Committee for the Abolition of Illegitimate Debt

Over the last few months the global economy has bounced back from recession but that does not mean that production is going to wipe out the slump that occurred between March 2020 and March 2021. China has recuperated much more quickly and energetically than all the other economies, mostly because the impact of the epidemic, that started in China, has been much more limited. Chinese exports and domestic investment have increased since April 2020 the slump happened between December 2019 and March 2020.

 Stock exchange bubble

The central banks have created massive amounts of money that have been directed to the Stock exchanges and allowed capitalization to increase disproportionately and speculatively. Quoted company values have largely broken the records set in January 2020 after plunging between 25% and 45%, mostly between mid-February and mid-March 2020 (See Éric Toussaint: https://www.cadtm.org/To-confront-capitalism-s-multifaceted-crisis-the-bankers-must-be-expropriated; https://www.cadtm.org/Covid-19-Likely-financial-conflagrations-to-come). This boom is artificial and dangerous. It increases corporate wealth and results in a spectacular surge in inequalities of wealth and incomes.

 Rise in commodity prices

Finally, the boom overflows onto the commodities Commodities The goods exchanged on the commodities market, traditionally raw materials such as metals and fuels, and cereals. markets. The upturn in Global industrial production is certainly a factor in the rise of commodity prices but is far from the complete picture. The enormous quantity of 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. currently available to the big corporations and speculators is the predominant aggravating factor. Basic foods are among the commodities hit by the trend, which could very well create new food crises among the poorest sectors of the populations in countries of the South.

It should be noted that the rise in commodity prices, particularly hydrocarbons, improves the financial situation of exporting countries and their capacity to repay their foreign debts. Indeed, their foreign exchange earnings are now increasing. Contrary to good sense governments prioritize debt repayment rather than responding to the health, ecological and economic needs of their populations.

The rise in commodity prices is different from what Milan Rivié and Éric Toussaint describe in their series on the evolution of debt (Version 2.0 The North’s New Debt Trap for the South), in particular in the article Developing countries in the stranglehold of debt https://www.cadtm.org/Developing-countries-in-the-stranglehold-of-debt which highlighted the fall in commodity prices that occurred as from February 2020. Since the publication of this article, this fall has been interrupted by the economic re-start and by speculation and it is therefore necessary to update this analysis.

 Biden’s policies

In the US, Biden’s policies have taken on a slightly Keynesian touch, but this will have to be verified in the coming months as the measures concerning the taxation of GAFAMs (Google, Apple, Facebook, Amazon, Microsoft, etc.) and the increase in taxes on large companies have yet to be adopted by Congress. What is certain is that the legal minimum wage remains stuck at $7.25 an hour, whereas Biden had promised to raise it to $15, as called for by Bernie Sanders, Alexandria Ocasio Cortez and the trade unions. What the Biden administration has done so far is to make large emergency pay-outs to working class families, but the long-term effects of this measure are fragile, as it is not accompanied by improvements in social rights. The other aspect of Biden’s response to the crisis is a fairly large public expenditure programme aimed at infrastructure improvements, it is hoped this will boost public works companies, fill their order books, stimulate their turnover, increase their profits and job creations.

Mexico, Brazil and other large southern economy’s governments have made similar choices but Europe has not.

 Global debt increase

It is clear that there is a global increase in public debt, household debts among the popular classes and corporate debt. While public and corporate debts are currently contracted at very low 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. maybe zero 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. or even negative interest as in the case of some German public debt, the debts of the popular classes are at very high, even extortionate, interest rates as is the case of most microcredit borrowing.

The political situation has evolved in certain countries.

• Ecuador: former banker Guillermo Lasso has been elected President in April 2021 beating a much divided left and their divided indigenous movement allies.
• Chile: victory of the left in elections and choice of constituent assembly members.
• Colombia: enormous mobilization in spite of heavy repression.
• Brazil: about a hundred demonstrations in as many cities at the end of May 2021.
• Peru: victory of a popular candidate, Pedro Castillo, a teacher and former Trade Union leader, in Presidential election in June 2021.
• Mexico: in elections in June “AMLO”’s social liberal party “Morena” narrowly maintained its parliamentary majority.
• India: victory for the peasant movement and some set-backs for President Modi’s far right party.
• Myanmar: continued resistance to the military regime.
• Palestine: terrible result of the Gaza massacre, continued support for the ultra-repressive and racist policies of the Zionist State by Biden. (See CADTM Press release / Solidarity with the Palestinian People, https://www.cadtm.org/Solidarity-with-the-Palestinian-People)

Asia (reported by Sushovan):

• pandemic, economic crisis and government policies have terrible effects on the populations. General antidemocratic tendencies in India, Myanmar, Philippines, Indonesia, Malaysia and Pakistan.
• Emergence of public and personal indebtedness: see articles on the CADTM website on Sri Lanka which currently risks default on payments.

Latin America:

• Maria Elena presented the situation in Argentina: a new wave of the pandemic, economic crisis, restructuring of the debt notably 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 debts amounting to $44 billion. Numerous direct actions calling for the audit and suspension of payments in which ATTAC-CADTM Argentina participate actively.
• Colombia: William told of the vast popular movement that continues despite very severe repression.

MENA region (reported by Omar)

• Algeria: as the legislative election on the 12 June approached the regime prohibited the Hirak marches and became more repressive. This political crisis comes on top of a deep socioeconomic crisis having its origins in a fall of oil revenues and the intensification of the Hirak movement. Algeria’s public debt is increasing.
• Tunisia faces repayment and budget difficulties; has called on the IMF for another loan conditioned on painful social reforms: gradual suppression of subventions on staple foods and energies. The Tunisian treasury has two repayments totaling $840 million to be paid in June.
• Lebanon: poverty, famine and galloping 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. .
• Morocco: the new round of borrowing will have consequences on the population in the years to come.
• Palestine: another intifada that mobilized the whole Palestinian population in all the occupied territories, notably women and youth. Demonstrations of solidarity in other countries of the region.

Africa (reported by Broulaye)

• Mali: in the first coup in 2020, the intention of the military was to extend the people’s mobilization organized by the M5 movement that put an end to the corrupt regime of Ibrahim Boubacar Keïta. However, because of international pressure, the military has not allowed the M5 representatives into power. A transitional body was set up (National Transitional Council) with a president and a vice-president (former military). The new government that was announced (in consultation with France and others) did not include the military ministers of the transition. Hence the second coup by the military and the arrest of the president and vice-president. The military asked the M5 to name a Prime Minister. The spokesperson of the M5 movement was chosen. The military putschists are unhappy with the permanent intervention of France, which is only defending its own interests as a former colonial power.

Translated by CADTM