As Global North nations emerge from a year of lockdown to reopening bars and brunch spots, countries across the Global South are facing not only the continued impacts of the virus itself, but a profound debt crisis that threatens the lives and livelihoods of millions for years to come.
When the pandemic hit early last year, economies across the world came grinding to a halt. While wealthier nations were, for the most part, able to spend their way through the crisis, those in the Global South were not so fortunate. Already under-resourced and overexploited, “developing nations” found themselves faced with falling revenue, fleeing capital, acute social needs, and a cartel of creditors none too eager to lose out on repayment.
Facing the risk of widespread default, creditors responded characteristically. The International Monetary Fund (IMF) provided limited, largely symbolic, debt cancelation to a select group of twenty-five countries. The G20 nations established a Debt Service Suspension Initiative that merely postpones, rather than cancels, payments, and is open only to low-income countries, excluding middle-income countries like Colombia, El Salvador, and the Philippines that often need it most.
The G20’s Common Framework for Debt Treatments, a program intended to facilitate debt restructuring beyond temporary suspension, is similarly deficient. It, too, is narrow in scope, designed by and for creditors, and fails to protect participating countries from credit downgrades. Critically, none of the major initiatives on Global South debt relief requires private sector involvement, leaving virtually untouched the privately held debt that in some countries amounts to nearly 70 percent of the total burden. Instead, the leaders of the world’s most powerful nations were collectively left calling on the private sector to provide relief voluntarily — the global economic crisis equivalent of “thoughts and prayers.”
More than a year into the pandemic, the predicted wave of debt defaults has largely failed to materialize, but those that have weathered the storm have done so at great cost. Last year alone, developing nations (excluding China) paid out an astonishing net $194 billion to external creditors. To afford these payments, struggling nations were forced to both slash social spending and borrow themselves deeper into debt distress.
As a result of the crisis, developing-country debt rose from an average of about 40 percent of GDP to over 60 percent. In short, the global financial system functioned as designed: providing just enough breathing room to avoid defaults, thus protecting private creditors via public subsidy, while deepening the underlying crisis and forcing Global South nations further into bondage.
The debt crisis is a tragedy in its own right, amounting to deepening poverty, unemployment, underdevelopment, lack of health care, and overall immiseration for countless people across the Global South. It is well worth our outrage and organized opposition on these grounds alone. In addition to that, the Global South debt crisis is not only a problem for the Global South. It’s a crisis for workers everywhere. The working class of the Global North must join with our southern comrades to fight it — not purely out of altruism, not purely out of self-interest, but out of solidarity in a shared struggle.
In the Global Race to the Bottom, All Workers Lose
Global South debt is not a bug but a feature of the global economic system. And one of its key functions is to provide leverage for creditors to impose their own agenda on the Global South. Desperate to meet their payments rather than face a downgrading at the hands of all-powerful credit-rating agencies, eighty-five countries have turned to the IMF for additional finance since the pandemic began.
The IMF, in turn, has used its power as a lender of last resort to impose its usual suite of austerity, deregulation, and privatization. According to one Oxfam report, over 80 percent of IMF loans provided during the pandemic came with conditions of public sector budget cuts, with many maintaining austerity measures for years to come.
The fallout from these systematic attacks on the working class are not contained by national borders. The global financial architecture developed since the 1970s has empowered capital to move freely between countries in search of the most profitable conditions. Would-be sovereign nations are thus pitted against one another in a desperate race to the bottom. As a result, when IMF programs take advantage of debt-distressed countries to impose sweeping anti-worker reforms, it is not just workers of that country who are hurt.
Consider the relative power of workers at a factory in the United States considering a relocation to El Salvador. When debt crisis hits and El Salvador takes on an IMF loan that contains conditions of public sector layoffs, wage reductions, and cuts to unemployment protections — as it did last year — workers in the United States are suddenly competing against a newly abundant source of cheap, exploitable labor. While the Salvadoran workers bear the brunt of the IMF assault, the result for workers in the United States is at best a loss of bargaining power, at worst a loss of a job. Now consider this effect on a global scale.
An attack on workers anywhere is an attack on workers everywhere. And Global South debt makes a powerful weapon.
All Health Is Global Health
A further effect of both the need to pay creditors and the austerity conditions imposed by lenders like the IMF is the decimation of public health services across the Global South. In 2020, during one of the greatest health crises of modern times, developing countries spent on average nearly one and a half times as much repaying loans as they did on public health care.
The $194 billion net transfer from developing countries to external creditors alone would have been enough to vaccinate every single person in the developing world. And though the COVID-19 emergency IMF loans typically made exceptions to their austerity prescriptions for health spending during the pandemic, these “fiscal adjustments” are expected to come into effect in the coming years. For fifty countries, public budget cuts are expected to be greater than their total current health care expenditure.
In short, in the midst of an unprecedented global health crisis, developing countries have been forced to pay their creditors rather than protect the health of their own people. Again, the fallout transcends national boundaries. As the virus continues to rage on across much of the Global South, new, deadlier, more vaccine-resistant variants are beginning to emerge.
Just as with the failure thus far to address the intellectual property rules that uphold global vaccine apartheid, the Global North nations’ prioritization of private creditors over public health risks prolonging the pandemic and coming back to haunt us all. If and when a new variant, or a new pandemic, spreads back to the Global North, it will once again be the working class that bears the cost.
Creditors Versus Climate Action
Taken together, compounding debt and forced austerity risk plunging the Global South into yet another “lost decade” of development. Under such conditions, it’s difficult to imagine many public resources will be left over for the unprecedented investment required to meet the urgency of the global climate crisis. As debt expert Daniel Munevar has put it: “Continuing down this path [of debt] will sound the death knell for the commitments under… the Paris Climate Agreement.”
Drained of public funds, countries that do wish to act on climate change may instead be forced to turn to a heavier reliance on private finance, locking in a capital-first approach that is not only doomed to fail, but that reinforces the power of financiers at the expense of workers everywhere.
While COVID-19 should be reason to radically rethink the rules that underpin the global economy and rebuild in a way that addresses the existential threat of climate change, disaster capitalists like those in the Biden administration are instead seizing on the crisis to advance their vision of a privatized global climate response.
Once again, the result of this failure to confront the climate crisis, and the reinforcement of the existing hierarchy between capital and worker, will not only be felt in the Global South — it would be an unfathomable disaster for working people everywhere.
Breaking the Shackles
Above all else, the Global South debt crisis is an act of violence against, and exploitation of, the people of the Global South. But from an assault on global worker power, to attacks on global health, to the undermining of global climate action, Global South debt is also a crisis for workers in the Global North.
This is far more than a happenstance alignment of interests between two separate groups. Rather, the shared interests of a global working class is a defining feature of the capitalist global economy. Global North governments work hand in glove with capital to exploit the people of the Global South.
While a small sector of Global North workers may receive sufficient crumbs to help to demobilize resistance, in reality, the suffering of South and North workers are bound together. So too is our collective liberation. As people across the Global South struggle against austerity, combat IMF loan conditions, and demand debt cancellation, we in the Global North must follow their leadership and unite in resistance.
In the short run, that means organizing to force our governments to enact comprehensive sovereign debt cancelation — including from the private sector. Other immediate measures might include a much-needed injection of liquidity via an allocation of three trillion Special Drawing Rights, and the redistribution of existing Special Drawing Rights, including through the proposed Robust International Response to the Pandemic Act.
But immediate relief alone is not enough. To truly address the roots of Global South debt servitude, we must dream bigger, toward a radical restructuring of the global economy. Such a rewriting of the rules — perhaps articulated as a Global Green New Deal — would include not only immediate debt cancelation, but also the creation of a permanent debt workout mechanism under the auspices of the United Nations; the elimination of austerity in loan conditions; the complete transformation or abolition and replacement of the IMF and World Bank; the rewriting of the rules of trade and investment to help put an end to the race to the bottom; unprecedented, unconditional, and reparatory North-to-South public finance; and more.
Such a transformative agenda is necessary. But it will not be possible so long as the struggles of the Global South are treated as separate from our own. Rather, we must recognize that the shackles that bind the Global South weigh us all down — and through the strength of a united transnational working class, break them once and for all.