It is perfectly possible for a country to refuse to pay its debt

15 February 2011

The Committee for the Abolition of Third World Debt (CADTM) calls on African governments to follow the examples of the developing South American countries that have refused to repay the illegitimate debts that are demanded from them. According to Eric Toussaint, President of the CADTM “it is perfectly possible for a country to refuse to pay its debt.” This is demonstrated by several experiences.

Ecuador, Argentina, Paraguay are all countries that have refused to repay debts to 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.

, 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 Paris Club Paris Club This group of lender States was founded in 1956 and specializes in dealing with non-payment by developing countries.

and bankers. Eric Toussaint mentioned these examples yesterday at the UCAD press conference at the World Social Forum . ’If I give you these examples it is to show you that it is perfectly possible for a country to refuse to pay its debt. In contradiction to all the cries of catastrophe, it does not produce chaos. Argentina experienced a growth rate of over 8% in 2003. Ecuador is experiencing a growth rate of 3 to 4%. These countries have not experienced chaos. Instead, they recorded an improvement in wages, pensions and the living conditions of the people ’, says Eric Toussaint, who participated in auditing these countries debts.

He further says that these South American experiences could inspire African countries from whom illegitimate and illegal debt is claimed. Among these experiences, the most interesting is Ecuador, where CADTM was directly involved in the audit of the debt. ’When President Raphael Correa was elected in late 2006, he inaugurated a process that he called ’the Citizens’ Revolution’. He immediately pledged to audit the Ecuadorian debts taken on between 1976 to 2006 and created a commission of eighteen experts in debt, in which Eric Toussaint took part. After fourteen months of work in which tens of thousands of files and hundreds of contracts were examined, the commission submitted its recommendations to the government. Eighty percent of the public debt of Ecuador was identified to be illegitimate debt, and on the basis of the commission’s recommendations, the government unilaterally decided to suspend the payment of certain government bonds’.

These bonds, with maturity dates between 2012 to 2030, for a value of $3.23 billion, had been offered on the financial markets, especially on Wall Street, ’When the unilateral sovereign act of suspension of payments was announced the holders of these securities, mostly North American bankers, began to sell them off at 20% of their nominal value. The Ecuadorian government managed to buy 91% of them for a total cost of no more than $900 million. The total savings, including capital stock and the interests that will not have to be paid, up to 2030, amount to $7 billion. This allowed the government to reduce the proportion of the state budget devoted to servicing the debt from 32% to 15% and to increase social spending from 12% to 25% of the budget. So there was a definite inversion of priorities ".

Éric Toussaint reveals that ’Ecuador, and you do not hear much about this, expelled the World Bank’s permanent representative. This act is never mentioned because the World Bank does not want it known that its representatives can be expelled. Ecuador evicted the IMF from its offices on the premises of Ecuador’s 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.

and resigned from the ’International Centre for the Settlement of Investment Disputes’, the tribunal of the World Bank, as Bolivia had done two years earlier. So we think this example from Ecuador, may well be reproducible in the majority of African countries. This should certainly be reproducible in Greece, for example, which is faced with a terrible debt crisis’.

Another example that was explained at the conference comes from Argentina. According to Professor Toussaint, the country suspended debt repayment in 2001, in the wake of a social movement somewhat comparable to that of Tunisia in January 2011. ’Argentina suspended the repayment of $1,000 billion of securities from December 2001 to March 2005. Argentina also suspended debt repayments to the Paris Club which along with the IMF and the WB is a major creditor to the sub-Saharan countries. As from 2001 Argentina suspended the payment of debts for $6 billion to the Paris Club countries and has not, as yet, resumed them. No journalists were informed of this situation because the Paris Club does not want it to be known around the world that refusal to pay is a possibility, they say nothing and cover-up. After ten years of non-payment, Argentina has proposed to reopen dialogue with the Paris Club on condition that the IMF is not present. Contrary to its usual practices the Paris Club has agreed.

The last example that Eric Toussaint gave, is from Paraguay that repudiated its debt to Swiss banks in 2005. “Switzerland was not happy and took proceedings against Paraguay, who replied”We do not care about these convictions. Better that that, we will take Switzerland before the International Court of the Hague over the way it protects its bankers.“”Switzerland has kept silent," he added. Before underlining that he gives this example, to point out that there are other sources of inspiration for other governments. ’Governments under the pressure of social movements must initiate debt audits and take unilateral action to stop paying their debts’, says Eric Toussaint. He thinks that Tunisia could follow this example ’if we have a government, that excluded RCD [1], actually listening to the social movements it could set up a debt audit committee and, if the results indicate it to be justified, decide on the suspension of payments.’
It’s time to audit the debts!



[1Democratic Constitutional Assembly: the party in power in Tunisia during the Ben Ali regime, it was dissolved in March 2011 (this article was revised in May 2016).




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