Committee for the Abolition of Illegitimate Debt

 1. The Double Challenge of Overcoming the Covid-19 Crisis in the Global South: Some Aggravating Factors

The Covid-19 crisis is a double challenge for the countries of the Global South, including African countries. As everywhere, it will be necessary to be able to respond quickly and effectively to the health crisis and the economic crisis.

But unlike the most industrialized countries, the vast majority of the Global South countries do not have sufficiently resilient healthcare systems, neither logistically (infrastructure and equipment), humanly (hospital staff), financially (investments, available resources) nor socially (social security and protection systems). This state of affairs jeopardizes the prospect of providing immediate care to those affected, and in the medium term eliminating the pandemic and in the longer term protecting themselves from it.

Entangled in an extractivist, low-paying and destructive export “model”, the countries of the South remain largely vulnerable to exogenous factors

In economic terms, the situation is similar. In the North, countries are heavily affected but appear to be more resilient. On the other hand, for the most part entangled in an extractivist, low-paying and destructive export “model”, the countries of the South remain largely vulnerable to exogenous factors. The dizzying drop in commodity prices has had a severe an impact on their revenues as it deprives them of foreign currency, causing them to deplete the foreign exchange reserves they need to repay their external public debt and purchase imported products, especially food. At the banking level, the shares of the main banks of the largest economies have fallen sharply. And on the whole, their central banks do not have sufficient means to implement massive “rescue plans”, as is the case elsewhere with the upscaling of the - highly questionable - quantitative easing measures carried out in recent weeks by 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 (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 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/ . Other factors are further aggravating the situation. The United Nations Conference on Trade and Development UNCTAD
United Nations Conference on Trade and Development This was established in 1964, after pressure from the developing countries, to offset the GATT effects.

(UNCTAD) is predicting a likely 40% decline in foreign direct investment (FDI); [1] capital flight to the motherhouses of Northern companies is accelerating; tourism-related revenues will be sharply reduced or even absent; the financing of governments through 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. issues is made all the more difficult as investors are looking for safe investments; 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. on sovereign loans, already very high, are rising; remittances from the diaspora, which are much higher than official development assistance ODA
Official Development Assistance Official Development Assistance is the name given to loans granted in financially favourable conditions by the public bodies of the industrialized countries. A loan has only to be agreed at a lower rate of interest than going market rates (a concessionary loan) to be considered as aid, even if it is then repaid to the last cent by the borrowing country. Tied bilateral loans (which oblige the borrowing country to buy products or services from the lending country) and debt cancellation are also counted as part of ODA. Apart from food aid, there are three main ways of using these funds: rural development, infrastructures and non-project aid (financing budget deficits or the balance of payments). The latter increases continually. This aid is made “conditional” upon reduction of the public deficit, privatization, environmental “good behaviour”, care of the very poor, democratization, etc. These conditions are laid down by the main governments of the North, the World Bank and the IMF. The aid goes through three channels: multilateral aid, bilateral aid and the NGOs. , [2] are declining; not to mention the direct and indirect impacts on the real economy, the informal economy and populations.

Without claiming to defend this system and wishing for a return to “normal”, these indicators do not presage a bright future. Without far-reaching aid measures and radical changes, it will be difficult, if not impossible, for these countries to get back on track.

 2. Public External Debts in the Global South and Africa

Among the sectors requiring intervention, debt is central. In addition to its use as a tool for domination and transfer of wealth by the countries of the centre and the dominant classes over the peripheral states and the working classes, [3] acting positively on Global South countries’ debts would make it possible to immediately or even sustainably free up resources that are indispensable for emerging from the crisis.

Chart 1: Public external debt of the countries of the South, by type of creditor (in billions of US dollars) [4]

Orange: Multilateral debt; Yellow: Bilateral debt; Green: Private debt

Chart 2: Africa’s Public External Debt by Type of Creditor (US$ billions) [5]

Orange: Multilateral debt; Yellow: Bilateral debt; Green: Private debt

Between 2010 and 2018, Global South countries’ public external debts doubled, while that of African countries followed the same trend (see graphs 1 and 2). This spectacular increase is mainly due to a series of exogenous factors: the end of high commodity price levels beginning in 2013, a period known as the “super cycle” and the fall has worsened since then. The depreciation of currencies against the US dollar, the main currency of exchange. The recourse to issuing bonds, which have the advantage of not being conditioned to the implementation of specific policies at the cost of having high 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. Finally, the shock wave following the outbreak of the 2007-2008 financial crisis, which had the double effect of slowing down economic development and fueling the appetite of banks and private investors, attracted by the prospect of investing their substantial liquidities Liquidities The capital an economy or company has available at a given point in time. A lack of liquidities can force a company into liquidation and an economy into recession. in the sovereign debt Sovereign debt Government debts or debts guaranteed by the government. markets of Global South countries, which is riskier but also more profitable, at a time when financial markets in the North are moribund or even recessive. In fact, since 2010, Global South countries’ total revenue 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 has increased by 85 per cent, peaking at an average level of 12.2 per cent of government revenues, the highest level since 2004. [6]

Even though other internal factors contribute to the increase of this debt: lack of investment by States in infrastructure, in production units and in the processing of local resources; low tax revenues; embezzlement of public money; speculation on domestic public debt; corruption; clientelism, etc., they do not seem to explain the recurrence of the phenomenon. [7]

The dysfunctions of so-called democratic regimes and the monopolization of public resources by the dominant classes are not the preserve of African countries nor of other Global South countries. They reflect the very nature of the global economic system which we live in

Firstly, the dysfunctions of so-called democratic regimes and the monopolization of public resources by the dominant classes are not the preserve of African countries nor of other Global South countries. They reflect the very nature of the global economic system which we live in. Secondly, the weaknesses of the economies of the Global South can be explained less by allegedly incompetent States than by the systematic historical construction of mechanisms of domination over the vast majority of the world’s population by the so-called great powers and big money-makers. Conquests, colonization, trafficking, looting, unequal exchange, gunboat politics, the imposition of a set of cultural, economic, political and religious values external to the multiple modes of operation, customs and habits in question, are all part of the history of Global South countries over the last five or six centuries. Finally, the main international financial institutions (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.

, 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 , the Bank for International Settlements Bank for International Settlements
BIS The BIS is an international organization founded in 1930 charged with fostering international monetary and financial cooperation. It also acts as a bank for central banks. At present, 60 national central banks and the ECB are members.

http://www.bis.org/about/ , the Inter-American Development Bank, the European Bank for Reconstruction and Development, and in some respects even the WTO WTO
World Trade Organisation The WTO, founded on 1^st January 1995, replaced the General Agreement on Trade and Tariffs (GATT). The main innovation is that the WTO enjoys the status of an international organization. Its role is to ensure that no member States adopt any kind of protectionism whatsoever, in order to accelerate the liberalization global trading and to facilitate the strategies of the multinationals. It has an international court (the Dispute Settlement Body) which judges any alleged violations of its founding text drawn up in Marrakesh.

, etc.) and the main informal groups (G7/8, 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). , the Paris Club Paris Club This group of lender States was founded in 1956 and specializes in dealing with non-payment by developing countries.

, the International Institute of Finance, [8] etc.) are all, without exception, dominated by the traditional and new imperialist powers (the BRICS BRICS The term BRICS (an acronym for Brazil, Russia, India, China and South Africa) was first used in 2001 by Jim O’Neill, then an economist at Goldman Sachs. The strong economic growth of these countries, combined with their important geopolitical position (these 5 countries bring together almost half the world’s population on 4 continents and almost a quarter of the world’s GDP) make the BRICS major players in international economic and financial activities. , China in particular). Far from being a minor detail, these actors meet regularly and define the international financial architecture; destabilize or support geographical areas; draw up free trade treaties; decide on key interest rates, financial rescue or the abandonment of this or that financial or state actor; [9] draw up action plans and so-called development programs; impose 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).

IMF : http://www.worldbank.org/ plans and neo-liberal measures in the name of debt repayments. Without falling into conspiracy theory, this reflects the construction of an inequitable balance Balance End of year statement of a company’s assets (what the company possesses) and liabilities (what it owes). In other words, the assets provide information about how the funds collected by the company have been used; and the liabilities, about the origins of those funds. of power between the countries of the centre(s) and those of the periphery, between the 1% and the remaining 99%. In this confrontation, each one defends its own interests, political, economic and military, in order to derive maximum and immediate 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. , to the detriment of the vast majority of the population. These actors are deliberately fueling global asymmetries and are in fact the main culprits behind the levels of development and indebtedness of the countries of the South.

 3. From Macron’s false Debt Cancellation Declaration to Keeping Global South Countries under Domination

What about the “massive cancellation” of African debt declaration in all this might you ask? It fits fully into this system. The French state likes to remind (or convince) itself of its status as a major world power. It is true in many respects, it has significant political influence in all the institutions and informal groups mentioned above. However, its economic weight is declining, including in its traditional meadows, namely the countries it colonized, first and foremost in Africa. It knows that it is in competition with itself.

Alongside its historical rivals, Brazil, Russia, India, the Gulf States, and especially China, have significantly disrupted the interests of the French republic within and outside its borders. France is now “only” the continent’s 5^th largest economic 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. partner, while China is in first place.

Through this communication operation, Macron would have put the French State and the Paris Club back at the centre of sovereign debt settlements, with the political and economic interests that this implies. It failed to do so

On the debt front, France holds 14 billion euros in debt claims on 41 African countries, i.e. less than 3% of the continent’s bilateral public external debt, [10] while China holds an estimated 20%. [11] Even if the French government were to cancel its debts completely, which is of course desirable, this would only have a very marginal impact on the debts of the African continent. Moreover, this statement by the French President was convincing only to those who believed in it, since France, as things stand at present, will never proceed to a unilateral cancellation.

France is one of the powers behind the creation of the Bretton Woods institutions, the IMF and the World Bank, two institutions that are today central in the management of sovereign debts. It was also behind the creation of the Paris Club in 1956, which currently brings together 22 countries and is hosted by the Paris-Bercy Ministry of Finance at taxpayers’ expense. In its 64 years of existence, the Paris Club has dealt with 434 sovereign debt restructuring operations, which is its function, in 90 different countries. [12] The problem is that, despite its predominant role, it has no legitimacy. On top of defining itself as a non-institution, it has neither a statute nor a charter and does not comply with any rule of law. It only responds to its six principlesr, including the “principle of solidarity”. [13] In short, no member country of the Paris Club can unilaterally carry out any operation aimed at alleviating the debt burden of a country that requests it. This cartel of creditors had the habit of calling the shots on the debts of the so-called developing countries. Operating in concert with the IMF, a very influential member of the Club, this vicious couple has been responsible for biased decisions and the imposition of neo-liberal measures and structural adjustment plans from the 1980s to the present day. The many criticisms leveled at it - illegitimacy, opacity, partiality, inefficiency - have not stopped tarnishing its reputation and the countries of the Global South have gradually distanced themselves from its clutches.

Once a majority shareholder, the Paris Club is relegated to the rank of one creditor among others. In 2007, the Paris Club held 50% of the bilateral debt of low-income countries. By 2018, that share had risen to well over 10%. At the same time, China’s share increased from 2-3% to over 25%. [14] Concerned, despite constant calls from the Club to join, this false ally of the countries of the South is still not a member. Thus, if France and the Paris Club really wanted to launch an initiative to “cancel” (we will come back to this later) African debts or more, they would no longer have a sufficient basis to impose it on other bilateral creditors, China in the lead. Likewise, since public external debt is now mainly in the hands of private creditors, the Paris Club would not have the weight to demand such an operation from them. It is no coincidence that UNCTAD has once again called for the creation of an international and independent mechanism for sovereign debt restructuring. [15] With the support of the IMF, the G20 and the IIF (International Institute of Finance) and aware of the power of influence in their hands, the members of the Paris Club have always been opposed to it.

It is in this context that Emmanuel Macron’s statement should be placed. By announcing a massive cancellation of African debts, he wanted to do double duty. Firstly, to put China to the wall by inciting it to cancel its debts. Secondly, if this were the case, China would then have every interest in finally joining the Paris Club and ensuring that its competitors align themselves on the same terms, according to another of the 6 principles of the Club, the “principle of comparability of treatment”. Through this communication operation, Macron would have put the French State and the Paris Club back at the centre of sovereign debt settlements, with the political and economic interests that this implies. It failed to do so.

 4. Cancel the Debt, But Not In Any Odd Way

Including only low-income countries, 46 countries currently spend more of their resources on debt repayment (7.8% of 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. ) than on health (1.8% of GDP). [16] This is the breath of fresh air that a cancellation of their debt would represent for the countries and populations of the South. But it is not so much the level of cancellation as the way in which it is done that matters to us. Emmanuel Macron is not the only one who skillfully uses words. The IMF, the World Bank, the G20, Heads of State, the media, all speak, wrongly, of debt cancellation.

It is not so much the level of cancellation as the way in which it is done that matters to us. Emmanuel Macron, the IMF, the World Bank, the G20, Heads of State, the media, all speak, wrongly, of debt cancellation

A cancellation is defined as taking all or part of the debt, including principal and interest, and replacing the amount to be repaid with a ’0’ in the transaction account. By cancelling, creditors are not reimbursed. This risk is known to everyone, which is why it is remunerated by the interest rate. In a way, capital is “destroyed” [17] and with it some of the influence in the hands of the creditors. Germany, Egypt, Ecuador, Jamaica, Namibia, Mozambique, Peru and Sierra Leone are some examples of countries that have benefited from a dry cancellation in the past. The option is both credible and possible. Debt relief or debt restructuring is a significantly different operation. A part of it, usually minimal, can be cancelled. At the same time, the remaining debt is rescheduled. The repayment period is then deferred (i.e. suspended) and/or extended; interest rates are renegotiated; or even refinanced through debt-for-investment swaps, where the creditor invests the debt it held in different sectors of the country concerned in different forms. In this second scheme, the populations of the debtor countries are not relieved of the debt burden. Only the part defined as unsustainable by the creditors is renegotiated, in order to avoid defaults on payments and to keep countries in difficulty under control. Trade treaties, specific investments, monopolies, the imposition of political measures and other blackmail can then be perpetuated.

Unsurprisingly, it is this second pattern that is favored by the international financial institutions and their representatives. Despite the critical situation, since the end of March 2020, the IMF and the World Bank have called for debt relief operations from bilateral creditors, without even applying the same discipline, no cancellation and no repayments required. Worse still, despite emergency financing, the majority is in the form of loans conditional on privatization and other neo-liberal measures. Private creditors have made no commitments and will consider relief only on a “voluntary basis”. As for bilateral creditors, the G20 announced a deferral of payments from May to December 2020 to the year 2022. Finally, these measures concern only 77 countries, representing 8% of the public external debt of the countries of the South. [18] In fact, behind the announcements, no cancellation but a deferral of payments of 3.6% of the debt of eligible countries. [19] There is therefore absolutely nothing to expect from them. They continue and will always continue to apply these principles.

 5. For a United Front of the Global South Against Debt Payments

In order to avoid intimidation, reprisals and to extricate oneself from the debt system and the capitalist system, which are inevitable conditions for getting out of the mechanisms of domination, putting in place endogenous policies that respect the planet and allow people to decide for themselves, the time is right for the creation of a common front of the Global South countries against the payment of the debt

Failing cancellation, the countries of the Global South are in a position to suspend and repudiate debts. Historical examples [20] and arguments for doing so are not lacking. Cases of force majeure, states of necessity or fundamental changes in circumstances are recognized in international law. [21] They are fully applicable to the present situation. [22] Other arguments could be invoked as well. Illegal, odious, illegitimate debts, all these debts inherited from colonial times, dictatorial regimes, opaque contracts, without the consent of the parties, abusive conditionalities and/or the use of borrowed funds, can be repudiated as soon as their illegitimacy is proven. [23]

In order to avoid intimidation, reprisals and to extricate oneself from the debt system and the capitalist system, which are inevitable conditions for getting out of the mechanisms of domination, putting in place endogenous policies that respect the planet and allow people to decide for themselves, the time is right for the creation of a common front of the Global South countries against the payment of the debt. In 1985 and 1987, Fidel Castro in Cuba and Thomas Sankara in Burkina Faso had called on the States and peoples of the then ‘Third World’ to unite. At a time of multidimensional economic, financial, political, social and climatic crisis, the opportunity to act and finally reverse the balance of power in favor of the people of the world must be seized.

In order to ensure that these repudiations benefit the population, it is necessary to examine them by setting up citizens’ audits on public debt. To this end, it is essential to instill solidarity among peoples, through international mobilizations, and for populations to put the debt in the public debate, maintaining constant pressure on their leaders.