The Proof Is in: Third-World Debt Is Erasable

27 March 2008 by Eric Toussaint , Damien Millet

Published in Le Monde and

Since August 2007, North American and European banks have been experiencing a very severe crisis, now poised to spread to the entire neo-liberal free-market system as a whole. The actual sum of asset Asset Something belonging to an individual or a business that has value or the power to earn money (FT). The opposite of assets are liabilities, that is the part of the balance sheet reflecting a company’s resources (the capital contributed by the partners, provisions for contingencies and charges, as well as the outstanding debts). write-offs the banks have had to make now exceeds $200 billion (127.4 billion Euros). According to the most qualified experts, the bill will ultimately exceed a trillion dollars.

In the United States, 84 mortgage Mortgage A loan made against property collateral. There are two sorts of mortgages:
1) the most common form where the property that the loan is used to purchase is used as the collateral;
2) a broader use of property to guarantee any loan: it is sufficient that the borrower possesses and engages the property as collateral.
loan companies went bankrupt or ceased all activity between January 1 and August 17, 2007, versus only 17 for the whole year in 2006. In Germany, the IKB bank and the public SachsenLB were barely saved. England had to nationalize the bankrupt Northern Rock bank. Carlyle Capital Corporation fund, close to the Bush family, has just collapsed: its debts represented 32 times its capital. As for the prestigious American bank Bear Stearns, it has just called on assistance from the United States Federal Reserve FED
Federal Reserve
Officially, Federal Reserve System, is the United States’ central bank created in 1913 by the ’Federal Reserve Act’, also called the ’Owen-Glass Act’, after a series of banking crises, particularly the ’Bank Panic’ of 1907.

FED – decentralized central bank :
Bank to obtain emergency financing; it will be purchased by JP Morgan Chase for a mere mouthful of bread.

So several segments of the debt market are in the process of collapsing and are dragging the powerful banks and hedge funds Hedge funds Unlisted investment funds that exist for purposes of speculation and that seek high returns, make liberal use of derivatives, especially options, and frequently make use of leverage. The main hedge funds are independent of banks, although banks frequently have their own hedge funds. Hedge funds come under the category of shadow banking. that created them along in their wake. The rescue of these private financial institutions is being realized thanks to massive intervention by government entities.

A question arises in consequence: why have the banks, which do not hesitate today to erase doubtful debts in the tens of billions of dollars, always refused to annul developing countries’ debt? They are demonstrating that it’s possible and altogether necessary. Let us remember that criminal dictatorships, corrupt regimes, and leaders faithful to the great powers obtained the debts the banks presently claim. The big banks lent sums without count to regimes as disreputable as those of Mobutu in Zaire, Suharto in Indonesia, the Latin American dictatorships of the 1970s-1980s, without forgetting the Apartheid regime in South Africa.

How can they continue to inflict the yoke of this debt on the peoples who suffered these dictatorial regimes the banks themselves financed? Legally speaking, numerous odious debts figure on their books and have not been repaid. But the banks continue to exact reimbursement. Let us also recall that the third-world debt crisis was provoked in 1982 by the Fed’s brutal and unilateral decision to increase interest rates Interest rates When A lends money to B, B repays the amount lent by A (the capital) as well as a supplementary sum known as interest, so that A has an interest in agreeing to this financial operation. The interest is determined by the interest rate, which may be high or low. To take a very simple example: if A borrows 100 million dollars for 10 years at a fixed interest rate of 5%, the first year he will repay a tenth of the capital initially borrowed (10 million dollars) plus 5% of the capital owed, i.e. 5 million dollars, that is a total of 15 million dollars. In the second year, he will again repay 10% of the capital borrowed, but the 5% now only applies to the remaining 90 million dollars still due, i.e. 4.5 million dollars, or a total of 14.5 million dollars. And so on, until the tenth year when he will repay the last 10 million dollars, plus 5% of that remaining 10 million dollars, i.e. 0.5 million dollars, giving a total of 10.5 million dollars. Over 10 years, the total amount repaid will come to 127.5 million dollars. The repayment of the capital is not usually made in equal instalments. In the initial years, the repayment concerns mainly the interest, and the proportion of capital repaid increases over the years. In this case, if repayments are stopped, the capital still due is higher…

The nominal interest rate is the rate at which the loan is contracted. The real interest rate is the nominal rate reduced by the rate of inflation.

Previously, private banks had loaned money at variable 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. rates as if there were no tomorrow to already-over-indebted countries, ultimately unable to cope. History is repeating itself, but in the North this time and in a particular way: the over-indebted households of the United States have become unable to repay their variable-rate mortgages because the real estate bubble has burst. The debt write-offs that banks are effecting today vindicate those who demand cancellation of developing countries’ debt: that third-world public debt to international banks came to $181.9 billion in 2006, or a lesser sum than that which has been written off in a few months....

The big private banks have triply sinned: they’ve constructed the disastrous montages of private debt that led to the present catastrophe. They’ve lent money to dictatorships and forced the democratic governments that succeeded them to reimburse every last cent of that odious debt; they’ve refused to annul third-world debt, although its repayment involves deterioration in the living standards of the populations involved.

Consequently, we must demand that they account for themselves. The governments of the countries in the South must effect audits of their debt, as Ecuador is doing today, and repudiate all odious and illegitimate debts. The bankers are showing them that it’s possible. It would be a first step in returning finance to its appropriate role, that of a tool in the service of the human being. Of all human beings.

Damien Millet is the spokesperson for the Comité pour l’annulation de la dette du tiers-monde (CADTM France)[Committee for the Abolition of Third-World Debt].

Eric Toussaint is the president of CADTM Belgium.

Eric Toussaint

is a historian and political scientist who completed his Ph.D. at the universities of Paris VIII and Liège, is the spokesperson of the CADTM International, and sits on the Scientific Council of ATTAC France.
He is the author of Debt System (Haymarket books, Chicago, 2019), Bankocracy (2015); The Life and Crimes of an Exemplary Man (2014); Glance in the Rear View Mirror. Neoliberal Ideology From its Origins to the Present, Haymarket books, Chicago, 2012 (see here), etc.
See his bibliography:
He co-authored World debt figures 2015 with Pierre Gottiniaux, Daniel Munevar and Antonio Sanabria (2015); and with Damien Millet Debt, the IMF, and the World Bank: Sixty Questions, Sixty Answers, Monthly Review Books, New York, 2010. He was the scientific coordinator of the Greek Truth Commission on Public Debt from April 2015 to November 2015.

Other articles in English by Eric Toussaint (544)

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Damien Millet

professeur de mathématiques en classes préparatoires scientifiques à Orléans, porte-parole du CADTM France (Comité pour l’Annulation de la Dette du Tiers Monde), auteur de L’Afrique sans dette (CADTM-Syllepse, 2005), co-auteur avec Frédéric Chauvreau des bandes dessinées Dette odieuse (CADTM-Syllepse, 2006) et Le système Dette (CADTM-Syllepse, 2009), co-auteur avec Eric Toussaint du livre Les tsunamis de la dette (CADTM-Syllepse, 2005), co-auteur avec François Mauger de La Jamaïque dans l’étau du FMI (L’esprit frappeur, 2004).

Other articles in English by Damien Millet (46)

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