The Global South Must Be Freed of Its Debt Servitude
The G20 has announced it will allow 76 poor countries additional time to pay back their loans. But it’s not an act of benevolence — it’s a desperate maneuver to maintain the global debt peonage that undergirds neoliberal capitalism.
The COVID-19 pandemic, which has infected more than 2 million people worldwide and brought the global economy to a halt, is sending impoverished nations into a tailspin. So last week the G20 agreed to give poor countries a break on their debt repayments.
Starting May 1, seventy-six poor countries (defined as such by qualification for assistance from the World Bank’s International Development Association) who are “current” on their loans to both the International Monetary Fund (IMF) and the World Bank will be able to suspend bilateral (government-to-government) loan payments for the rest of the year.
The debt relief will give poor countries a little bit of extra cash to spend on containing the virus and dealing with its economic fallout. But like most relief measures enacted during this crisis, the G20’s loan concessions are at best a bare minimum, aimed at containment rather than mitigation.
The bilateral debt payments will be suspended rather than canceled, meaning payment obligations (including accrued compound interest) will just get kicked down the road. Debt payments owed to multilateral organizations (the IMF and the World Bank) and private creditors such as commercial banks and bondholders have not been suspended. Private creditors have announced they are not interested in a debt moratorium for poor countries.
Debt to multilateral, bilateral, and private creditors has shot up in the past decade, so these exceptions and qualifications ensure that poor countries will simply find themselves under an avalanche of debt, unable to pay, next year rather than right now.
Granted, a heavily indebted Global South is effectively a constant in neoliberal capitalism. Since 1980, low- and middle-income countries have made roughly $13 trillion in debt-service payments (most of it to pay off compound interest) to rich countries, banks, and international institutions like the IMF and the World Bank.
At times, poor countries have managed to get the roller-coaster debt cycles under control. Between 2000 and 2010, for example, low- and middle-income countries saw their external debt payments fall, thanks to high commodity prices and the Heavily Indebted Poor Countries Initiative (a joint project of the IMF and World Bank that wrote off roughly $130 billion in debts owed to governments and multilateral institutions). But the reprieve was short-lived. For the past ten years, poor countries have been falling further and further into debt.
While some countries’ debt levels are stable, a growing number of low- and middle-income countries are losing their grip, their debt-to-export ratios climbing to dangerously high levels. Low- and middle-income countries saw their external debt rise 5.3 percent last year, to $7.8 trillion. Of the sixty-seven impoverished countries monitored by the IMF, half are experiencing, or are on the verge of experiencing, “debt distress” — a number that has doubled since 2013.
Why is this happening? Experts are quick to trot out the same tired explanations — poor countries have not diversified their economy, don’t know how to collect taxes properly, or have spent the loan money on food rather than productive investment — conveniently ignoring the historical and ongoing plunder of poor countries by rich countries, banks, multinational corporations, and global elites in the North and South.
But observers also point to changes in the global lending landscape since the 2008 financial crisis. Low interest rates have triggered a surge in speculative lending from bilateral and private creditors (who generally charge higher interest rates and have less favorable repayment terms). Between 2008 and 2014 alone, external loans to developing countries nearly doubled to $390 billion a year.
On the demand side, poor countries have boosted their borrowing because, contrary to the rosy picture painted by development evangelists, inequality and poverty are increasing for most countries, not decreasing. Half of humanity already suffers from food insecurity and debilitating poverty — nosediving commodity prices, wild currency swings, and the rising costs of climate change over the past decade have made life more precarious for the world’s poor and have left low- and middle-income countries looking for ways to cover cash shortfalls.
With poor countries increasing their borrowing (at significantly higher interest rates) from private commercial creditors and non–Paris Club countries such as China and India, their cumulative debt burdens are set to skyrocket in the next few years. In turn, the toxic cycle of poor countries borrowing from multilateral creditors (who condition loans on structural adjustment) to cover the interest payments on bilateral and private loans will be amplified.
The pandemic is making this already untenable situation much worse. While some countries are slowly getting back on track, global demand has collapsed. Worldwide, millions are out of work, and elected officials are hesitant to end social distancing. Consumers are putting off big purchases; they aren’t going to restaurants or taking vacations; they aren’t sending home remittances. Poor countries, already struggling with the knock-on effects of stagnation in the United States and Europe, will find it damn near impossible to find the money for looming debt bills.
In this light, the G20’s concession looks like little more than a desperate maneuver, disguised as benevolence, to keep poor countries on the hook — to keep cash flowing from the Global South at all costs. Comprehensive debt forgiveness — not a tepid temporary reprieve — is the only meaningful response to the looming debt crisis poor countries face.