Committee for the Abolition of Illegitimate Debt

 The perfect example: Sub-Saharan Africa

Sub-Saharan Africa is the region most affected by the debt crisis outlined above, along with South Asia. It is the region of the world most affected by the mechanisms described above. Faced with an influx of capital seeking higher 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. than in the North, many private cred-itors from the North (banks, investment funds Investment fund
Investment funds Private equity investment funds (sometimes called ’mutual funds’ seek to invest in companies according to certain criteria; of which they most often are specialized: capital-risk, capital development funds, leveraged buy-out (LBO), which reflect the different levels of the company’s maturity. , insurance companies, etc.) decided to lend to the South for better returns, leading several countries in the region to borrow for the first time in the financial markets. For example, Zambia borrowed for the first time via government bonds in 2012. Ghana followed in 2013, then Kenya, Ethiopia and Côte d’Ivoire in 2014. Angola and Cameroon issued their first bonds in 2015, Benin in 2019. Graph 14 shows that financing sub-Saharan Africa via treasury bonds really began in the 2010s.

Graph 1: Bonds issued by public authorities in sub-Saharan African developing coun-tries (in billions of current US dollars)

In the prevailing neo-liberal discourse, borrowing from financial markets for a Southern state is equated with good financial health and inclusion in globalisation, which is presented as a positive development. However, Zambia, Ethiopia and Ghana, which issued their first securities on the financial markets in the 2010s, found themselves in default less than ten years later. Shortly before its default, Ghana was still being heralded as a neoliberal success story... The same goes for Kenya, which financed itself via government bonds in 2014 before running into serious financial difficulties in 2023. Issuing securities and taking on debt on the financial mar-kets is no guarantee of good financial health.
Indeed, when 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 rose in the North, export revenues fell and import expenditure rose (see above), and many countries in the region found themselves in difficulties. Graph 15, below, shows the explosion in interest paid by sub-Saharan African countries, in billions of US dollars. Between 2006 and 2014, countries in the region paid around US$5 billion a year in interest. This figure rose to around 10 billion in 2016-2017, then 15 billion over the period 2019-2022, and almost 20 billion in 2023. This amount will increase from year to year as loans contracted in the 2010s mature and African states refinance (borrow to repay previous loans) at higher inter-est rates. This has been the case since 2022.

Graph 2: Interest paid by Sub-Saharan Africa on external public debt (in billions of US dollars)

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 has thus come to the rescue of many sub-Saharan African countries, carrying with it conditionalities that are widening inequalities and impoverishing the population.

Graph 3: IMF loans to so-called developing countries in sub-Saharan Africa (in billions of current US dollars)

Graph 16 illustrates the extremely rapid increase in IMF lending in the region, with more loans to sub-Saharan African countries in the period 2020–2023 than in the previous two dec-ades. In 2020, South Africa, Angola, Nigeria, Ghana and Côte d’Ivoire, for example, borrowed over a billion dollars each from the IMF. Other countries have done the same for smaller sums. By 2023, the region as a whole was indebted to the IMF to the tune of $37.1 billion. Only Bot-swana, Eritrea and Zimbabwe are not indebted to the International Monetary Fund.
As explained above, an IMF loan means pressure on governments to deepen the extractive ex-port model, cut social spending, privatise, etc. The IMF imposes on governments the need to obtain as much foreign currency as possible quickly in order to repay private creditors. They therefore encourage governments to continue specialising in the cultivation of a few commodi-ties for export, in the extraction of a raw material or in the tourism industry. All this is at the expense of the food independence of these countries, which no longer directly produce what their populations need to feed themselves; and at the expense of the economic health of sub-Saharan African countries, which continue to specialise in the export of low-value-added prima-ry products, in contrast to the countries of the North, which mainly export manufactured goods and services that are much more profitable. Graph 17 illustrates this reality.

Graph 4: 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 raw materials in goods exports in 2023, Sub-Saharan Africa

Only 21.4% of exports from sub-Saharan Africa are manufactured products. The remaining 78.6% are exports of unprocessed food, fuel, metals or minerals ...
The neo-liberal measures that the IMF is seeking to impose through its loans have provoked strong protests in the region, particularly in Kenya and Nigeria. These demonstrations, which were harshly repressed – 60 people died in Kenya – forced the Kenyan government to abandon certain measures dictated by the International Monetary Fund .
Sub-Saharan Africa is a perfect illustration of the movement towards exceptional access to fi-nancial markets and the neo-liberal backlash that affected the countries of the Global South be-tween 2010 and 2023.

 Sri Lanka: what the IMF is doing to the people

The story of Sri Lanka since 2019 has been exceptional. The account illustrates the significant harm that the International Monetary Fund’s actions can inflict on the population, particularly when it decides to overthrow a government in power.

This story begins in 2020. The Covid-19 pandemic had drastically reduced the flow of interna-tional tourists on which Sri Lanka had relied to generate foreign currency revenue (which, as we have said, was used to pay off the foreign debt and for imports). The country, orphaned by its tourists, is short of foreign exchange reserves (foreign exchange reserves are a synonym for foreign currency). Like the rest of the countries of the South, it took on debt in the financial markets in the 2010s, taking advantage of relatively low interest rates.

This drying up of tourist flows put the Sri Lankan government in severe difficulty in continuing to repay its creditors. The country declared itself in default in April 2022, as the government was no longer able to import enough fuel and food.

For several months now, the population had been living with this situation on a daily basis, as the government did not have enough foreign currency to import all the foodstuffs the population needed. Moreover, as foodstuffs became scarce, prices soared and 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. levels became ex-treme (64.3% year-on-year in August 2022), preventing a large part of the population from liv-ing decently.

This economic crisis led to an exceptional social movement known as Aragalaya (People’s Struggle). This well-organised movement, which began in the spring of 2022, led to the fall of President Gotabaya Rajapaksa, whose family had ruled the country almost uninterrupted since 2005. He had to flee by helicopter while the demonstrators bathed in his palace swimming pool.

Unfortunately, this popular success, which is extremely rare in the world, did not lead to any systemic change in the policies pursued. Ranil Wickremesinghe, President Rajapaksa’s former Prime Minister, took over as President in July 2022. As soon as he came to power, he rushed to negotiate with the International Monetary Fund, eventually reaching an agreement on a loan of nearly 3 billion dollars, albeit with terrible consequences for the population. To obtain this loan, the government promised to increase value-added tax (a tax based on consumption, so it affects the poorest, who consume all their income, proportionately more than the richest). It has prom-ised to cut subsidies on essential products that were helping the population to get through this difficult period: fuel and electricity prices have tripled. The IMF also demanded that companies be privatised to fill the coffers and continue repayments, even if this means impoverishing the state of its strategic companies (and the revenue they generate) in the future.

The economic crisis thus led to a political crisis, culminating in the flight of the current president under the pressure from an exceptional popular movement. But the former prime minister, under pressure from the International Monetary Fund, ensured that everything returned to neo-liberal normality very quickly. And this was at the expense of the Sri Lankan people, who sank deeper into poverty. It should be noted that alternatives were possible. For example, India lent Sri Lanka a lot of money between 2020 and 2023 (2.3 billion dollars in 2023) to help it through the crisis. Obviously, India is lending to Sri Lanka as part of its struggle for influence with China. Accepting aid from India or China, therefore, has consequences for Sri Lanka’s sovereignty. Nevertheless, the government could have played on this struggle for influence between the IMF (which imposes neo-liberal political conditions, something neither China nor India does, prefer-ring to get their hands on infrastructure or open up trade routes with the countries it helps), Chi-na, and India. At the very least, this could have avoided all the measures imposed by the Interna-tional Monetary Fund that are destroying people’s living conditions.
In September 2024, the people of Sri Lanka elected a new president: Anura Kumara Dis-sanayake from the National People’s Power. Like the rest of the countries of the South, it took on debt in the financial markets in the 2010s, taking advantage of relatively low interest rates. Nevertheless, it is highly unlikely that he will enter into a power struggle with the IMF and its creditors, as the political conditionalities imposed by the Fund are not, or very little, on the polit-ical agenda of Sri Lankan struggles.