New debt crisis in the South

18 December 2019 by Milan Rivié

(Credit: Yakana)

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Public external debt in countries of the South [1] is a source of concern, notably because of its dramatic increase within the last two decades and because of parallels with the pre-crisis debt situation of Third World countries in the 1980s. Beyond the similarities, the widespread use of bond issues poses a new challenge. With nearly ten over-indebted countries and seventeen in suspension of payments, the debt crisis has already begun. [2]

 Recent evolution of the debt in countries of the South

In July 2019, according to 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.
, among low-income countries, 9 are over-indebted and 24 nearly are, which amounts to 39%. [3] As evidence of the inability (and unwillingness) of international financial institutions (IFIs) to respond effectively and sustainably to over-indebtedness, half of these 31 countries had strictly implemented the adjustment policies of the HIPC 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.
initiative [4] launched by the G7 in 1996. [5] And according to a German NGO, 122 countries are in fact in a critical debt situation. [6]

Since 2010, the share Share A unit of ownership interest in a corporation or financial asset, representing one part of the total capital stock. Its owner (a shareholder) is entitled to receive an equal distribution of any profits distributed (a dividend) and to attend shareholder meetings. of public external debt repayments by countries of the South in their total revenues has increased by 85%, peaking at an average level of 12.2% of state public revenues, the highest level since 2004. [7] The majority of countries affected by this increase in debt service Debt service The sum of the interests and the amortization of the capital borrowed. had contracted loans and/or obligations with the IMF. [8]

“Debt levels have reached new highs in advanced, emerging, and low-income countries […]global debt—both public and private — has reached an all-time high of $182 trillionalmost 60 percent higher than in 2007 […] Emerging and developing economies are already feeling the pinch as they adjust to monetary normalization in the advanced world.”

Christine Lagarde, Managing Director, IMF - October 1, 2018 [9]

Between 2000 and 2017, the public external debt in countries of the South more than doubled, from US$ 1,304 billion to US$ 2,936 billion (see Table 1). Several factors may explain this increase. Taking advantage of high commodity price levels until 2013, countries of the South generated significant revenues from their export products and the economic growth rates were high for a majority of them.

Table 1: Evolution of the public external debt in countries of the South by category of creditors (in millions of US dollars and as a percentage)

YearBilateral debtMultilateral debtCommercial debtTotal
2000 431,25 327,92 545,29 1304,45
33,06% 25,14% 41,81% 100%
2010 338,73 483,84 760,01 1582,57
21,40% 30,57% 48,02% 100%
2018 437,91 666,25 1832,24 2936,4
14,91% 22,68% 62,39% 100%

At the same time, the 2007-2008 financial crisis had an impact on the economies of Western countries. In search of more profitable financing, banks and private investors invested their substantial cash in the sovereign debt Sovereign debt Government debts or debts guaranteed by the government. of countries of the South. [11] Fuelled by the low level of key 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.
in the United States and Europe, this cycle is currently coming to an end and has caught countries of the South in a “debt trap”.

 The end of the commodity supercycle

At the beginning of the 1980s, the fall in commodity prices was one of the elements that triggered the Third World debt crisis. History is repeating itself today for these vulnerable countries that are still dependent on their export revenues. [12] Mainly intended to provide the foreign currencies needed to repay external debt, raw materials have been exported since 2013 at prices well below those previously achieved (see figure 1). This reversal is causing significant financial difficulties for a number of countries dependent on oil, agricultural or mining revenues. [13] This factor is aggravated by the recent depreciation of Southern currencies against the US dollar. [14]

Figure 1: Monthly commodity prices indices, 1998-2018 (base year 2015 = 100)

 The boom in bond issuances

The boom in the use of 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. issuances is the main originality and indeed concern of this new debt crisis. [16] As early as the mid-2000s, attracted by low 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 (see figure 2) and the absence of conditionalities, many countries turned to private creditors. But unlike in the 1960s and 1980s, when governments borrowed directly from banks, they used bond issuances in the financial markets. In Western contexts of moderate or even negative growth, private creditors in search of profits, encouraged by the low level of interest rates, have taken advantage of this situation to reinvest their liquidity Liquidity The facility with which a financial instrument can be bought or sold without a significant change in price. in the sovereign debt of countries of the South and thus improve their return rates. [17] At the same time, the IMF has encouraged low- and middle-income countries to use this type of instrument [18] to finance their infrastructure needs and repay their arrears. [19] Private creditors now hold more than 60% (see Table 1) of the public external debt of the countries of the South.

 Rising interest rates

As the article was written in May 2019, this paragraph on interest rates should be qualified since in the summer of 2019, the FED 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 :
announced a (temporary) reduction in its interest rates, and 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.
announced an extension of the Quantitative easing mechanism.

In response to the 2007-2008 financial crisis, central banks (US Federal Reserve - FED, 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, etc.) lowered their key interest rates. The measure was aimed at facilitating the financing of States and economic actors by promoting investment at a lower cost. However, central banks soon put an end to this policy of key rates close to zero or even zero (see figure 2). Mainly denominated in US dollars, [20] the external debt service of countries of the South consequently deteriorated while causing a decline in investment in these countries through a decline in investment because of private capital returning to more industrialized countries. [21] In 2017, more than 60% of the debt of the countries of the South consisted of variable-rate loans [22] and maturities of sovereign bonds will begin in 2021 (see figures 3 and 4). [23]

Figure 2: Changes in the key rates of the European Central Bank and the United States Federal Reserve since 2005 (in percentage terms)

Blue line: ECB, Orange line: US Federal Reserve

Figure 3: Selected International Bond Redemptions in SSA (Billions of U.S dollars)

Figure 4: Upcoming International Bond Redemptions of Frontier Market Sovereign Issuers (Billions of U.S dollars)

 The IMF’s comeback

As a sign of the times, the IMF has made a strong comeback in recent years. After being weakened in the early 2000s, [27] 35 countries are currently implementing the policies required by the IMF in return for financial assistance. [28] The populations of Argentina, [29] Egypt, [30] Greece, [31] Morocco, [32] Tunisia, [33] Ukraine [34] and Central African countries [35] are among the latest victims of this undemocratic neoliberal institution in the service of Western interests. [36] After the failure of the 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).

plans of the 1980s, the IMF still insists on demanding the implementation of anti-social policies, [37] leading to an increase in inequalities [38] and causing major popular revolts in its wake. [39]

 Cancelling illegitimate debts

Donald Trump’s recent announcement to stop the rise in FED interest rates in response to the deteriorating economic situation in the United States [40] may delay the spread of the debt crisis, but vigilance is required. Faced with the debt trap, the climate emergency, the challenges of development and social justice, it is necessary to work towards the application of collective and solidarity-based alternatives. The establishment of a citizen audit [41] to identify and abolish odious and illegitimate debts resulting from creditor greed and corruption of local elites [42] is a first example, as is the effective creation of a Bank of the South to help countries escape the domination mechanisms inherent in the IFIs, 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 other major new creditors such as China.

Translated by Milan Rivié and Christine Pagnoulle


[1By ‘countries of the South’, we mean all low- and middle-income countries defined by the World Bank. Available at:

[2UNCTAD, “Debt vulnerabilities a new debt trap”, October 2018. Available at:

[3List of the nine over-indebted countries on November 30, 2019: Congo (Republic of), Gambia, Grenada, Mozambique, São Tomé and Principe, Somalia, South Sudan, Sudan and Zimbabwe. List of 24 countries in high risk of debt distress: Afghanistan, Burundi, Cameroon, Cabo Verde, Central African Republic, Chad, Djibouti, Dominica, Ethiopia, Ghana, Haiti, Kiribati, Lao P.D.R., Maldives, Marshall Islands, Mauritania, Micronesia, Samoa, Sierra Leone, St Vincent and the Grenadines, Tajikistan, Tonga, Tuvalu and Zambia. See IMF, “List of LIC DSAs for PRGT-Eligible Countries. As of November 30, 2019”. Available at:

[4Ibid. Countries eligible to the HIPC initiative, currently in a situation of over-indebtedness: Gambia, Mozambique, São Tomé and Principe, South Sudan, Sudan ; currently in high risk of debt distress: Afghanistan, Burundi, Cameroon, Central African Republic, Chad, Ethiopia, Ghana, Haiti, Sierra Leone, Zambia.

[5For a critical overview of the HIPC initiative, see Damien Millet, « Third World Debt », March 6, 2006, CADTM, Act 5 (in French). Available at:

[6Jürgen Kaiser, “Global sovereign debt monitor”, Erlassjahr & Misereor, 2019, p.4. Available at:

[7Jubilee Debt Campaign, “Crisis deepens as global South debt payments increase by 85%”, April 3, 2019. Available at:


[9Christine Lagarde, ‘Steer, Don’t Drift’: Managing Rising Risks to Keep the Global Economy on Course, speech at the seat of the IMF, October 1st, 2018. Available at:

[10According to World Bank datas available in the Global Development Finance reports, 2000 and 2009 editions and the World Bank’s International Debt Statistics Online.

[11Andrea F.Presbiteroa, Dhaneshwar Ghurab, Olumuyiwa S.Adedejib et Lamin Njie, “Sovereign bonds in developing countries: Drivers of issuance and spreads”, Review of Development Finance 6, no. 1, August 3, 2016, 1-15. Available at:

[12“State of commodity dependence 2019”, UNCTAD. Available at:

[13For instance, in 2017, fuels accounted for 50 to 97% of exports: Congo 50%, Gabon 70%, Chad 78% and Angola 97%; agricultural products accounted for 80% of Gambia’s exports and 57% of Grenada’s exports; mining products for 75% of Zambia’s exports and 92% of Botswana’s. Ibid. Note also the effects of speculation on commodities.

[14Bodo Ellmers, “The evolving nature of developing country debt and solutions for change”, Eurodad, July 2016, p.6. Available at: and Claude Quémar, « Nouvelle donne pour la dette en Afrique : alerte au Mozambique », April 2, 2016, CADTM. Available at: (in French).

[15“State of commodity dependence 2019”, UNCTAD. Available at:, p.8.

[16Bodo Ellmers, “The evolving nature of developing country debt and solutions for change”, Eurodad, July 2016, p.9. Available at:

[17Ibid., p.8

[18Andrea F.Presbiteroa, Dhaneshwar Ghurab, Olumuyiwa S.Adedejib and Lamin Njie, “Sovereign bonds in developing countries: Drivers of issuance and spreads”, Review of Development Finance 6, no. 1, August 3, 2016, 1-15. Available at:

[19Anastasia Guscina, Guilherme Pedras and Gabriel Presciuttini, “First-Time International Bond Issuance—New Opportunities and Emerging Risks”, IMF Working Paper, WP/14/127, July 2014, p.8. Available at:

[21Bodo Ellmers, “The evolving nature of developing country debt and solutions for change”, Eurodad, July 2016, p. 8. Available at:

[22United Nations, Financing for Sustainable Development Report, 2019, p.119. Available at:

[23For a State, the repayment of a loan is carried out in two main stages. During the entire repayment period defined with its creditor, the State reimburses only the interest on the amount borrowed. At the end of this period, he will pay the capital in a single instalment.

[24See, accessed on 23 May 2019.

[25Bloomberg in “Africa’s Pulse, An analysis of issues shaping Africa’s economic future”, World Bank, vol. 18, October 2018, p.21. Available at:

[26IMF, “Global development finance report”, 2018, chapter 1, p.17. Available at:

[27Éric Toussaint, Damien Millet and Jérôme Duval, « Un FMI ‘redevenu utile’, mais pour qui ? », CADTM, 5 June 2011. Available at:

[28The 35 countries: Afghanistan, Angola, Argentina, Armenia, Barbados, Benin, Bosnia and Herzegovina, Burkina Faso, Cameroon, Chad, Colombia, Congo (Republic of), Côte d’Ivoire, Ecuador, Gabon, Georgia, Guinea, Honduras, Jordan, Madagascar, Malawi, Mali, Mauritania, Mexico, Moldova, Mongolia, Morocco, Niger, Pakistan, São Tome and Principe, Sierra Leone, Sri Lanka, Togo, Tunisia and Ukraine. IMF Lending Arrangements as of November 30, 2019 Available at:

[29Jérôme Duval, “Forced marriage between Argentina and the IMF turns into a fiasco”, CADTM, October 3, 2018. Available at:

[30Collective, “Open letter to the Egyptian President on the pending agreement with the IMF”, August 20, 2016. Available at:

[31Marie-Laure Coulmin Koutsaftis, « La Grèce sous tutelle jusqu’au remboursement des prêts », CADTM, May 11, 2018. Available at:

[32Omar Aziki, « Le FMI continue à imposer ses réformes catastrophiques au Maroc », CADTM, February 12, 2017. Available at:

[33Fathi Chamkhi, « Tunisie : Aux origines de l’embrasement social de janvier 2018 », CADTM, March 12, 2018. Available at:

[34Jérôme Duval, “IMF Interference Plunges Ukraine into Recession”, CADTM, November 23, 2015. Available at:

[35Jean Nanga, « Afrique centrale : Retour à l’ajustement structurel néolibéral et mobilisations populaires », CADTM, May 12, 2017. Available at:

[36Éric Toussaint, “The IMF and the World Bank: It’s time to replace them”, CADTM, October 17, 2017. Available at:

[37Émilie Paumard, « Le FMI et la Banque mondiale ont-ils appris de leurs erreurs ? », CADTM, October 13, 2017. Available at:

[38Mark Weisbrot, Rebecca Ray, Jake Johnston, Jose Antonio Cordero and Juan Antonio Montecin, “IMF ‐ Supported Macroeconomic Policies and the World Recession : A Look at Forty‐One Borrowing Countries”, Center for Economic and Policy Research, october 2009, p.4. Available at: ; Jesse Griffiths and Konstantinos Todoulos, “Conditionally yours : An analysis of the policy conditions attached to IMF loans”, Eurodad, april 2014, p.4. Available at:, and Gino Brunswijck, “Unhealthy conditions : IMF loan conditionality and its impact on health financing”, Eurodad, November 28, 2018. Available at:

[39Claude Quémar, « Le FMI met le feu en Haïti, en Guinée, en Égypte… », CADTM, August 8, 2018. Available at:

[40Éric Toussaint, « The mountain of corporate debt will be the seed of the next financial crisis », CADTM, May 3, 2019. Available at:

[41Éric Toussaint and Damien Millet, « Citizen debt audits : how and why ? », CADTM, January 4, 2012. Available at:

[42CADTM, « Droits devant ! Plaidoyer contre toutes les dettes illégitimes », CADTM, February 1, 2013. Available at:

Milan Rivié

CADTM Belgium
milan.rivie @
Twitter: @RivieMilan

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