Committee for the Abolition of Illegitimate Debt

At their recent annual meeting in Washington, 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 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.

endorsed the G8 decision announced with great fanfare last June 11. Despite considerable internal opposition led by representatives of Belgium and the Netherlands, it was agreed that 18 of the highly indebted poor countries (HIPC Heavily Indebted Poor Countries
HIPC In 1996 the IMF and the World Bank launched an initiative aimed at reducing the debt burden for some 41 heavily indebted poor countries (HIPC), whose total debts amount to about 10% of the Third World Debt. The list includes 33 countries in Sub-Saharan Africa.

The idea at the back of the initiative is as follows: a country on the HIPC list can start an SAP programme of twice three years. At the end of the first stage (first three years) IMF experts assess the ’sustainability’ of the country’s debt (from medium term projections of the country’s balance of payments and of the net present value (NPV) of debt to exports ratio.
If the country’s debt is considered “unsustainable”, it is eligible for a second stage of reforms at the end of which its debt is made ’sustainable’ (that it it is given the financial means necessary to pay back the amounts due). Three years after the beginning of the initiative, only four countries had been deemed eligible for a very slight debt relief (Uganda, Bolivia, Burkina Faso, and Mozambique). Confronted with such poor results and with the Jubilee 2000 campaign (which brought in a petition with over 17 million signatures to the G7 meeting in Cologne in June 1999), the G7 (group of 7 most industrialised countries) and international financial institutions launched an enhanced initiative: “sustainability” criteria have been revised (for instance the value of the debt must only amount to 150% of export revenues instead of 200-250% as was the case before), the second stage in the reforms is not fixed any more: an assiduous pupil can anticipate and be granted debt relief earlier, and thirdly some interim relief can be granted after the first three years of reform.

Simultaneously the IMF and the World Bank change their vocabulary : their loans, which so far had been called, “enhanced structural adjustment facilities” (ESAF), are now called “Growth and Poverty Reduction Facilities” (GPRF) while “Structural Adjustment Policies” are now called “Poverty Reduction Strategy Paper”. This paper is drafted by the country requesting assistance with the help of the IMF and the World Bank and the participation of representatives from the civil society.
This enhanced initiative has been largely publicised: the international media announced a 90%, even a 100% cancellation after the Euro-African summit in Cairo (April 2000). Yet on closer examination the HIPC initiative turns out to be yet another delusive manoeuvre which suggests but in no way implements a cancellation of the debt.

List of the 42 Heavily Indebted Poor Countries: Angola, Benin, Bolivia, Burkina Faso, Burundi, Cameroon, Central African Republic, Chad, Comoro Islands, Congo, Ivory Coast, Democratic Republic of Congo, Ethiopia, Gambia, Ghana, Guinea, Guinea-Bissau, Guyana, Honduras, Kenya, Laos, Liberia, Madagascar, Malawi, Mali, Mauritania, Mozambique, Myanmar, Nicaragua, Niger, Rwanda, Sao Tome and Principe, Senegal, Sierra Leone, Somalia, Sudan, Tanzania, Togo, Uganda, Vietnam, Zambia. ) would benefit from a 40 billion debt relief deal. But for all of those engaged in the campaign to break the relentless debt spiral, the decision is a bitter disappointment - on many counts.

First: the small percentage of debt concerned by this decision. In reality, the debt relief deal represents just 2.5% of the $1,600 billion dollar external public debt owed by all developing countries. And the number of beneficiary countries is pitifully small when compared with the 165 developing countries caught up in the debt spiral. How to explain that such long-suffering countries as Haiti and Nepal are excluded from the deal? For the 18 countries included in the deal, debt relief applies only to debts owed to the IMF, the World Bank and the African Development Bank. The Inter-American Development Bank is not a party to the agreement, a fact which greatly penalises the four South American countries included in the 18 (for example, Bolivia’s debt servicing expenditure will only be reduced by 26%). As for private creditors, not only are they not required to cancel any debt; there has actually been an increase in the number of judicial procedures filed by 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 swoop in to make a 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. on what the 18 HIPCs owe them. The risk of some of the funds freed up by the agreement going straight to unscrupulous speculators is therefore far from negligible.

Second: the amounts cited in the agreement have no real significance. The rich countries have undertaken to repay the debt instead of the HIPCs, but financing arrangements for the mid-term remain hazy. In fact, the sums freed up by the agreement amount to some 1 billion dollars a year over several decades, but there have been many cases in the past where the world’s richest countries have failed to honour their commitments. For example, in 1970 they agreed to provide official development aid to the tune of 0.7% of their gross national income; 35 years on, they are barely reaching 0.25%. Meanwhile, these same countries earmark 700 billion dollars per year for military spending and 350 billion dollars for agricultural export subsidies that severely penalise small Third World producers.

Third: by endorsing this decision, the G8 G8 Group composed of the most powerful countries of the planet: Canada, France, Germany, Italy, Japan, the UK and the USA, with Russia a full member since June 2002. Their heads of state meet annually, usually in June or July. countries and international financial institutions wish to imply that Third World debt is a purely financial burden. But over and above its financial implications, the debt is a tool of political domination. The IMF and the World Bank, both of them eager to defend the interests of political leaders and transnational corporations in the North, use the debt as a means of forcing the South to adopt neo-liberal economic reforms. Wiping the slate clean for a tiny portion of the debt will in no way reduce the coercive pressure of the debt, thus consolidating a new form of colonial dominance where decisions concerning the countries of the South are taken in Washington, London, Paris or Brussels with the connivance of local potentates who have their own personal agenda. The Ministers of Finance in poor countries are quick to say “thank you” to the hand that feeds them.

Fourth: the decision is a bitter reminder of past failures. The HIPC initiative, first launched in 1996 and reinforced in 1999, was supposed to provide a lasting solution to the debt problem. The figure of 100 billion dollars of cancelled debt was put forward. In reality, the Southern countries targetted by the initiative have had to walk the relentless neo-liberal treadmill only to see living conditions decline for the poor while the debt remains grossly inflated. The decision recently endorsed by the IMF and the World Bank only serves to mask the HIPC initiative fiasco and prevent any serious discussion about the way towards the construction of an economic model that, unlike the current one, will focus on satisfying basic human needs.

Media-wise, the decision has been a veritable tour de force: the illusion of one big, generous cancellation concealing a monumental rip-off. Call it the G8 effect: in June the announcement of a spurious “historic” agreement in London, in July its validation in Scotland, then the same announcement in September in Washington, to give the impression that all is well on the debt relief front. And indeed, all is well - for the creditors. Their stranglehold continues, affecting the lives of billions of individuals whose basic rights are unprotected. And will continue to be until the debt mechanism is removed. Until essential changes are made to the triple team of the G8, the IMF and the World Bank, which can bring no viable solution to the debt because it is a key component of the problem.

Damien Millet is president of CADTM France (Committee for the Cancellation of Third World Debt) , author of L’Afrique sans dette, CADTM/Syllepse, 2005 ; Eric Toussaint is president of CADTM Belgium, author of Your Money or Your Life - The Tyranny of Global Finance, CADTM/Syllepse, 2004.