Committee for the Abolition of Illegitimate Debt

 Private creditors granted massive loans to countries of the Global South in 2023–2024

In 2022, private creditors massively withdrew from countries of the Global South after 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 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/ increased their 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. . More and more alluring 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 were offered in the North, and lenders had been wary of defaults by countries in the South since the debt crisis in the Global South that started in 2020 with the Covid-19 pandemic. Their sudden and massive withdrawal was compensated for by multilateral institutions, including 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 , which imposed policies that are harmful to the countries’ populations in exchange for loans.

In 2023 and 2024, as interest rates in the North went down again, private creditors turned back to countries of the Global South: between 2022 and 2024 commercial banks’ lending to countries of the Global South almost doubled, as did issuance of debt securities by Global South governments on the financial markets—from $70 billion in 2022 to $150 billion in 2024. [1]

 Continuance of the war on Iran by the United States and Israel could have a lasting im-pact on oil and gas prices and result in increased prices for goods imported by countries of the global South

If Israel’s and the US’s attack should last, traffic through the Strait of Hormuz could be significantly impacted. The increase in oil prices, which so far has been merely speculative, [2] could well prove lasting since 20% of the world’s oil passes through the Strait. The same applies to gas prices.

Countries of the Global South, particularly in Sub-Saharan Africa, import proportionally more manufactured goods than other countries and export proportionally more raw materials. A lasting increase in oil prices will impact them severely, since oil is necessary to manufacture and transport of many of the goods they import. Such is not necessarily the case the other way ’round. For instance, 19% of Côte d’Ivoire’s exports are cocoa beans, [3] a non-transformed product for which increased oil prices will only impact the cost of transport.

Similarly, many countries of the South import fertilizers, whose production requires ni-trogen. [4] If the price of gas increases lastingly, so too will the price of fertilizers, and thus the price of goods imported by countries of the South.

A rise in import prices without a corresponding increase in export prices would require governments to acquire more hard currency – particularly the dollar, which dominates inter-national trade. That means resorting to more debt, increasing the level of exports – often by in-tensifying extractivist policies that are destructive to the environment and to local communities – or specializing even more in tourism.

 Response of central banks and capital flight?

If 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. were to take hold in the North, it is likely that the major central banks (the Fed, the ECB 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 and the Bank of England) would decide to raise interest rates to counter the infla-tion. This already happened in 2022 and in the early 1980s. When the banks take such a deci-sion, it often triggers or contributes to a debt crisis in the South: since interest rates are now more attractive in the North, capital (private creditors) again has an interest in lending to actors and states in the North, and gradually withdraws from the South.

If this hike in interest rates by major central banks in the North – which automatically increases what indebted countries have to pay back – combines with an economic recession which reduc-es the countries’ income, then many governments of the South will lack sufficient revenue to repay debts in hard currencies. Here are some historical examples:

In 1981, as the US Federal Reserve suddenly increased interest rates, countries of the South faced a significant drop in the prices of the commodities Commodities The goods exchanged on the commodities market, traditionally raw materials such as metals and fuels, and cereals. they exported. This meant that they had to repay more (as interest rates rose) with less (as their foreign-currency earnings from com-modity exports fell). As a consequence, many countries defaulted and faced a debt crisis.

In 2020–2022, the same situation occurred, with:

• a reduction in hard-currency revenues as a result of the crisis in international tourism caused by the Covid-19 pandemic,
• a rise in import expenditures (in hard currencies) after Russia’s attack on Ukraine, which led to an increase – at first speculative and then real – in the price of wheat and inputs (imported by many countries), and
• raising of interest rates by the Fed, the ECB and the Bank of England in June 2022.

 Another fatal shock after the 2020–2022 crisis?

After the debt crisis that started in 2020–2022, several countries defaulted or were close to defaulting. They appealed to the IMF and other multilateral creditors such as the 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.

. These institutions took over from private creditors, but enforced their neo-liberal conditionali-ties. The IMF granted loans only on condition that governments impose a number of destructive measures, such as increases in VAT rates (even on basic goods), cuts in public subsidies for essential goods, privatizations, and ever-greater specialization in tourism and commodity ex-ports.

In 2020 the IMF granted massive loans tied to those various conditions. For example, the International Monetary Fund lent $18 billion to Sub-Saharan African countries in 2020 (compared to $2.5 billion in 2019).¹ These loans continued, albeit on a smaller scale, in the years that followed. They served to “rescue” struggling countries from prolonged default, which would have meant failure to repay private creditors. For example, Zambia, Ghana, and Sri Lanka defaulted on their debts and turned to the IMF.

In other words, the IMF enables private creditors to be repaid while enforcing policies that are clearly detrimental to populations. Repaying private creditors becomes the top priority, to the detriment of the most basic human rights. This was particularly clear in Greece in the early 2010s, when the Troika Troika Troika: IMF, European Commission and European Central Bank, which together impose austerity measures through the conditions tied to loans to countries in difficulty.

IMF : https://www.ecb.europa.eu/home/html/index.en.html  [5] imposed inhuman policies on the population which between 2008 and 2014 caused infant mortality to rise by 42.8%, suicides by 44%, cases of depression by 272.7%, unemployment by 190.5%, and debt by 36.5%. [6]

It should be noted that China is fully complicit in the IMF’s policies since it encourages certain countries to repay the IMF, or even sometimes helps them directly, as was the case with Milei’s Argentina.

The table shows a significant increase in IMF loans to countries of the South between 2019 and 2024. A new shock hitting the countries of the South just when they had recovered access to the financial markets would mean yet another return of the IMF at a time when several countries of the South are already heavily indebted toward the institution. This raises fears of a Greek-style scenario, with increasingly harsh austerity measures, increasingly difficult living conditions for the population, and an ever-more-alarming intensification of the extractivist export model that is so destructive to life.

The present analysis does not aim at predicting the future, but rather at showing what might oc-cur if the US attack on Iran were to last. It is based on previous debt crises and attempts to point out common features and recurrent causes in the various debt crises that have marked the last fifty years.

Translated by Christine Pagnoulle and Snake Arbusto