A New Global Debt Crisis


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.


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

Weekend Edition
October 9-11, 2015
David Price – Roberto J. González
The Use and Abuse of Culture (and Children): The Human Terrain System’s Rationalization of Pedophilia in Afghanistan
Mike Whitney
Putin’s “Endgame” in Syria
Jason Hribal
The Tilikum Effect and the Downfall of SeaWorld
Gary Leupp
The Six Most Disastrous Interventions of the 21st Century
Andrew Levine
In Syria, Obama is Playing a Losing Game
Louis Proyect
The End of Academic Freedom in America: the Case of Steven Salaita
Rob Urie
Democrats, Neoliberalism and the TPP
Ismael Hossein-Zadeh
The Bully Recalibrates: U.S. Signals Policy Shift in Syria
Brian Cloughley
Hospital Slaughter and the US/NATO Propaganda Machine
Paul Street
Hope in Abandonment: Cuba, Detroit, and Earth-Scientific Socialism
John Walsh
For Vietnam: Artemisinin From China, Agent Orange From America
John Wight
No Moral High Ground for the West on Syria
Robert Fantina
Canadian Universities vs. Israeli Apartheid
Conn Hallinan
Portugal: Europe’s Left Batting 1000
John Feffer
Mouths Wide Shut: Obama’s War on Whistleblowers
Paul Craig Roberts
The Impulsiveness of US Power
Ron Jacobs
The Murderer as American Hero
Alex Nunns
“A Movement Looking for a Home”: the Meaning of Jeremy Corbyn
Philippe Marlière
Class Struggle at Air France
Binoy Kampmark
Waiting in Vain for Moderation: Syria, Russia and Washington’s Problem
Paul Edwards
Empire of Disaster
Xanthe Hall
Nuclear Madness: NATO’s WMD ‘Sharing’ Must End
Margaret Knapke
These Salvadoran Women Went to Prison for Suffering Miscarriages
Uri Avnery
Abbas: the Leader Without Glory
Halima Hatimy
#BlackLivesMatter: Black Liberation or Black Liberal Distraction?
Michael Brenner
Kissinger Revisited
Cesar Chelala
The Perverse Rise of Killer Robots
Halyna Mokrushyna
On Ukraine’s ‘Incorrect’ Past
Jason Cone
Even Wars Have Rules: a Fact Sheet on the Bombing of Kunduz Hospital
Walter Brasch
Mass Murders are Good for Business
William Hadfield
Sophistry Rising: the Refugee Debate in Germany
Christopher Brauchli
Why the NRA Profits From Mass Shootings
Hadi Kobaysi
How The US Uses (Takfiri) Extremists
Pete Dolack
There is Still Time to Defeat the Trans-Pacific Partnership
Marc Norton
The Black Panthers: Vanguard of the Revolution
Andre Vltchek
Stop Millions of Western Immigrants!
David Rosen
If Donald Dump Was President
Dave Lindorff
America’s Latest War Crime
Ann Garrison
Sankarist Spirit Resurges in Burkina Faso
Franklin Lamb
Official Investigation Needed After Afghan Hospital Bombing
Linn Washington Jr.
Wrongs In Wine-Land
Ronald Bleier
Am I Drinking Enough Water? Sneezing’s A Clue
Charles R. Larson
Prelude to the Spanish Civil War: Eduard Mendoza’s “An Englishman in Madrid”
David Yearsley
Papal Pop and Circumstance
Christopher Washburn
Skeptik’s Lexicon