A New Global Debt Crisis

by NICHOLAS DEARDEN

Even ardent proponents of the free market find it hard to argue today that globalisation is improving the lives of the majority of the world. A system of inherent crises, which has fuelled historically unprecedented levels of inequality, has collapsed, leaving in its wake a nightmare for many developing countries who find the trade and investment that globalisation has made them dependent on, suddenly drying up. Across the world 40 million jobs are predicted to be lost in 2009.

Against this backdrop, world leaders who profess concern with the fate of the global poor should be asking themselves some soul-searching questions as to why they have stuck behind the dogmatism of free market fundamentalism for so long. Instead, some of the ideas for new funding put forward by Gordon Brown and others could, after an immediate injection of desperately needed cash, mean more of the same policies that have created the mess in the first place.

Reckless finance is nothing new. Throughout the 1970s banks and governments made enormous loans to developing world countries without much consideration as to who they were lending to or what they were lending for. Many countries have spent much of the subsequent 30 years weighed down by an unpayable debt which has allowed the rich world to force all manner of free market policies onto their economies.

Indeed Chile’s finance minister Andres Velasco said last year that the credit crunch was “a more modern and much bigger version of what we have seen in emerging markets over the last couple of decades”. And unless the poorest in the world are going to pay for this crisis in the way they paid for the Third World debt crisis in the 1980s and 90s, solutions have got to be radically different this time around.

The clearest lesson to be drawn from the ongoing crisis is that financial globalisation has been inimical to development. A recent report by ActionAid clearly shows how those countries that have become most dependent on capital inflows to their economy have been most vulnerable to the financial crisis .

In times of crisis, capital leaves the peripheries to shore up the centre, and that is happening now. Countries without a strong domestic capital base with which to fund their own development are being left high and dry.

In many countries this could easily lead to another full-blown debt crisis, especially where countries have taken out a large quantity of short-term loans to repay longer-term debts. In 2006 $660 billion of loans were short-term (falling due within a year or less), $43 billion in sub-Saharan Africa.

The World Bank reckons 43 countries are particularly vulnerable to the financial crisis. Of these countries, we believe 38 were in need of debt cancellation before the crisis. The IMF predicts that if the crisis continues for a year, the average low-income country debt burden would be raised by 4% of GDP.

Included in these countries is Zambia, a country which has already received debt relief once but, as a result of falling copper prices and a reduction in copper production, could see its debts become twice the level deemed sustainable by the World Bank and IMF.

The Philippines – a middle income country with a high dependency on private finance – has an enormous $8 billion of debts come up for repayment this year, while suffering a trade balance tumbling into the red.

Bangladesh, dependent on income from exporting garments, will likely suffer a major fall in demand which will also make it difficult to meet repayments on its $1.7 billion of short-term debt.

But solutions which the G20 will consider on Thursday focus heavily on new lending – rather than clearing debts – and resuscitating the International Monetary Fund, the very institution that turned the crash in South-East Asia in 1997 into an unprecedented crisis with a raft of ‘pro-cyclical’ austerity measures.

Recent details of IMF loans suggest they haven’t learnt their lesson – Pakistan was recently told to raise interest rates and electricity tariffs, Hungary to devalue its currency and increase interest rates, Latvia to reduce its local government wage bill, Serbia to cut public sector pay and El Salvador not to increase its fiscal deficit .

In an announcement made last week, Brown called for a new $100 billion for a fund to guarantee trade deals. This will mean big money for export credit agencies which have been responsible for an enormous build-up of ‘illegitimate’ debts in the last three decades – debts which have done little or nothing to benefit the populations of recipient countries, while propping up our own arms manufacturers.

More serious proposals, on the other hand, have recently come out of a UN Commission of Experts established by the President of the General Assembly on the financial crisis. The Commission, led by Nobel laureate Joseph Stiglitz, has called for far-reaching reform of the global economy, including an international debt work-out process which would allow for far greater and fairer debt cancellation, an end to forced conditionality, and a new reserve currency to replace the dollar. The Governor of the Central Bank of China has echoed this call last week, calling also for an International Clearing Union – an idea dreamt up by economist John Maynard Keynes to help ensure that enormous the trade deficits and surpluses of recent years do not build up in future.

These are hopeful signs, as are proposals by Latin American governments to finally launch the Bank of the South, which would allow countries greater independence from the IMF and World Bank, this May.

Essentially, what the solutions need to answer to is not just economics but politics. More than anything, developing countries have been robbed of their sovereignty and dignity for over 30 years, and they need to be able to regain their independence. The dependency created and sustained by debt for decades needs at last to be broken if there is to be any hope for global development and an end to poverty.

But such ideas are unlikely to be taken up by the G20 this Thursday. Only a concerted movement of people can bring about the necessary changes. It’s that movement which the protests of this week need to launch, an unprecedented movement to confront an unprecedented moment of both crisis and opportunity.

NICHOLAS DEARDEN is Director of the Jubilee Debt Campaign. Jubilee Debt Campaign is part of the Put People First platform.  You can download the new report – A New Debt Crisis? by clicking here.

Notes.

ActionAid, ‘Where Does it Hurt? The impact of the financial crisis on developing countries’, March 2009

Bretton Woods Project, ‘Will IMF loans hurt the poor this time around’, Jan/ Feb 2009

Like What You’ve Read? Support CounterPunch
August 03, 2015
Alexander Reid Ross
Colonial Pride and the Killing of Cecil the Lion
Suhayb Ahmed
What’s Happening in Britain: Jeremy Corbyn and the Future of the Labour Party
Weekend Edition
July 31-33, 2015
Jeffrey St. Clair
Bernie and the Sandernistas: Into the Void
John Pilger
Julian Assange: the Untold Story of an Epic Struggle for Justice
Roberto J. González – David Price
Remaking the Human Terrain: The US Military’s Continuing Quest to Commandeer Culture
Lawrence Ware
Bernie Sanders’ Race Problem
Andrew Levine
The Logic of Illlogic: Narrow Self-Interest Keeps Israel’s “Existential Threats” Alive
ANDRE VLTCHEK
Kos, Bodrum, Desperate Refugees and a Dying Child
Paul Street
“That’s Politics”: the Sandernistas on the Master’s Schedule
Ted Rall
How the LAPD Conspired to Get Me Fired from the LA Times
Mike Whitney
Power-Mad Erdogan Launches War in Attempt to Become Turkey’s Supreme Leader
Ellen Brown
The Greek Coup: Liquidity as a Weapon of Coercion
Stephen Lendman
Russia Challenges America’s Orwellian NED
Will Parrish
The Politics of California’s Water System
John Wight
The Murder of Ali Saad Dawabsha, a Palestinian Infant Burned Alive by Israeli Terrorists
Jeffrey Blankfort
Leading Bibi’s Army in the War for Washington
Mary Lou Singleton
Gender, Patriarchy, and All That Jazz
Robert Fantina
Israeli Missteps Take a Toll
Pete Dolack
Speculators Circling Puerto Rico Latest Mode of Colonialism
Ron Jacobs
Spying on Black Writers: the FB Eye Blues
Paul Buhle
The Leftwing Seventies?
Binoy Kampmark
The TPP Trade Deal: of Sovereignty and Secrecy
David Swanson
Vietnam, Fifty Years After Defeating the US
Robert Hunziker
Human-Made Evolution
Shamus Cooke
Why Obama’s “Safe Zone” in Syria Will Inflame the War Zone
David Rosen
Hillary Clinton: Learn From Your Sisters
Sam Husseini
How #AllLivesMatter and #BlackLivesMatter Can Devalue Life
Shepherd Bliss
Why I Support Bernie Sanders for President
Louis Proyect
Manufacturing Denial
Howard Lisnoff
The Wrong Argument
Tracey Harris
Living Tiny: a Richer and More Sustainable Future
Kollibri terre Sonnenblume
A Day of Tears: Report from the “sHell No!” Action in Portland
Tom Clifford
Guns of August: the Gulf War Revisited
Renee Lovelace
I Dream of Ghana
Geoffrey McDonald
Obama’s Overtime Tweak: What is the Fair Price of a Missed Life?
Brian Cloughley
Hypocrisy, Obama-Style
Colin Todhunter
GMOs: Where Does Science Begin and Lobbying End?
Ben Debney
Modern Newspeak Dictionary, pt. II
Christopher Brauchli
Guns Don’t Kill People, Immigrants Do and Other Congressional Words of Wisdom
S. Mubashir Noor
India’s UNSC Endgame
Ellen Taylor
The Voyage of the Golden Rule
Norman Ball
Ten Questions for Lee Drutman: Author of “The Business of America is Lobbying”
Franklin Lamb
Return to Ma’loula, Syria
Masturah Alatas
Six Critics in Search of an Author
Mark Hand
Cinéma Engagé: Filmmaker Chronicles Texas Fracking Wars