CADTM denounces G20 debt measures

Faced with the worsening of the debt crisis in the countries of the South due to the deterioration of the world economic situation combined with the coronavirus pandemic, the International Financial Institutions and the main bilateral creditors had launched in spring 2020 measures of emergency financing and debt relief. .

In April 2020, the G20
The Group of Twenty (G20 or G-20) is a group made up of nineteen countries and the European Union whose ministers, central bank directors and heads of state meet regularly. It was created in 1999 after the series of financial crises of the 1990s. Its objective is to promote international consultation on the principle of broadening the dialogue according to the growing economic importance of a certain number of countries. Its members are Argentina, Australia, Brazil, Canada, China, France, Germany, Italy, India, Indonesia, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, the United States, the United Kingdom and the European Union (represented by the Presidents of the Council and of the European Central Bank).
and the Parisian club
Parisian club
This group of lending states was founded in 1956 and specializes in handling non-payments from developing countries.

created the DSSI. [1] The idea was to postpone bilateral trade debt service
Debt service
The sum of interest and amortization of borrowed capital.
due from May to December 2020 in a period of 2022 to 2024, which means that the amounts not paid in 2020 will be added to the amount due on that date. The proposal has appeared inadequate since its inception. Limited to 73 countries as it stands, a little more than half of the developing countries, it has left aside already failing countries such as Sudan, Argentina or Venezuela. In addition, the agreement stipulated that the rescheduling was conditional on the prior repayment of arrears due to the world Bank
world Bank

The World Bank was founded within the framework of the new international monetary system put in place at Bretton Woods in 1944. Its capital is provided by contributions and loans from member states on the international monetary markets. It has funded public and private projects in Third World and Eastern European countries.

It is made up of several closely associated institutions, among which:

1. The International Bank for Reconstruction and Development (IBRD, 189 members in 2017), which grants loans in productive sectors such as agriculture or energy;

2. The International Development Association (IDA, 159 members in 1997), which grants the least developed countries long-term loans (35-40 years) at very low interest rates (1%);

3. The International Finance Corporation (IFC), which provides both loans and equity financing to business enterprises in developing countries.

As Third World debt gets worse, the World Bank (along with the IMF) tends to take a macro perspective. For example, it applies adjustment policies aimed at balancing the payments of heavily indebted countries. The World Bank advises countries that need to undergo IMF therapy on issues such as reducing budget deficits, pooling savings, inducing foreign investors to locate within their borders, or liberalization of prices and exchange rates.

International Monetary Fund

With the World Bank, the IMF was founded on the day of the signing of the Bretton Woods agreements. Its first mission was to support the new standard exchange rate system.

When the Bretton Wood system of fixed rates ended in 1971, the main function of the IMF became that of being both the policeman and the firefighter of world capital: it acts as a policeman when it carries out its policies. structural adjustment and as a firefighter when intervening. to help governments in the event of debt default.

As for the World Bank, a weighted voting system works: according to the amount paid as a contribution by each member state. 85% of the vote is needed to change the IMF charter (meaning the United States with 17.68% of the vote has a de facto veto right over any change).

The institution is dominated by five countries: the United States (16.74%), Japan (6.23%), Germany (5.81%), France (4.29%) and the Kingdom -United (4.29%).
The other 183 member countries are divided into country-led groups. The largest (6.57% of the vote) is led by Belgium. The smallest group of countries (1.55% of the vote) is led by Gabon and includes African countries. and on the ratification of a Structural adjustment
Structural adjustment
Economic policies imposed by the IMF in exchange for new loans or the rescheduling of old loans.

Structural adjustment policies were applied in the early 1980s to qualify countries as new loans or debt rescheduling by the IMF and the World Bank. The type of adjustment requested is aimed at ensuring that the country can once again service its external debt. Structural adjustment generally combines the following elements: devaluation of the national currency (in order to lower the prices of exported goods and to attract hard currencies), rise in interest rates (in order to attract international capital), reduction in public expenditure (‘rationalization’ of public service personnel, reduction of budgets devoted to education and health, etc.), massive privatizations, reduction of public subsidies to certain companies or products, wage freeze (to avoid inflation following deflation). These SAPs not only contributed substantially to increasingly high debt levels in the affected countries; they simultaneously led to a rise in prices (due to a high VAT rate and free market prices) and a dramatic drop in the income of local populations (due to rising unemployment and the dismantling of public services , among other factors).

IMF: plan under the aegis of the IMF. While the public external debt of the countries of the South amounts to some 3 trillion dollars, the DSSI had the best case to deal with… 20 billion dollars, or less than 1% of the total external public debt.

Another problem is that neither China, nor private creditors such as banks, Investment Funds
Investment fund
Investment Funds

Private equity investment funds (sometimes called “mutual funds” seek to invest in companies according to certain criteria; which they are most often specialized: venture capital, development capital funds, LBOs), which reflect the different levels of maturity of the company.
Where vulture funds
Vulture funds
Vulture fund

Investment funds that buy, on secondary markets and at a significant discount, bonds formerly issued by countries with repayment difficulties, from investors who prefer to reduce their losses and take the price they can get for offload the risk of their books. The vulture funds then sue the issuing country for the full amount of the debt they have purchased, not hesitating to go to court, usually British or American, where the law is favorable to creditors.
, who are the main creditors of these countries were directly involved in the DSSI. As they were simply invited to join the initiative, neither of them provided debt relief or rescheduling. Worse, contrary to the initial statements of private creditors belonging to the Institute of International Finance (IIF), [2] these creditors threatened developing countries participating in the DSSI to lower their sovereign ratings and a serious decline in foreign direct investment.

As a result, only 46 eligible countries have applied for DSSI, amounting to a total suspension of … $ 5 billion, [3] or less than 0.2% of the total amount of the public external debt of the countries of the South. Really, “the total external debt of countries eligible for the relief initiative adopted in April 2020 by the G-20 countries (DSSI) increased by 9.5% compared to the previous year. It hit a record high of $ 744 billion in 2019 and grew twice as fast as that of other low- and middle-income countries. “ [4] After such a blatant disavowal, some expected that the October 14 G20 would propose a complete overhaul of the DSSI to ultimately meet legitimate expectations. But that was not to happen. Only very limited measures have been taken. [5] First, a six-month extension, i.e. a rescheduling of payments from January to June 2021; on the other hand, an extension of the repayment period initially planned between 2022 and 2024, and thus extended until 2026; third, the adoption of a “common framework for dealing with debt beyond the DSSI”, which is supposed to involve non-Paris Club bilateral creditors and private creditors (but not further specified); finally, the same unbearable conditionality to subscribing to an IMF “assistance program” … When we know that China rightly considers that the G20 is not an adequate basis for dealing with debt renegotiations and that private creditors belonging to the IIR have renewed their refusal to participate in the DSSI by open letter, [6] we are heading for another failure.

Finally, the G20 countries are aligning themselves with the measures of the IMF and the World Bank: a few emergency loans, the implementation of austerity policies, and unwavering support for creditors who refuse the simple idea of cancelation.

However, there are solutions. Since the start of the coronavirus crisis, in the United States and in the European Union, central banks have released more than $ 5,000 billion in a few weeks. In addition, at least three arguments of international law can be invoked to justify cancellations or repudiations of debts, namely, force majeure, state of necessity and fundamental change of circumstances. Finally, if there was a real political will to act, the G20 countries, the Paris Club and the multilateral institutions (WB / IMF) could at least publicly support any country that decided to suspend or even repudiate its debt, and thus compel the refractory creditors to join the negotiations.

For the CADTM, there is nothing to expect from the International Financial Institutions and the powers that be. The CADTM is convinced that the countries of the South must unite against the repayment of illegitimate debt. This is what Thomas Sankara, the young president of Burkina Faso, has already proposed 33 years ago, and in fact around the same time by Cuba and Fidel Castro. For this to happen, we need public awareness and powerful mobilizations. CADTM is pleased that a a grand global coalition of movements fighting against illegitimate debt has been set up with more than 550 organizations in 90 countries for publish a joint statement and act together as part of the global week of debt cancellation action.

It’s only a beginning. We will continue the fight.

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