“Suspend external debts and apply tax to the wealthy”, is it possible to face the health crisis?

22 April by Eric Toussaint


Eric Toussaint, Belgian historian and doctor of Political Sciences from the University of Liège (Belgium), has spent a good part of his life auditing debts from different countries of the world and requesting the suspension of several of them due to their “illegitimate and hateful” character.

He is interviewed by Karen Méndez Loffredo.

Now, as the world faces one of the worst health and economic crises since World War II, this demand begins to reverberate in different parts of the world.

Recently, Pope Francis, during the Mass on Easter Sunday, asked that the external debt to the poorest countries be forgiven. A call that, shortly before, had already been made from Latin America by several former presidents and world political leaders such as Rafael Correa, Gustavo Petro, Evo Morales, Álvaro García Linera, Dilma Rousseff, Fernando Lugo, José Luis Rodríguez Zapatero, Ernesto Samper, among others .

In this campaign, led by the Latin American Strategic Center for Geopolitics, 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 World Bank World Bank
WB
The World Bank was founded as part of the new international monetary system set up at Bretton Woods in 1944. Its capital is provided by member states’ contributions and loans on the international money markets. It financed public and private projects in Third World and East European countries.

It consists of several closely associated institutions, among which :

1. The International Bank for Reconstruction and Development (IBRD, 189 members in 2017), which provides loans in productive sectors such as farming or energy ;

2. The International Development Association (IDA, 159 members in 1997), which provides less advanced countries with long-term loans (35-40 years) at very low interest (1%) ;

3. The International Finance Corporation (IFC), which provides both loan and equity finance for business ventures in developing countries.

As Third World Debt gets worse, the World Bank (along with the IMF) tends to adopt a macro-economic perspective. For instance, it enforces adjustment policies that are intended to balance heavily indebted countries’ payments. The World Bank advises those countries that have to undergo the IMF’s therapy on such matters as how to reduce budget deficits, round up savings, enduce foreign investors to settle within their borders, or free prices and exchange rates.

and the Inter-American Development Bank have been asked to forgive the foreign debt.

“WE CANNOT REQUIRE COUNTRIES TO MAKE EFFECTIVE PUBLIC HEALTH POLICIES TO DEAL WITH THE CURRENT PANDEMIC AND, AT THE SAME TIME, EXPECT THEM TO CONTINUE TO MEET THEIR DEBT OBLIGATIONS; WE CANNOT REQUIRE THEM TO IMPLEMENT ECONOMIC POLICIES THAT COMPENSATE FOR THE DAMAGES OF THIS CATASTROPHE AT THE SAME TIME THAT THEY MUST CONTINUE TO PAY THEIR CREDITORS," THESE POLITICAL LEADERS MAINTAIN IN A LETTER RELEASED IN LATE MARCH.

On this new reality that humanity is going through, Sputnik talks with Eric Toussaint, spokesman for the international network of the Committee for the Abolition of Illegitimate Debts (CADTM).


You recently said that in order to face the economic crisis that the Covid-19 pandemic will leave, it was “urgent to free financial means, but to resort as little as possible to more debt”. How to achieve it in the middle of such a difficult situation?

There are two fundamental means:

1. Suspend the payment of the debt and use those funds to invest in the purchase of medical and sanitary equipment, and making the necessary expenses to face the health and economic crisis that the coronavirus will leave.
2. Applying an exceptional tax on the richest to have the necessary funds.

To give you an example. In France, the wealthiest person is named Bernard Arnault and has a wealth of 110 billion euros, which is exactly the figure decided by President Emmanuel Macron to intervene in the crisis in France. So, imposing a tax on the richest, who are a handful, because they are 1% of the population, could be credited to a fund to fight the crisis.


In Spain, public debt stands at 96% 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.
. You, for several years, maintain that the debt that this country has is “illegitimate and hateful”. Why do you categorize it in this way?

Because it must be remembered that before the 2010 crisis, Spain had a public debt that represented less than 40% of GDP. With the crisis and bailouts of banks, financial and real estate companies in Spain, the debt rose, doubled, almost reached 100% of GDP. So, it is illegitimate and hateful because it is a debt that has been accumulated to rescue bankers responsible for the previous crisis, that of 2008-2010. It is a debt contracted to serve the private interests of a minority without respecting the general 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. of the majority of the population, therefore, it is an illegitimate debt.

The Russian jurist Alexander Nahum Sack introduced this term of odious debt into International Law in the late 19th and early 20th centuries. For him, a debt is odious if it meets two criteria: if it has been contracted against the interests of the population or the nation, and second, if it has been contracted with the lenders knowing that it played against the nation. So I affirm that Spanish debt after 2009-2010 is odious because the lenders knew that the government was rescuing the same bankers who lent the money to the state to rescue them. It is the vicious circle of always in which the bankers accumulate wealth while the State and the people are impoverished.


How do they lend the money to the State to rescue them?

The situation is scandalous with what has to do with 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
. Until last year, the European Central Bank 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
granted loans to private banks at 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.
of zero percent and these same banks lent the money to states such as Spain, Italy or Portugal, via the purchase of sovereign bonds, at interest rates 2, 3 or 4%.

It has been a great gain for banks thanks to gifts from the European Central Bank. The situation is worse now because the European Central Bank grants loans to private banks at a negative rate of 0.75%, that is, that a bank borrowing money from the European Central Bank earns money. It is scandalous.


And what should be done?

What should be done in these circumstances of greater crisis is to get the European Central Bank to grant loans directly to the States, to Spanish, Portuguese, Italian, and other countries in the euro zone, to combat the crisis, instead to grant credits to private banks. In other words, the European Central Bank gives a monopoly to private banks with privileges, adhering to the Maastricht Treaty of 1992, which says that a public body cannot grant credits directly to public powers. It is a totally neoliberal policy that must be fought because it goes against the interest of the population.


You are one of those who supports stopping paying foreign debt, but for any government it is a very difficult decision. On what legal arguments could governments rely to suspend the payment of their external debt?

In the current circumstances, in the midst of a brutal health and economic crisis, there are three arguments of International Law:

1. The state of need: which is a concept that establishes that when a country, a State faces a crisis in which the life of its population is at risk and constitutes a serious problem, that State is not obliged to respect its international obligations, for example, in terms of payment of debt because it must respond to the humanitarian or health crisis. Solving this crisis is a priority against this type of international financial obligations.

2. Fundamental change of circumstances: This concept establishes that when the conditions completely change from those when it was signed, the execution of this contract can be suspended.

3. Force majeure: Here it is determined that for reasons of force majeure a State can no longer be in a position to respect its debt payment obligations. In this case, the illegitimate or hateful nature of the debt is of no importance. The debt can be totally legal, legitimate, but it can be suspended for those reasons of force majeure and for the other conditions met, that is, the state of necessity and the change of circumstance.

How do you evaluate the position of the European Union that, until now, has refused to issue reconstruction bonds, to mutualise the debt and has proposed to resort to the European Stability Mechanism ESM
European Stability Mechanism
The European Stability Mechanism is a European entity for managing the financial crisis in the Eurozone. In 2012, it replaced the European Financial Stability Facility and the European Financial Stabilisation Mechanism, which had been implemented in response to the public-debt crisis in the Eurozone. It concerns only EU member States that are part of the Eurozone. If there is a threat to the stability of the Eurozone, this European financial institution is supposed to grant financial ‘assistance’ (loans) to a country or countries in difficulty. There are strict conditions to this assistance.

http://www.esm.europa.eu/
without payment conditions? How do you assess the role of the European Union in this health emergency?

The European Union is a disaster. They don’t even have a team of ten doctors to send to northern Italy or Spain. The European Union does not have stocks of masks, respirators.

This European Union is a disaster in this health crisis. We see that other states like Cuba have sent more than 100 doctors to northern Italy and are able to help in the emergency. In other words, it is a new sign that the European Union is a construction that works in favor of big capital, to integrate markets in favor of big companies that control the means of production and compete with other economic powers. But the European Union does not serve its own peoples, much less when it comes to international solidarity.


It is warned that the world will go through an unprecedented economic crisis. It is compared to the economic devastation that occurred after the Second World War. What response should be given to this crisis?

This crisis is going to be the biggest in the last 70 years. We are facing a crisis like that of the 1930s, with the cataclysms that occurred in those circumstances.
For me, we must face this crisis completely breaking with the normality that brought us here, that is, we must rethink and fundamentally change the mode of production, property relations, the relationship of human beings with nature, the way of living, relocating production, giving another dimension to relations in production. For me, that is called revolution. We need a true revolution not only in the minds, but also social so that 99% of the world’s citizens take back the reins of their destiny with respect to that 1%, who until now, took advantage of the situation to accumulate wealth.


The Economic Commission for Latin America and the Caribbean (ECLAC) has just said that the coronavirus will have the greatest impact on the region’s economy in Latin America. How do you see the situation for Latin America?

It is clear that Latin America is only entering the crisis that is now affecting, mainly, Europe and the United States. Latin America and Africa enter a situation in which they have to face an epidemic with a high risk of accelerated spread. It is very serious because for reasons, totally independent of the peoples and States, it affects them.

Latin American exports are going to be reduced very strongly because that region depends on its exports of raw materials, that will be brutally reduced by the economic crisis in the north and in China, therefore, the countries will enter in greater payment difficulties, such as Venezuela and Argentina, which were in suspension of partial non-payment. Other countries in the region will also find themselves in this situation, such as Ecuador, which is already on the verge of default. That is why I insist that the three concepts of state of necessity, force majeure and fundamental change of circumstances must be used to declare a total suspension of the payment of the external debt and use those funds to face a crisis, which is only beginning.

But there are former presidents, such as Juan Manuel Santos, Fernando Henrique Cardoso, Ricardo Lagos and Ernesto Zedillo, who have asked the IMF for help in dealing with the health crisis. How do you see this request?

I am against asking, again, for help from the International Monetary Fund. IMF aid packages are always conditioned on implementing a neoliberal model.

As I explained at the beginning, there are alternative sources at the financial level to face the crisis and not have to resort to the IMF, which is part of the problem and not part of the solution. It can be remembered that Argentina in 2018, with the Mauricio Macri government, requested a loan from the IMF of about 50,000 million dollars and is now in a tremendous crisis. It was the IMF that ordered Lenin Moreno to increase the price of fuel last year and that sparked a fully justified popular rebellion. So it is not surprising that former neoliberal presidents like Santos or Cardoso again ask the IMF for help. We have to say that our peoples do not need that help.


We see that the Covid-19 pandemic has sharpened the struggle, the confrontation between political, social and production models. We see, more than ever, capitalism faced with socialist proposals. How is the post-coronavirus world outlined?

It will depend entirely on the ability of the world’s citizens to retake their destiny. We see that in most cases, governments are incapable of really facing the situation, such as the Bolsonaro government, which is totally crazy in managing the health crisis, or the Trump government. The organization, the political and citizen participation of the majority are essential to build new perspectives and new experiences.

Source: MBS NEWS




Eric Toussaint

is a historian and political scientist who completed his Ph.D. at the universities of Paris VIII and Liège, is the spokesperson of the CADTM International, and sits on the Scientific Council of ATTAC France.
He is the author of Debt System (Haymarket books, Chicago, 2019), Bankocracy (2015); The Life and Crimes of an Exemplary Man (2014); Glance in the Rear View Mirror. Neoliberal Ideology From its Origins to the Present, Haymarket books, Chicago, 2012 (see here), etc.
See his bibliography: https://en.wikipedia.org/wiki/%C3%89ric_Toussaint
He co-authored World debt figures 2015 with Pierre Gottiniaux, Daniel Munevar and Antonio Sanabria (2015); and with Damien Millet Debt, the IMF, and the World Bank: Sixty Questions, Sixty Answers, Monthly Review Books, New York, 2010. He was the scientific coordinator of the Greek Truth Commission on Public Debt from April 2015 to November 2015.

Other articles in English by Eric Toussaint (527)

Translation(s)

CADTM

COMMITTEE FOR THE ABOLITION OF ILLEGITIMATE DEBT

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