Many of the world’s poorer nations are hindered by the debts they have to service. Significant change must happen if they are to stand a chance of making progress. But even richer nations are not immune to the punitive nature of global economics. Kirsty Haigh details the key problems and considers how we can deal with the issue of national debt in a more equitable manner.
The Jubilee 2000 debt campaign resulted in rich countries promising to write off $110 billion of debt. Following this, the Highly Indebted Poor Countries (HIPC) initiative was launched by the International Monetary Fund (IMF) and World Bank. The programme was designed to give debt relief to the thirty six most heavily indebted countries. It’s a common misconception that these initiatives have made international debt a less pressing concern. In reality, the situation still remains very bleak.
Some countries, such as Mozambique, are in an even worse position than before, with their debt having more than doubled from what it was at the peak of the HIPC process. At a recent conference, Geoffrey Chongo from JCTR Zambia highlighted that in Zambia, external debt more than tripled from $2.2 billion to $6.8 billion (a figure which represents fifty-six percent of Zambia’s total GDP) in the period 2001 – 2016. Additionally, recent years have seen new waves of debt crisis across the western world, the most obvious one being Greece.
Contrary to previous promises, debt relief initiatives have fallen well short of what was necessary to provide poorer nations with a sustainable exit from debt traps. The HIPC process didn’t cancel national debts but simply reduced them to a ‘sustainable’ level. The relief offered has often been tokenistic, offering little or no protection from the future incurrence of damaging loans once debts are forgiven. Ghana is a case in point: despite having a significant proportion of its debt cancelled a decade or so ago, in 2015 it still recorded a government debt equivalent to almost seventy-one percent of its GDP. A 2016 report by the Jubilee Debt Campaign highlighted that Ghana is losing around thirty percent of government revenues to external debt payments each year. Venezuela offers another example: Patricia Miranda from Latindadd asserted recently that the country is having to allocate more than half of the money it makes from its exports on debt servicing.
A 2016 report by the Jubilee Debt Campaign highlighted that Ghana is losing around thirty percent of government revenues to external debt payments each year.
We have a global system in which poor countries are forced to divert scarce resources from clean water, health, and sanitation into debt repayments to rich creditors. This system results in the death of millions of people – and destroys hope of a bright future for many millions more. Struggling countries should never have to prioritise repayment of debt over basic services such as healthcare and education. Debt thus remains one of the most important development and world justice issues. Sending aid to countries in need – which often ends up in the hands of private companies – is ineffective, especially while they are still haemorrhaging money in debt servicing repayments. Increased aid and lending has not led to a genuine reduction of poverty in the developing world. A wholesale structural change is required.
Our international institutions and governments need to take a new approach based upon supporting socially responsible lending. At the moment, poorer countries are dominated by ‘the system’ and are forced to agree loans and debt restructuring with unjust terms and conditions. Developing countries need external funding to finance important projects and build up their capacity. Because they often rely on ever-fluctuating export revenues to pay back their loans, or can face frequent difficulties such as natural disasters or currency devaluations, their loans can become difficult or impossible to pay back without significantly cutting back in crucial domestic services. The international community needs to extend debt cancellations and grants to vulnerable nations, thus allowing them to have a clean start and set their own policies.
For months, campaigners in Mozambique had been trying to get the independent audit of the secret loans to Mozambique published. This happened in July 2017 and revealed that the auditing company Krill Inc. have been unable to account for $500 million of loans.
At the same time, we need to create policies to stop our banks and governments negatively interfering and, as in the case of Mozambique, lending money without having the loans approved first by national parliaments. In January of this year, Mozambique defaulted on a debt payment of $60 million. It is a hidden public debt burden of more than $1 billion. Meanwhile, the 2015 Human Development Index put Mozambique at the bottom of the ranking (180th out of 188 countries and territories). For months, campaigners in Mozambique had been trying to get the independent audit of the secret loans to Mozambique published. This happened in July 2017 and revealed that the auditing company Krill Inc. have been unable to account for $500 million of loans.
Dominant neoliberal economic ideas are driving the world into debt disasters and we need to help facilitate a system where ordinary people can take back control of the economy. It will not be possible to meet the Sustainable Development Goals – let alone fix the system – if the issue of debt is not properly addressed. International institutions such as the World Bank and IMF must stop holding countries to ransom and insisting that they privatise basic services, or cut public spending as a condition for receiving debt relief. Harmful conditions need to stop being a prerequisite of ‘help’.
An intelligent model of international debt relief would also acknowledge mistakes made by lenders themselves. For example, those who poured money into the Philippines when it was ruled by the dictator Ferdinand Marcos during the 1960s til the 1980s. It was clear that this money was being spent to prop up the crimes and corruption of Marcos and not used for the citizens’ benefit. The country was still paying back $22 million a day in debts as recently as 2013. Debt relief cannot be based on conditions that undermine domestic economies.
At the moment, too much of these processes are negotiated behind closed doors, with debtor governments being accountable to other (invariably richer) governments or to institutions like the World Bank and IMF, rather than their own people.
We need a transparent financial system where vulture funds (funds which buy cheap distressed sovereign debt and then sue for the repayment of the full amount when the conditions have improved) cannot hold countries and citizens to ransom – where private banks and hedge funds cannot deprive citizens of their most basic public services while making huge profits. For example, Argentina should not have had to spend over $400 million on legal fees fighting the vulture funds that held it hostage for ten years. Those vulture funds bought up Argentina’s debt very cheaply after it defaulted and then battled Argentina for huge amounts of money. Eventually the US courts ruled that Argentina should pay $1.3 billion to these vulture funds, and then gave these same funds the right to use the US courts to seek out Argentinian assets around the world.
What is required is the creation of an impartial and comprehensive international insolvency process to resolve the debt crises that nations find themselves in; to judge what debt is unpayable or unjust, and to ensure that the needs of domestic populations take priority over national debt repayments. Furthermore, creditors and debtors must be fully transparent about the extent of debts, the terms of any debt relief, and the amounts and terms of new loans – this is the only way that the parliaments, media and citizens of poor countries can hold their governments accountable.
At the moment, too much of these processes are negotiated behind closed doors, with debtor governments being accountable to other (invariably richer) governments or to institutions like the World Bank and IMF, rather than their own people. It is clear that significant work still needs to be done to ensure that people in the world’s poorest countries do not suffer as a result of unfair and unpayable debt. Developing countries, and those which are struggling financially, need debt cancellation and a fair set of financial rules. They need justice, not charity.
Kirsty Haigh is Campaign Director at the coalition Jubilee Scotland who campaign together with global partners for the cancellation of unjust and unpayable debts which continue to thwart anti-poverty and sustainable development efforts around the world. The organisation also campaigns for a fairer global economy and for transparency to a system which largely operates behind closed doors. She is also a trustee of Jubilee Debt Campaign and works part-time as Activism and Events Officer at Global Justice Now. You can contact her via: @kirstyehaigh @jubileescotland or email@example.com
Feature image: Campaigners demand an end to the crippling debt burdens faced by the world’s poorest countries. 18th May, 2008. Image: Paul Miller [CC BY 2.0]