Committee for the Abolition of Illegitimate Debt

Eurozone finance ministers who sat in Brussels and decide Greece’s future last night should have attended yesterday’s well-timed University of London conference on learning lessons from Latin America.

The central lesson is of urgent importance: that the economic policies pushed on Latin America in the early 1980s were an excellent way of helping US banks out of crisis, but an appalling way of resolving Latin America’s debt crisis, instead creating two decades of more debt, poverty and inequality.

Of course, this was the precise purpose of these policies – to shift the burden of financial crisis from the financial system and onto developing nations.

The International Monetary Fund IMF
International Monetary Fund Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

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

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

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.

http://imf.org and World Bank 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.

lent money to dozens of countries which would otherwise have defaulted, in order to keep the debt repayments flowing back to the banks of the rich world who had created the crisis by their own reckless strategies.

Then, those countries, which benefited not at all from these ‘bail-out’ funds, were told to implement 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 which saw industry privatised, money freed from government control and markets ripped open to competition with well-subsidised companies from the US and Europe. Poverty boomed, inequality soared and finance was proclaimed king.

The same logic lies barely concealed behind the Greece ’bail-out’ being agreed by European finance ministers today. There is not even a pretence that Greece’s people will benefit from these funds.

It is recognised that what Greek unions call the ‘barbaric’ additional austerity measures Greece has to implement in order to receive these funds will lead to stagnation and unemployment detrimental to repaying debt. By 2020 Greece’s debts will still represent an unsustainable 120 per cent of the country’s GDP GDP
Gross Domestic Product Gross Domestic Product is an aggregate measure of total production within a given territory equal to the sum of the gross values added. The measure is notoriously incomplete; for example it does not take into account any activity that does not enter into a commercial exchange. The GDP takes into account both the production of goods and the production of services. Economic growth is defined as the variation of the GDP from one period to another. – and that’s if things go very very well.

The slashing of pensions by another 13 per cent and the minimum wage by 22 per cent, and the large reduction in spending with concomitant public sector job losses, can only make the depression longer and deeper. Even the Credit Ratings Agencies have recognised the futility of forcing countries into ongoing stagnation.

So what’s the point of the ‘bail-out’? To keep the money flowing into the European financial system. Indeed the likely creation of an escrow account will mean that Greece’s people are by-passed entirely – money will be lent from European institutions, ultimately tax payers money – and flow out into the coffers of European banks. It is a bank bail-out on a gigantic scale.

But the good news for the banks doesn’t end there. By forcing Greece to speed up its €50 billion privatisation programme, all sorts of goodies – from airports, ports and motorways to water and sewerage systems – will come up for sale to be snatched up by the financiers of the countries imposing the policies.

The ‘bail-outs’, the severe public spending cuts, the onslaught on public ownership – all reflect the experience of the developing world in the 1980s and ’90s. The result was two lost decades of development.

Up until this point it was unusual for countries to go backwards in terms of their income levels. But during the 1990s 54 countries went backwards in terms of per capita income and the number of extreme poverty increased by 100 million – not because of war or natural disaster but debt and structural adjustment.

Human welfare was sacrificed to the diktats of the financial system.
The increased rates of murder, suicide and HIV in Greece today paint a similar picture.

There are alternatives which Europe could learn from.

After the Second World War Germany received massive debt cancellation and its repayments on the remaining debt were explicitly linked to the country’s growth.

But the Greek people have to wait on European largesse. While there is no pain-free answer to a debt crisis, when governments stand up to the power of their creditors by defaulting, by auditing their debts or by insisting on their own terms for repayment – from Argentina to Ecuador to Iceland – they have fared markedly better.

Moreover, they have made some attempts at regaining their sovereignty from the whims of an unstable financial system.

These solutions seem beyond the vision or courage of European governments, but they are solutions increasingly being looked to by the people of Europe.

No wonder that Germany’s finance minister has put forward the idea both that a ‘Commissar’ is appointed to oversee the Euro protectorate of Greece or, failing that, that democracy be indefinitely suspended. This is the logical conclusion of viewing people primarily as an obstacle to the repayment of your banks.

We propose a different logic: when debt cannot be paid we need to stop punishing the people least responsible and start looking at changing the rules governing those who are responsible.