Committee for the Abolition of Illegitimate Debt

“It is not a genuine transformation, merely less inhumanity on the part of the State”, the historian claims in an interview given to La Jornada about some of the policies implemented by President AMLO and his government. Yet from a financial point of view, “they remain within a neoliberal capitalist model with minor adaptations, but the logic is the same, and I find this worrying.”

Mexico could take measures to nationalize and socialize public services such as electricity, the finance and production systems

The country misses the opportunity to use a historic possibility to act in a sovereign way, for with the high price of oil and the inter-imperialist contradiction – between Chinese, Russia and American capitalism – Mexico could take measures to nationalize and socialize public services such as electricity, its finance and production system.

Toussaint stresses that in spite of the threats from electricity companies, Mexico is in the best possible situation to change its economic model and nationalize its resources “if it really wants to transform, otherwise it will carry on as before”. This change involves putting a stop to planning the country’s development to meet the needs of its northern neighbour but also socializing banks and the finance sector.

“Mexico has been dependent on the US for two centuries. If there is no deeper transformation to achieve a more independent, more sovereign, more self-relying growth, then there is no transformation”, states the CADTM spokesperson.

If there is no deeper transformation to achieve a more independent, more sovereign, more self-relying growth, then there is no transformation

He adds that as a rule global economies are caught in a predicament that exposes the flaws of the neoliberal model imposed by the International Monetary Funds (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.

http://imf.org ) since on top of some twenty countries that are partly defaulting on debt repayment several others are close to defaulting.

For instance, Ukraine owes more than $15 billion to the IMF, and since it cannot repay because of the war, an agreement has been found with 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.

and the IMF for a new loan of $8 billion so that it can carry on repaying.

“All the ingredients of a major crisis are present, but a new debt crisis has not occurred yet”, he warns. It depends on how the US and EU central banks will respond, and there will always be a risk of a massive flow of capital from the South to the North with several indebted economies being unsettled.

In this respect, it is necessary for countries to be less dependent on both external and internal debt, which is possible thanks to fair tax policies that tax the wealthiest and the large transnational companies while making sure that the finance sector is a public service and not a business. “It is essential to make it possible for peasants to get loans 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. ,” Toussaint explains.

Similarly, energy must be socialized, “so that it works better”, not just to give control to the State but “for users and society to supervise companies to avoid bureaucracy and projects that do not serve the population”. Even in the field of production, small units close to consumers have to be promoted to avoid wastage.

Translated by the CADTM