Debt cancellation and reparations

Debt servicing has put incredible constraints on public spending for essential services - or social protection - in the Global South, but it also has done a lot more harm than that.

Illegitimate debts, debt servicing and conditionalities all straightjacket us.

This injustice sits upon the historical, social, and ecological debts owed to the peoples of the South, since colonialism, and they form the major bases for our call for reparations.

This series of articles has been published in partnership with Dalia Gebrial and Harpreet Kaur Paul and the Rosa Luxemburg Stiftung in London. It first appeared in a collection titled Perspectives on a Global Green New Deal.

Debt

First let’s talk about debt. The so-called “debts of the South” have grown steadily, and during some periods quite dramatically, over the years.

The major debt relief programs of international financial institutions and bilateral lender of the past two decades - the Highly Indebted Poor Countries (HIPC) debt relief program launched in 1996 and ënhanced in 1990, and the Multilateral Debt Relief Initiative (MDRI) announced in 2005 - were heavily criticised for offering too little relief for too few countries.

In fact, a lot of the debts covered by HIPC were not being serviced, thus debt relief mainly functioned as a way of clearing up creditors’ books from uncollectible loans.

In addition, these initiatives exacerbated other problems by requiring compliance with conditionalities including cuts and caps on social spending and freeze on salaries of public employees including teachers.

Covid-19

Furthermore, these initiatives may have provided some ease in debt payments and reduction in outstanding debts but beneficiary countries considered to be no longer severely indebted had much less access to highly concessional loans and instead were compelled to borrow from financial markets with much higher interest rates and increase their domestic borrowings.

The Covid-19 pandemic brings into sharp focus once again the problem of debt and the urgent need for real solutions and not just temporary, very short term relief.

Unfortunately the offers as of the time of this writing from international financial institutions led by the IMF and from bilateral lenders led by the G20 again involve very little relief for too few countries.

The IMF announced its debt relief initiative in April 2020 with $500 million to be provided through its Catastrophe Containment and Relief Trust to cover the debt payments for six months in 2020 of twenty-nine countries considered to be the poorest and most vulnerable.

The G20 announced within the same month, the Debt Service Suspension Initiative which involves simply a delay of debt service due from 1 May 2020 to 31 December 2020.

G20

Countries eligible to apply only include those in the list of the World Bank’s International Development Agency (IDA) and the United Nations’ list of Least Developed Countries - a total of 76 countries.

The amount of debt service to be suspended if all eligible countries apply and all G20 countries participate is only about USD$11 billion.

The G20 offer only covers 3.65 percent of all the debt service payments to be made in 2020 by developing countries. It must be noted that the debt service being canceled and/or suspended are only those to be paid to official creditors. Nearly half of public external debt is owed to private lenders.

Campaigns

Many campaigns and movements - south and north - are calling for deeper, wider cancelation of public debt payments for a much bigger number of countries, and for a longer period of at least four years, as an immediate response to the pandemic and the economic crisis. 

The campaigners also want decisive steps to be taken for more comprehensive and lasting solutions to the debt problem, including the total and unconditional cancelation of outstanding debt stock and changes in the international financial architecture and borrowing and lending policies to prevent the re-accumulation of debt.

One of the key obstacles to debt solutions is how a debt crisis or debt distress is defined.

For a long time creditors have held the view that there is a global debt crisis when many countries are not making their debt payments in full and on time. And countries are in debt distress if they are experiencing difficulties in servicing their debts.

From the perspective and experience of peoples of the South - we have been in a permanent debt crisis.

This means debt payments continue to occupy a significant share of public spending and prioritised over vital needs such as basic services and economic policies that promote social justice, address poverty and inequality.

More over, it prevents the debtor countries from building climate resilience and addressing loss and damage associated with climate change harms, and paving the way for equitable and post carbon development.

Injustice

Debt injustice is more than the impact on public spending for the well-being and rights of people and communities, and more than the economic vulnerability to exogenous shocks.

Loans, access to credit and debt relief have long been used as leverage to impose policy conditionalities, and this practice continues in various guises.

The impact of many of these conditionalities, including tight austerity measures and privatisation of essential services, are just as worse if not even worse than the debt problem.

Many debts peddled by lenders and incurred by governments in the name of their people were not actually used for the real benefit of people and many loan-financed projects have actually been harmful for communities and the environment.

And yet these illegitimate debts are paid using peoples’ money.

Colonial

Calls to address illegitimate debts as a priority must be renewed.

At the same time, the debt problem must be seen from a broader and historical view, in order to pave the way for strategic, just, fair and long lasting solutions.

The problem of debt is a consequence of a long history of colonial and neo-colonial plunder of the resources and wealth of the South.

It is not a coincidence that the first lenders to most southern countries were their colonisers, purportedly as part of the assistance and solutions to the impoverishment in the South.

And this justification to massive lending and borrowing continues to this day through international financial institutions that continue the same work.

Wealth

We are incapable of generating wealth as so much of our countries’ wealth - natural resources as well as wealth generated by our hardworking people - leaves our countries.

It is taken to the North in the form of illicit financial flows, capital flight, profit repatriation, interest payments on unsustainable and illegitimate debts, losses from underpriced exports and overpriced imports and unfair trade relations.

And the wealth that stays inside our countries is mostly controlled by elites and big corporations.

This is borne by hard facts - on balance, there is a net outflow of resources from the south to the north. This requires structural reparations for Southern nations. 

Fight

One of the biggest myths that continue to be perpetuated is that we lack wealth and capital.

This justifies the overzealous pursuit of loans on the part of many Southern governments, and the supply driven lending, unfair trade arrangements, and invasion of our economies and markets by northern and international elites, their financial institutions and their corporations.

We must fight for just debt cancellations - but also for reparations. For the historical social, economic, ecological and climate debt owed to our people.

And we must wage this fight as part of a broader struggle to transform the fundamentally flawed system that has been built on and perpetuated injustice and inequality in various dimensions, while devastating our people and our planet.

This Author

Lidy Nacpil is a coordinator for Asian Peoples’ Movement On Debt And Development, based in Manila, Philippines.