to continue living on credit and maintaining a large trade deficit. Meanwhile, as the interest rates on US Treasury Bonds and other debt securities are low—between 0.0% and 2.7%, [13] this enables the US to finance itself at a very low cost.

3) The waning power of the World Bank and IMF over some developing countries. The increasing resources of certain countries as a result of the increase in currency revenues and the large number of private investors before the outbreak of the crisis in 2007-2008 has reduced the influence of these two multilateral institutions. This loss of influence also comes from the fact that China (see the following two points) and the other ‘BRICS’ countries (Brazil, Russia, India, China, South Africa), especially Brazil, have greatly increased their loans to certain developing countries.

4) The arrival of China on the world stage as a creditor country. Another factor has reinforced this phenomenon: a rapidly expanding China has become the world’s workshop and accumulated huge currency reserves (above all in dollars). It has significantly increased its financing of developing countries. Its loans are now competing with those of the multilateral financial institutions and industrialised countries. This development has reduced the capacity of these institutions and of the countries of the North to put pressure on a certain number of developing countries. However, we should remain vigilant regarding these new debts. China does not give anything away, and its investments are aimed at ensuring control over the raw materials it needs.

5) In 2014, the BRICS countries announced the creation of their own multilateral bank. [14] This bank, if it begins doing business one day (which is not sure), will not be an entity capable of offering a positive alternative for developing countries. Indeed, the governments founding it are seeking to create a bank that will directly serve their interests (ensuring sources of raw materials and outlets for their exportations) and not those of their citizens.

6) Increases in internal public debt Slowly but inexorably, internal creditors have replaced external ones. Payments no longer end up in bank accounts in New York, London, or Paris, but in banks within the countries of the South themselves. However, we should not be fooled. The domestic banks that issue loans to the public authorities of their country in the local currency are often in fact subsidiaries of foreign banks, and the loans in local currencies, in many cases, are pegged to a strong currency (generally the dollar). This means that if the local currency is devalued or the value of the strong currency increases, the amount to be paid back increases considerably. [15] The apparent transformation has not changed the fundamental situation: resources which should be used first of all to meet fundamental social needs are devoted to paying off debts, which are illegitimate or illegal in many cases.

7) Public debt has become one of the major concerns in Northern countries since
the crisis caused by the big private banks. In the US and Europe in particular, [16] the crisis caused by the big private banks generated a strong increase in private debt, and then in public debt. The lessons drawn from the Third World debt crisis are extremely valuable for analysing the events that followed the crisis of 2007-2008. The policies applied to the North closely resemble those that have affected the countries of the South since the 1980s. That is why the CADTM has engaged in more studies and actions targeting the countries of the North, while remaining involved with the situation in the South.

8) Interest rate reductions in the North have reduced the cost of the debt in the South. The central banks of the most industrialised countries have lowered interest rates, in particular since the outbreak of the current crisis and the massive injection of cash into the financial system to save the big banks and indebted corporations, which has indirectly resulted in a decrease in the cost of refinancing for developing countries. [17] This low-cost financing, combined with the inflow of capital from the North seeking more profitable yields due to the low interest rates in the North and higher revenues from exportation, has created a dangerous sense of security for the governments of the developing countries. In fact, the situation could very well reverse itself in the coming years. Interest rates in the North may increase, especially in the US, and the price of raw materials may decrease due to decreasing demand, particularly in China.

We must monitor the situation closely, and the peoples and countries of the South need to take advantage of the more favourable economic context to implement policies aimed at ensuring human rights and protecting nature. This process requires a radical break with the current model.

9) Poor countries are issuing and selling debt securities on the international markets. Rwanda and Senegal, both Heavily Indebted Poor Countries 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.
, have sold public-debt securities on the financial markets of the North, which has not occurred in the past 30 years. The Ivory Coast, a country which emerged from a civil-war situation only a few years ago, has also issued securities whereas it is also among the Heavily Indebted Poor Countries. Kenya and Zambia have also issued debt securities. These examples show that there is a highly unusual international situation: financial investors in the North have enormous amounts of cash, and in response to the very low interest rates in their own region, they are looking for higher yields. Senegal, Zambia, and Rwanda have promised a 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. of 6 to 8% on their securities. As a result, they have attracted financial companies seeking to invest their cash temporarily even if the risks are high. The governments of the poor countries are euphoric and have attempted to convince their citizens that happiness is just around the corner, whereas the situation might be dramatically reversed. These government leaders are accumulating way too much debt, and when the economic situation deteriorates, they will expect the people to foot the bill.

10) The food and climate crisis In 2007-2008, the peoples in developing countries faced a sharp increase in the price of foodstuffs. This situation resulted in food riots in 18 countries. The number of people suffering from hunger, which was approximately 900 million before the crisis, increased by nearly 120 million, bringing the total to over one billion in 2009. As we will see below, that figure has been gradually reduced, but it can only alert us to the incredible vulnerability of hundreds of millions of people. This dramatic situation is directly linked to other factors related to the global crisis and the debt system. [18] Among the factors behind this global food crisis, which is keeping one out of eight humans in a state of hunger, are financial speculation on the prices of basic food items, the use of land to produce agrofuels instead of food, and the priority given to cash crops intended for exportation, along with the end of subsidies to local producers, which were intended to ensure locally-based food security.

In addition, the effects of the climate crisis are becoming worse in the developing countries. Here again, the policies rolled out by the World Bank in particular, and the productivist capitalist system in general, are part of the problem and not of the solution. [19]

No more wealth accumulation by the 1% / If you don’t let us dream, we won’t let you sleep

11) Individual illegitimate debts This is a new field of analysis and intervention for the CADTM. Like peoples collectively, individuals in the working classes also suffer from the ‘debt system’—indebted farmers in India who commit suicide, [20] families evicted from their homes by the banks in the US, Spain, and Ireland, among other countries, women in the South caught up in the micro-credit system, like the case of the indebted women in Morocco, [21] university students in the US and UK who are saddled with debt simply because they want to continue their studies. Student debt in the US is over $1 trillion. [22] That figure is greater than the total cumulative external public debt of Latin America and Africa (see Table 2.2). Resistance movements have developed in recent years—in the US to defend indebted students victimised by banks, in Spain and the US to prevent foreclosures, in Morocco to support the struggle of women who are victims of micro-credit fraud, in India, to protect farmers who are victimised by usurers, and elsewhere.

12) Vulture funds Vulture funds
Vulture fund
Investment funds who buy, on the secondary markets and at a significant discount, bonds once emitted by countries that are having repayment difficulties, from investors who prefer to cut their losses and take what price they can get in order to unload the risk from their books. The Vulture Funds then pursue the issuing country for the full amount of the debt they have purchased, not hesitating to seek decisions before, usually, British or US courts where the law is favourable to creditors.
 [23] Public debt has become the target of the speculative strategies of ‘litigating creditors’, known as ‘vulture funds’. These are private 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.
, most of which are located in tax havens that specialise in buying up debt securities from States in default or on the verge of default. They then sue these States in the courts of English-speaking countries, demanding they pay back their debt at its nominal value, with interest, penalties for late payment, and court costs. Unlike traditional creditors, they refuse to participate in any negotiation and restructuring operations, preferring legal solutions, and in case of non-payment, seizure of debtors’ assets (diplomatic properties, revenues from exports, and various assets invested abroad). Since the 2000s, some twenty States that are among the most heavily indebted on the planet have fallen prey to these strategies, in South America (Argentina, Nicaragua, Honduras, and Peru) and Africa (Sierra Leone, the Republic of the Congo, and Uganda), with major judicial-financial battles that are still in progress today. Since 2007, the phenomenon has been directed against countries in Southern Europe (Greece, Spain, and Portugal). In the future, vulture strategies are likely to prosper in the South and North. Newly issued debts continue to be placed under American or British law, which is favourable to creditors, and certain countries are again contracting debt on the international capital markets, and show a preference for indebtedness to China, which will encourage future debt repurchases on secondary markets.

Argentina was in the spotlight in 2014, when the US Supreme Court rejected an appeal by the Argentine government, and ruled in favour of the vulture funds NML and Aurelius, forcing Argentina to pay them $1.33 billion. Argentina adopted a law on 10 September 2014 aimed at providing it with a mechanism to defend itself against vulture funds. The CADTM would like to point out, however, that the best defence against these funds consists in refusing to recognise the competence of foreign courts in settling claims with creditors, and inserting a clause in contracts stipulating that the local courts have jurisdiction.

13) Citizen audits. In recent years, movements have developed to work towards conducting a citizen audit to identify illegitimate, odious, and illegal debts. These movements in several countries [24] provide an opportunity for interesting and enriching reflection to clarify which parts of public debt should not be paid back. With no claim to being exhaustive, we can propose the following definitions:

  • a) Illegitimate public debt: debt contracted by government authorities with no concern for the general interest, or in a way that is detrimental to it.
  • b) Illegal public debt: debt contracted by the government authorities in flagrant violation of the prevailing legal order.
  • c) Odious public debt: loans granted to authoritarian regimes or which impose conditions for repayment that violate fundamental social rights.
  • d) Unsustainable public debt: debt whose repayment condemns the people of a country to impoverishment and deterioration of health and public education, increased unemployment, or problems of malnutrition. In other words, debt whose repayment makes it impossible for government authorities to guarantee fundamental human rights.

A citizen audit of public debt, combined in certain cases with unilateral sovereign suspension of its payment, can enable the illegitimate, unsustainable, and/or illegal part of the debt to be abolished/repudiated and the remaining part to be greatly reduced. It is also a way of discouraging this type of indebtedness in the future.


[1This introductory text is an updated version of the introduction written by Éric Toussaint for the collective work FMI : Les peuples entrent en Résistance. (2000) CETIM/CADTM/Syllepse: Geneva. The book is the result of the collective efforts of the CADTM, ATTAC, and the Association internationale des Techniciens, Experts et Chercheurs (AITEC), (in French).

[2N.B. Dollar and $ refer to the US dollar, unless otherwise stated.

[3‘Eurodollars’ refers to the dollars lent by the US to European nations during the 1950s, in particular through the Marshall Plan, which was intended to finance their reconstruction. From the 1960s, therefore, the European private banks were flush with capital, essentially made up of these ‘Eurodollars’, which they sought to invest in order to generate profits. ‘Petrodollars’ are dollars generated by oil. Starting in 1973, the increase in oil prices (the first ‘oil shock’) provided comfortable revenues—‘petrodollars’—for the oil producing countries, which placed them in Western banks. In order to make profits, the banks granted loans with this money on favourable conditions.

[4The ‘Trente Glorieuses’ or ‘Glorious Thirties’ refers to the three decades between 1945 and 1975 when France experienced unprecedented economic growth.

[5For an in-depth analysis, see Toussaint, Éric. Enjeux politiques de l’action de la Banque mondiale et du Fonds monétaire international envers le tiers-monde, doctoral dissertation in Political Science, University of Liège, University of Paris VIII, 2004. Available at (French)
Toussaint, Éric. The World Bank: a never-ending coup d’état. The hidden agenda of the Washington Consensus, Paris: CADTM/Syllepse/CETIM, 2006 (out of print). Summary available at
Millet, Damien. & Toussaint, Éric. Debt, the IMF, and the World Bank. Sixty Questions, Sixty Answers, New York: Monthly Review Press, 2010,

[6A programme of economic reconstruction proposed in 1947 by the US Secretary of State, George C. Marshall. With a budget of $12.5 billion of the time (about $100 billion in 2014 terms) composed of donations and long-term loans, the Marshall Plan enabled 16 countries (especially France, the UK, Italy and the Scandinavian countries) to finance their reconstruction after the Second World War.

[7The IMF began granting loans tied to structural adjustment programmes in 1986, and the following year it approved Enhanced Structural Adjustment.

[8Chesnais, François. Tobin or not Tobin, L’Esprit Frappeur, Paris, 1998.

[9See Toussaint, Éric. Banque du Sud et nouvelle crise internationale, Liège-Paris: CADTM/Syllepse, 2008. Available at (French)

[10The CADTM was a direct participant in the presidential commission that conducted the audit of Ecuador’s debt.

[11See Toussaint, Éric. Les leçons de l’Équateur pour l’annulation de la dette illégitime, (The lessons of Ecuador for abolishing illegitimate debt), 29 May 2013, (French). More recently, the Ecuadorian authorities seem to be returning to a more traditional policy regarding debt—loans from China, the first loan (since 2005) from the World Bank in 2014, a new issue of Ecuadorian debt securities on the financial markets under the leadership of Citibank and Credit Suisse—a troubling development.

[12This is a new trend. In general, raw-materials prices started to collapsed in 1981, and remained low until 2003-2004.

[13The yield on US Treasury Bonds is between 0 and 2.57% depending on whether the term is one month (0.01%) or 10 years (2.57%). For the yields published by the US Treasury department, see (accessed 24 September 2014).

[14See the critique of Daniel Munevar (CADTM economist): BRICS Bank: Is it an alternative for development finance?, 28 July 2014, Also see Pérez, Benito The alternative would be a Bank of the South, not the BRICS Bank, interview with Éric Toussaint, Le Courrier, 19 August 2014.

[15That is what happened between May and December 2013 for countries such as Turkey, Indonesia, and Brazil.

[16In Japan, a crisis that was partly comparable broke out in the 1990s. See Munevar, Daniel. Décennies perdues au Japon (Japan’s Lost Decades) in La Dette ou la Vie, Brussels: CADTM/Aden, 2011, pp. 223-236.

[17In September 2014, the Federal Reserve Bank’s interest rate was 0.25%, the ECB’s was 0.05%, and the Bank of England’s 0.5%. For the Bank of Japan, it has remained under 1% since the mid-1990s, and in September 2014 it was 0.1%.

[18Toussaint, Éric. Getting to the root causes of the food crisis, 21 November 2008, See also: Millet, Damien & Toussaint, Éric. Why is there rampant famine in the 21st century and how can it be eradicated?, 6 May 2009,; Toussaint, Éric. Banks speculate on raw materials and food, 10 February 2014,

[19Éric De Ruest and Renaud Duterme, La dette cachée de l’économie, Paris: Les Liens qui Libèrent, 2014. See (French)

[20In India, more than 270,000 farmers committed suicide because of debt between 1995 and 2011.

[21See ATTAC/CADTM Morocco, Le micro-crédit ou le business de la pauvreté (Micro-credit, or the poverty business), 2014, (French)

[221 Trillion Student Loan Problem Keeps Getting Worse, Forbes, 21 February 2014,

[23The authors would like to thank Louise Abellard for her contribution to this paragraph.
For further discussion of this question, see Vivien, Renaud. Argentine : un vautour peut en cacher d’autres, op-ed, Le Soir, 23 June 2014. Available at; Toussaint, Éric. How to resist vulture funds and financial imperialism?, speech delivered at the International Seminar on Alternatives to financial imperialism and vulture funds held in Caracas (Venezuela) on 12 August 2014,

[24Brazil, Spain, Portugal, France, Belgium, etc.

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.

Other articles in English by Eric Toussaint (621)

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Daniel Munevar

is a post-Keynesian economist from Bogotá, Colombia. From March to July 2015, he worked as an assistant to former Greek Finance Minister Yanis Varoufakis, advising him on fiscal policy and debt sustainability.
Previously, he was an advisor to the Colombian Ministry of Finance. He has also worked at UNCTAD.
He is one of the leading figures in the study of public debt at the international level. He is a researcher at Eurodad.

Other articles in English by Pierre Gottiniaux (14)

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Other articles in English by Antonio Sanabria (9)


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