Committee for the Abolition of Illegitimate Debt

Now, as the main international economic agencies, 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.

http://imf.org and 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.

, meet in Marrakech this week, it is worth updating what is happening to these strands or contradictions that make up the polycrisis of capitalism.

Let’s start with the climate and global warming. Global temperatures soared to a new record in September by a huge margin. Scientists at the Copernicus Climate Change Service said 2023 was on course to be the hottest on record, after the average global temperature in September was 1.75C degrees warmer than the pre-industrial period of 1850-1900, before human-induced climate change began to take effect.

The hottest September on record follows the hottest August and hottest July, with the latter being the hottest month ever recorded. September 2023 beat the previous record for that month by 0.5C, the largest jump in temperature ever seen. This record heat is the result of the continuing high levels of carbon dioxide emissions combined with a rapid flip of the planet’s biggest natural climate phenomenon, El Niño. And this “extreme month” has likely pushed 2023 into the “dubious honour of first place” as the hottest year ever, with temperatures about 1.4C above pre-industrial average temperatures.

The world is way off track to tackle climate change and remains headed for a temperature rise of up to 2.6C and must take urgent action, said UNCTAD UNCTAD
United Nations Conference on Trade and Development This was established in 1964, after pressure from the developing countries, to offset the GATT effects.

in its latest report on the global economy. UNCTAD said countries needed to be “more ambitious in action” and set “more ambitious targets” in order to cut emissions by the required 43 per cent by 2030 and by 60 per cent by 2035 compared with 2019 levels, in order to avert the dire consequences of a warmer planet. This would require a “radical” transformation of systems across all sectors, including boosting renewable energy, ending the use of all fossil fuels without the emissions captured, cutting methane and other greenhouse gases, ending deforestation and improving energy efficiency.

None of this is happening to any degree necessary. The International Energy Agency (IEA) says fossil fuel demand must fall by more than 25% by 2030 and 80% in 2050. And by 2035, emissions need to decline by 80% in advanced economies and 60% in emerging market and developing economies compared to the 2022 level. But current Nationally Determined Contributions are not in line with countries’ own net zero emissions pledges, and those pledges are not sufficient to put the world on a pathway to net zero emissions by 2050. The “emissions gap” consistent with limiting warming to 1.5C in 2030 was as much as 24bn tonnes higher than it needs to be.

Global finance for climate action reached about $803bn annually for 2019-20, less than a fifth of the estimated $4tn annual investment in clean energy technology needed to limit temperature rises to 2C or 1.5C. Meanwhile global fossil fuel subsidies have hit record high of $7tn in 2022, the IMF estimates. The IMF study said subsidies for coal, oil and natural gas in 2022 were equivalent to 7.1 per cent of global 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. . This represented more than governments spent on education, and two-thirds of what was spent on healthcare.

At the recent G20 G20 The Group of Twenty (G20 or G-20) is a group made up of nineteen countries and the European Union whose ministers, central-bank directors and heads of state meet regularly. It was created in 1999 after the series of financial crises in the 1990s. Its aim is to encourage international consultation on the principle of broadening dialogue in keeping with the growing economic importance of a certain number of countries. Its members are Argentina, Australia, Brazil, Canada, China, France, Germany, Italy, India, Indonesia, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, USA, UK and the European Union (represented by the presidents of the Council and of the European Central Bank). meeting, one of key policy actions necessary to save the planet; namely the end of fossil fuel production, was ignored. “To have any chance of meeting the Paris Agreement’s 1.5°C temperature limitation goal, sharp reductions in the production and use of all fossil fuels . . . are essential, and on that issue, the G20 leaders are missing in action,” Alden Meyer, senior associate at E3G, the climate consultancy, said. Behind that failure lies the huge and grotesque profits made by the oil and gas giants in the post-pandemic 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. period. Their ‘reluctance’ to ‘strand’ their stock of assets (ie not use them or explore for more) is no surprise.

What policy answers have been offered by companies and governments to end global warming? First, we have the ludicrous ‘carbon offsets’ schemes. Many of the largest companies in the world have used ‘carbon credits’ for their sustainability efforts from the unregulated voluntary market, which grew to $2bn (£1.6bn) in size in 2021 and saw prices for many carbon credits rise above $20 per offset. The credits are often generated on the basis they are contributing to climate change mitigation such as stopping tropical deforestation, tree planting and creating renewable energy projects in developing countries. Investigations show that more than 90% of their rainforest offset credits – among the most commonly used by companies – are likely to be “phantom credits” and do not represent genuine carbon reductions.

Then there are carbon taxes and prices. This market solution to deter the use of fossil fuels is the main plank of the IMF to solve global warmings. Carbon pricing schemes just hide the reality that, as long as the fossil fuel industry and the other big multinational emitters of greenhouse gases are untouched and not brought into a plan for phasing them out, the tipping point for irreversible global warming will be passed. Instead of waiting for the market to speak, and for ‘regulation’, we need a global plan where fossil fuel industries, financial institutions and major emitting sectors are brought under public ownership and control.

There are two months to go until countries meet in Dubai at the UN COP28 climate summit. Given that this international climate conference is being hosted by a leading oil and gas producer, don’t expect any radical action on fossil fuels.

Then there is poverty and inequality. At this week’s meeting, the World Bank will present a new report on poverty. According to the World Bank, global poverty has now receded to levels closer to those prior to the pandemic, but this still means that we have lost three years in the fight against poverty. The recovery is also uneven: while extreme poverty in middle-income countries has decreased, poverty in the poorest countries and countries affected by fragility, conflict or violence is still worse than before the pandemic.

After much criticism of its ludicrously low threshold for poverty globally, the Bank now offers three levels. In 2023, 691 million people (or 8.6% of the global population) are projected to live in ‘extreme poverty’ (i.e., those living below $2.15/day), which is just below the level prior to the start of the pandemic. At the $3.65/day line, the poverty rate and the number of poor are both lower than in 2019. At the more realistic (but still very low) $6.85/day level, a smaller 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 the global population also now lives below that compared to before the pandemic. But due to population growth, the total number of poor living below this line is still higher than before the pandemic. And when we look at the poorest countries, they still have higher poverty rates than before and are not ‘closing the gap’.

These poverty rates are misleading, as I have shown here. Nearly all the recorded reduction in global poverty (whatever the level used) in the last 30 years is due to China taking around 900m Chinese above those levels. Exclude China and global poverty has hardly fallen either in share or numbers. Indeed, even including China, there are still 3.65bn people on the planet below the $6.85/day poverty line, according to the World Bank.

In 2021, Lloyd’s Register Foundation partnered with Gallup and polled 125,000 people from 121 countries, asking how long people could cover their basic needs without income. The study found that a staggering 2.7 billion people could only cover their basic needs for a month or less without income, and of that number, 946 million could survive for a week at most. The UN target to end ‘poverty’ by 2030 is a mirage.

Global hunger is still far above pre-pandemic levels. It is estimated that between 690 and 783 million people in the world faced hunger in 2022. This is 122 million more people than before the Covid-19 pandemic. It is projected that almost 600 million people will be chronically undernourished in 2030. So the UN target of zero hunger by then is way off track. More than 3.1 billion people in the world – or 42 percent – were unable to afford a healthy diet. Worldwide in 2022, an estimated 148.1 million children under five years of age (22.3 percent) were stunted, 45 million (6.8 percent) were wasted, and 37 million (5.6 percent) were overweight.

Of a total of 2.4 billion people in the world facing ‘food insecurity’ in 2022, nearly half (1.1 billion) were in Asia; 37 percent (868 million) were in Africa; 10.5 percent (248 million) lived in Latin America and the Caribbean; and around 4 percent (90 million) were in Northern America and Europe. One billion Indians cannot afford to eat a healthy diet. That’s 74% of the population. India does slightly better than Pakistan, but is behind Sri Lanka. The corresponding number for China is 11%.

And then there is inequality of wealth and incomes. The latest Credit Suisse report on global personal wealth showed that show that in 2022, 1% of adults (59m) owned 44.5% of all personal wealth in the world, slightly higher than before the pandemic in 2019. At the other end of the wealth pyramid, the bottom 52.5% of the world’ population (2.8bn) had net wealth of just 1.2%.

As for wealth inequality within countries, the Gini coefficient (the usual measure of inequality) for wealth was a huge 85.0 in the United States (remember 100 would mean one adult owning all the wealth). Indeed, in the United States, all measures of inequality have trended upward since the early 2000s. For instance, the wealth share of the top 1% of adults rose from 32.9% in 2000 to 35.1% in 2021 in the United States.

UNCTAD reports that “During the period of heightened price volatility since 2020, certain major food trading Market activities
trading Buying and selling of financial instruments such as shares, futures, derivatives, options, and warrants conducted in the hope of making a short-term profit. companies have earned record profits in the financial markets, even as food prices have soared globally and millions of people faced a cost-of-living crisis.”

Indeed, the pandemic and the subsequent inflation surge have left their mark on the incomes of the average household. Take the UK: never in living memory have working families got so poor, according to the think-tank, the Resolution Foundation. “This parliamentary term is on track to be by far the worst for living standards since the 1950s. Typical working age household incomes are on course to be 4% lower in 2024-25 than they were in 2019-20. Never in living memory have families got so much poorer over a parliament.”

Nobel (Riksbank) prize winner in economics (2015), Angus Deaton has a new book out, called Economics in America: An Immigrant Economist Explores the Land of Inequality. In it, he attacks the failure of neoclassical economics to address in any way the issues of poverty and inequality. Mainstream economists in the US deliberately ignore rising levels of inequality and the horrendous impact of poverty, claiming that this is not the business of economics. And yet “real wages have stagnated since 1980 while productivity has more than doubled and the rich cream off the profits. The top 10% of US families now own 76% of wealth. The bottom 50% own just 1%.” A class system now operates and “the war on poverty has become a war on the poor”.

Deaton points out that more equality will not be achieved simply by tax transfers and welfare payments – they will hardly make a dent. The answer for him is state spending and investment in education and jobs for all. Deaton opposed more radical policies: “We do not need to abolish capitalism or selectively nationalize the means of production. But we do need to put the power of competition back in the service of the middle and working classes. There are terrible risks ahead if we continue to run an economy that is organized to let a minority prey on the majority.” But is not a tiny minority preying on the majority the very essence of class societies and modern capitalism? In my view, Deaton’s policy solution is just as utopian as taxation, as it does not address the control and ownership by capital of the means of production and employment of labour that ensures that a tiny minority have the vast bulk of wealth and income while society as a whole does not have enough to meet even basic needs.

The pandemic and subsequent rise in inflation and interest rates globally has exposed many of the poorest countries in the world to debt default. They owe billions to creditors, both public and private, in the so-called Global North. This they can only pay back by cutting services and any spending to meet the needs of their citizens – and increasingly they are unable to pay at all.

Global debt has hit a new high according to the International Institute of Finance (IIF). Total debt — spanning sovereigns, corporates and households — rose by $10tn to about $307tn in the six months to June, or 336% of world GDP. The World Bank estimates that 60 per cent of low-income countries are heavily indebted and at high risk of debt distress, while many middle-income countries also face significant budgetary challenges.

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 hikes have therefore also sharply driven up the costs of borrowing, which from the IMF can currently be up to 8 per cent. The burden of paying high 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. to the IMF is worsening. “If the IMF’s worst-case scenario of deteriorating global economic conditions materialises, demand for IMF support will surge even more.” So an IMF debt trap! The IMF at this week’s meeting will warn that governments “should take urgent steps to help reduce debt vulnerabilities and reverse long-term debt trends”. But how? There are no proposals by the rich countries to write off these debts; or end the trade tariff and constraints on emerging market exports; or of course, stop the huge extraction of profits from the resource-rich, poor countries by multi-national companies.

Global warming; unending global poverty and inequality; debt disaster: all these strands in the ‘polycrisis’ of capitalism in the 21^st century are connected through the burgeoning economic crisis.

Global trade is falling at its fastest since the pandemic. Trade volumes were down 3.2 per cent in July compared with the same month last year, the steepest drop since the early months of the coronavirus pandemic in August 2020, according to CPB. The about-turn in export volumes is broad based, with most of the world reporting falling trade volumes. China, the world’s largest goods exporter, posted a 1.5 per cent annual fall, the Eurozone a 2.5 per cent contraction, and the US a 0.6 per cent decrease. The CPB also reported that global industrial production fell 0.1 per cent compared with the previous month, driven by sharp falls in output in Japan, the eurozone and the UK – and is also down year on year.

The World Bank has just issued a report prior to this week’s meeting in which it reckons that Asia faces one of worst economic outlooks in half a century. The previously called ‘Asian tigers’ of Korea, Taiwan, Singapore, Hong Kong etc are set to expand at one of the lowest rates in five decades, as US protectionism and rising levels of debt pose an economic drag. The World Bank forecast that China’s growth would slow to 4.4 per cent in 2024, the lowest rate in decades, although still more than double the rate of any G7 economy. The worsening forecasts also reflect that much of the region is starting to be hit by new US industrial and trade policies under the Inflation Reduction Act and the Chips and Science Act.

The latest UNCTAD report on the world economy reckons that the world economy has stalled and the risks over the coming year are rising. UNCTAD forecasts that “stuttering growth for the period 2022-24 will fall short of the pre-Covid rate in most regions of the world economy. Debt burdens are crushing too many developing countries. Debt service Debt service The sum of the interests and the amortization of the capital borrowed. on external public debt relative to government revenues surged from nearly 6% to 16% between 2010 and 2021.”

There is much optimism in the US that the economy will achieve a ‘soft landing’ i.e the inflation rate will soon fall back to the target rate of 2% a year without real GDP contracting into a recession. I have discussed the likelihood of that in a previous post. Even if that turns out to be the case, a ‘soft landing’ does not apply to the rest of the major advanced capitalist economies. The Eurozone area is contracting; as are Canada, the UK and several smaller economies like Sweden, while Japan is on the cusp.

Indeed, the Organisation for Economic Co-operation and Development OECD
Organisation for Economic Co-operation and Development OECD: the Organisation for Economic Co-operation and Development, created in 1960. It includes the major industrialized countries and has 34 members as of January 2016.

http://www.oecd.org/about/membersandpartners/ (OECD), in its latest report, forecasts global growth in 2024 will be lower than in 2023 falling from 3% this year to 2.7% in 2024. Despite the global economy proving “more resilient than expected” in the first six months of 2023, the growth outlook “remains weak”. Real GDP growth in the advanced capitalist economies will slow from 1.5% this year to just 1.2% in 2024 and GDP per capita will be close to contraction.

The OECD economists reckon inflation will not return to pre-pandemic levels any time soon, so central banks must keep 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 high. Indeed, the IMF also calls for central banks to keep up the misery of debt burdens in the ‘war against inflation’. Yet, as I have argued, because higher inflation was a ‘supply-side’ problem, central bank money tightening does little to reduce inflation and is only a recipe for ‘slumpflation’.

And there are two other strands in the polycrisis of the 21^st century that still have to unfold. There is the weakening of US dominance in world affairs. ‘Globalisation’ of trade and finance over the last 40 years under the hegemony of the US is over.

US capital’s ability to expand the productive resources and to sustain profitability has been declining. This explains its intensified effort to strangle and contain China’s rising economic strength and so maintain its hegemony in the world economic order. A recent study by Sergio Camera showed “a prolonged stagnation” of the US rate of profit Profit The positive gain yielded from a company’s activity. Net profit is profit after tax. Distributable profit is the part of the net profit which can be distributed to the shareholders. in the 21^st century. The general rate of profit was 19.3% in the ‘golden age’ of US supremacy in the 1950s and 1960s; but then fell to an average 15.4% in the 1970s; the neoliberal recovery (coinciding with a new globalisation wave), pushed that rate back up to 16.2% in the 1990s. But in the two decades of this century the average rate dropped to just 14.3% – an historic low.

That has led to lower investment and productivity growth in the decade of what I have called the Long Depression of the 2010s, so that, to use Sergio’s words, the US “economic base has been seriously debilitated”. This is weakening the hegemonic position of US capitalism in the world. Now there is what is described as ‘geopolitical fragmentation’ ie the rise of alternative blocs attempting to break with the imperialist bloc led by the US. The Russian invasion of Ukraine highlights this ‘fragmentation’.

What the world needs is global cooperation to overcome the polycrisis of capitalism. Instead, capitalism is fragmenting as it is inherently incapable of international unity and global planning. The economic costs of this fragmentation have been measured: in trade of up to 7% of world GDP; with the addition of technological decoupling, the loss in output could reach 8-12% in some countries.

Longer term is the growing disruption to economies of the rise of AI. Goldman Sachs economists reckon that if the new AI technology lived up to its promise (which is in doubt), it would bring “significant disruption” to the labour market, exposing the equivalent of 300m full-time workers across the major economies to automation of their jobs. They calculate that roughly two-thirds of jobs in the US and Europe are exposed to some degree of AI automation, based on data on the tasks typically performed in thousands of occupations.

Humanity and the planet are facing an existential crisis from global warming and climate change; but will human labour be replaced by thinking machines even before the climate catastrophe, thus widening inequalities and increasing wealth for the machine owners (capital) and poverty for the billions (labour)? The polycrisis of capitalism in the 21^st century has only just begun.