Nepal needs Total Debt Cancellation to face the Covid-19 Crisis

23 April by Praman Adhikari


The devastation caused by the coronavirus pandemic is a serious threat which has brought our civilisation and economies at the brink of collapse. The current crisis in every sector of our lives has revealed how weak our system is when it comes to fighting back and containing the spread of the virus. As we are observing the devastation of the pandemic in Europe, China and the United States of America, the gradual increment of active cases in South Asian countries is very much alarming especially, considering the public health care system and infrastructure of the eight countries of the region.

Though surrounded by two big giants and emerging economies of the world, China in the North and by India in the rest, Nepal is highly incapable to cope with the pandemic situation at present and in the future. Nepal also, is one of the Least Developed Countries Least Developed Countries
LDC
A notion defined by the UN on the following criteria: low per capita income, poor human resources and little diversification in the economy. The list includes 49 countries at present, the most recent addition being Senegal in July 2000. 30 years ago there were only 25 LDC.
(LDC) out of four countries of the region. After having 48 coronavirus cases as on the morning 24 April 2020, people’s fear of being susceptible to the pandemic and its looming devastation in Nepal is gradually increasing. The poor status of doctor-patient ratio, 1724:1, is below the prescribed limit of 1000:1 by the World Health Organisation (WHO) [1]. The availability of ventilators for the critical condition in the case of a mass outbreak is also dismal having 1:114000 people [2] and also 50 beds per 10,000 population [3]. The government’s plan to graduate from LDC status by 2022 is hugely impacted because of the type of vulnerabilities that the country is facing due to the outbreak of the coronavirus across the world. The devastation caused by predatory neoliberal policies is apparent unmasking its inhuman and profit Profit The positive gain yielded from a company’s activity. Net profit is profit after tax. Distributable profit is the part of the net profit which can be distributed to the shareholders. -mongering nature. The neoliberal policies have already weakened the state mechanisms and plundering people’s money and resources making them vulnerable by imposing conditionalities to cut subsidies and ultimately dismantling the basic services that every human being is entitled to receive, easily and equally.

The World Bank World Bank
WB
The World Bank was founded as part of the new international monetary system set up at Bretton Woods in 1944. Its capital is provided by member states’ contributions and loans on the international money markets. It financed public and private projects in Third World and East European countries.

It consists of several closely associated institutions, among which :

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

2. The International Development Association (IDA, 159 members in 1997), which provides less advanced countries with long-term loans (35-40 years) at very low interest (1%) ;

3. The International Finance Corporation (IFC), which provides both loan and equity finance for business ventures in developing countries.

As Third World Debt gets worse, the World Bank (along with the IMF) tends to adopt a macro-economic perspective. For instance, it enforces adjustment policies that are intended to balance heavily indebted countries’ payments. The World Bank advises those countries that have to undergo the IMF’s therapy on such matters as how to reduce budget deficits, round up savings, enduce foreign investors to settle within their borders, or free prices and exchange rates.

estimations suggests that the economic growth of Nepal will range between 1.5 to 2.8 per cent which is rapidly slowed down by the lower remittances and trifling trade and dismal state of tourism [4]. Nepal’s heavy dependence on remittance which contributes 30 per cent of Gross Domestic Product GDP
Gross Domestic Product
Gross Domestic Product is an aggregate measure of total production within a given territory equal to the sum of the gross values added. The measure is notoriously incomplete; for example it does not take into account any activity that does not enter into a commercial exchange. The GDP takes into account both the production of goods and the production of services. Economic growth is defined as the variation of the GDP from one period to another.
(GDP) is one of the major challenges to reboot the dream of having a double-digit economic growth as the Covid-19 crisis has equally impacted the economies of the labour receiving countries and most of the migrants workers are losing and going to lose their jobs soon. At the time, when global economic slump is in motion, even if Nepal manages to control the mass outbreaks, it will still be impacted by the economic fallout remaining at the risk of a debt crisis. In the richer countries, with much more developed public health systems, the combined effects of 40 years of neoliberal policies and the lack of preparedness of public authorities have had tragic effects. It is easy to imagine what this can lead to elsewhere. Countries in Africa, Latin America and the Caribbean, and Asia have begun to be heavily affected by the health crisis [5]. According to Oxfam, the economic fallout from the coronavirus pandemic could push half a billion more people into poverty unless urgent action is taken to bail out developing countries [6]. Under the most serious scenario - a 20% contraction in income - the number of people living in extreme poverty would rise by 434 million people to nearly 1.2 billion worldwide [7].

Nepal needs more medical staff, more hospitals, more medical supplies and more resources to stand and to walk for the better preparedness in the time of crisis like Covid-19 pandemic has brought. The so-called top economies and self-proclaimed top countries having better health facilities are miserably losing their fight against this pandemic. The so-called immediate response by the International Financial Institutions (IFIs) to help poor countries fighting the Covid-19 pandemic through emergency assistance is another debt trap which ultimately weakens the basic and essential services of those countries. Even in the crucial time when the whole world system is at the brink of collapse, the IFIs are concerned with the debt trap that they have installed across the world. The urgent call of the time for action is to cancel all external debts, bilateral, multilateral (public and private), so that the LDCs like Nepal can concentrate their resources and funds on building basic infrastructures to strengthen quality basic services to the people rather than reducing the essential costs to repay the debts.

As the renowned historian and political scientist Eric Toussaint has opined on the importance of debt cancellation, states which are aggravated by the underfunding of public health in the global South and in the North due to debt repayment and budget cuts in basic services could utilise those resources to strengthen their public health system, for example, staffing, medical equipment, medicine stock, infrastructure, research, production of medicines etc. which could have reduced the number of infections and fatalities and limit the spread of the virus which is taking place so drastically [8] at present.

In 2015, immediately after the devastation caused by the Gorkha earthquake on 25 April, the call for immediate cancellation of external debts was raised by various civil society organisations to get more support on the relief and reconstruction programmes, but sadly, nothing happened. Following the recent call from the UNCTAD UNCTAD
United Nations Conference on Trade and Development
This was established in 1964, after pressure from the developing countries, to offset the GATT effects.

to cancel $ 1 trillion owed by the developing countries [9], the decision of IMF IMF
International Monetary Fund
Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on 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 UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.

http://imf.org
Executive Board to provide immediate debt relief to 25 IMF member countries, including Nepal, under Catastrophe Containment and Relief Trust (CCRT) [10] is not enough to fight the current pandemic and its grave impacts on the sustainability of the development. This much touted IMF grant will, actually, be needed to be reimbursed. In Nepal, the external debt stands at 56.49 per cent of the total government debt Government debt The total outstanding debt of the State, local authorities, publicly owned companies and organs of social security. . Total debt to GDP ratio is 30 per cent in which the external debt accounts 16.98 per cent [11]. The call from various civil society organisations ( [12], [13], [14]etc.) at national, regional and global levels for the cancellation of external debts is a welcome step which needs deeper engagements to make it a reality because the debt cancellation opens the new avenues for the hard-hit countries to rise from the devastation caused by the Covid-19 pandemic.

This situation is not normal. The current crisis is bringing fundamental changes to the context that we had in the past. Local and national economies are devastated, regional and global economies are in a slump, the dreary state of basic public services raises its ugly head time and again. The COVID- 19 has posed a serious threat to the population and because of this, the situation needs a concerted effort from the government of Nepal which demands a larger amount of money and resources to strengthen its battle against the possible mass outbreak and pandemic situation. The legal concept of ‘the State of Necessity’ makes the much-needed action by the government to unilaterally declare the suspension of debt repayment possible. Similarly, the ongoing COVID- 19 crisis is bringing fundamental change in the circumstances which makes the situation uncontrollable to the debtor disabling them to adhere to the contractual agreements. Invoking debt repayments and conditionalities due to the shocks that are out of debtor’s controls to survive the devastation is also known as Force Majeure in which the state can unilaterally decide to suspend the debt repayment.

The process of total debt cancellation will also address the people’s demand of cancelling all illegitimate and odious debts that are amassed and misappropriated by the various autocratic rulers and governments in the past which were mostly used against the people’s interest Interest An amount paid in remuneration of an investment or received by a lender. Interest is calculated on the amount of the capital invested or borrowed, the duration of the operation and the rate that has been set. and wellbeing. The most important basic requirement to make the debt cancellation just and effective is the non-payment of the debt is used to fight the coronavirus pandemic and the economic crisis the pandemic has brought. In this stage, the role of people in strict monitoring of the government’s action is extremely important if it is being mobilised and used for the best interests of the people [15]




Footnotes
Praman Adhikari

The author is engaged at the SAAPE secretariat, Kathmandu.

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COMMITTEE FOR THE ABOLITION OF ILLEGITIMATE DEBT

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