The CADTM denounces the G20’s measures on debt

17 October 2020 by CADTM International

At the time of the WB-IMF annual assemblies held from 12 to 18 October 2020, the G20 Finance Ministers met on Wednesday 14 October to decide on new debt relief measures for the countries of the South. The G20 proved unable to meet the emergency forced by the crisis and merely extended the Debt Service Suspension Initiative (DSSI), for another six months, launched in April 2020 without questioning the foundations and the limitations of this initiative.

Faced with the deepening of the debt crisis in countries of the South due to the deteriorating global economic situation combined with the corona-virus pandemic, International Financial Institutions and the main bilateral creditors had launched measures for emergency financing and debt relief in the spring of 2020.

In April 2020, the 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). and the Paris Club Paris Club This group of lender States was founded in 1956 and specializes in dealing with non-payment by developing countries.

created the DSSI. [1] The idea was to postpone bilateral debt service Debt service The sum of the interests and the amortization of the capital borrowed. owed from May to December 2020 to a period from 2022 to 2024, which means that amounts not paid in 2020 will be added to the sum owed at that time. The proposal appeared as inadequate since its inception. Limited to 73 countries as it was, i.e. just over half of the developing countries, it left out countries that were already defaulting such as Sudan, Argentina or Venezuela. Moreover the agreement stipulated that the rescheduling was conditioned on prior repayment of arrears owed to the World Bank World Bank
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.

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.
and on the ratification of a 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).

plan under the aegis of the IMF. While the the public external debt of countries of the the South amounts to some $3,000 billion, the DSSI had the best of cases to deal with… $20 billion, i.e. less than 1% of the total public external debt.

An additional issue is that neither China, nor private creditors such as 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.
or vulture funds Vulture funds
Vulture fund
Investment funds who buy, on the secondary markets and at a significant discount, bonds once emitted by countries that are having repayment difficulties, from investors who prefer to cut their losses and take what price they can get in order to unload the risk from their books. The Vulture Funds then pursue the issuing country for the full amount of the debt they have purchased, not hesitating to seek decisions before, usually, British or US courts where the law is favourable to creditors.
, that are the main creditors of those countries were directly involved in the DSSI. As they were merely invited to join the initiative, neither one nor the others granted any debt relief or rescheduling. Worse still, contrary to initial statements by private creditors belonging to the Institute of International Finance (IIF), [2] those creditors threatened developing countries participating in the DSSI with downgrading their sovereign rating and a severe decline in foreign direct investment.

As a consequence, only 46 among eligible countries introduced a DSSI request, amounting to a total suspension of… $5 billion, [3] i.e. less than 0.2% of the total amount of the public external debt of the countries of the South. Actually, “the total external debt of countries eligible for the relief initiative adopted in April 2020 by the G-20 countries (DSSI) increased by 9.5% compared to the previous year. It reached a record $744 billion in 2019, and has grown twice as fast as that of other low- and middle-income countries.” [4] After such blatant disavowal, some expected that the G20 meeting on 14 October would suggest a complete overhaul of the DSSI to eventually meet legitimate expectations. But this was not to happen. Only very limited measures were taken. [5] First, a six month extension, i.e. a rescheduling of payments for January to June 2021; second, an extension of the repayment period initially scheduled between 2022 and 2024, and thus extended to 2026; third, the adoption of a “common framework for debt treatment beyond the DSSI,” which is supposed to involve bilateral creditors that are not members of the Paris Club, and private creditors (though not further specified); finally, the same unbearable conditionality to subscribe to an “assistance program” by the IMF… When we know that China rightly considers that the G20 is not an adequate basis on which to deal with debt renegotiations and that private creditors belonging to the IIF renewed their refusal to participate in the DSSI in an open letter, [6] we are heading for a new failure.

Finally, the G20 countries are in line with measures by the IMF and the World Bank: a few emergency loans, implementing austerity policies, and an unfailing support to creditors as they turn down the mere idea of cancellation.

Yet there are solutions. From the beginning of corona-virus crisis, in the United States and in the European Union, central banks had released over $5,000 billion within a few weeks. Furthermore, at least three arguments of international law can be invoked to justify debt cancellations or repudiations, namely, force majeure, state of necessity and fundamental change in circumstances. Finally, if there was really any political determination to act, the G20 countries, the Paris Club and multilateral institutions (WB/IMF) could at least publicly support any country that would decide to suspend or even repudiate their debt, and thus force refractory creditors to join in negotiations.

For CADTM, nothing is to be expected from International Financial Institutions and from the powers that be. The CADTM is convinced that countries of the South must unite against repayment of illegitimate debt. This is what Thomas Sankara, the young president of Burkina Faso, already proposed 33 years ago, and indeed around the same time by Cuba and Fidel Castro. For this to actually happen we need awareness among people and powerful mobilisations. The CADTM is pleased that a large global coalition of movements fighting illegitimate debt has been set up with over 550 organizations in 90 countries to issue a common statement and act together in the context of the global week of action for debt cancellation.

This is only a beginning. We will carry on the fight.

Arabic version:

Translated by Christine Pagnoulle


[1Paris Club, Debt Suspension Initiative for the Poorest Countries - ADDENDUM (*), 15 April 2020.

[3World Bank, Covid-19: Debt Service Suspension Initiative.

[4China now holds 63% of poor countris’ debt to G-20 members, 15 October 2020.

[5Paris Club, Extension of DSSI and common framework for debt treatments, 14 October 2020.

[6IIF, IIF Letter to G20 Regarding the Debt Service Suspension Initiative, 22 September 2020.

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