The combat for debt cancellation from a historical viewpoint

A Historical Overview of the Fight to Cancel Third World Debt

17 January 2007 by Eric Toussaint


In a historical context, the international struggle to obtain cancellation of the Third World countries’ debt is fairly recent: it has existed for hardly more than 20 years. It finds itself amongst major international combats and strong campaigns like that for the abolition of slavery (18th - 19th centuries), for the eight hour day at the end of the 19th century (at the origin of the now almost universal public holiday on 1st May), for universal suffrage, for sexual equality, and I could cite more, all just as important, which have influenced and still influence the struggle endured by the oppressed to gain emancipation.

The fight to cancel the Third World debt in the context of the free market and general merchandisation, and the fights to protect the environment, to return to public control of natural resources and basic services as well as to promote the common good, are directly related to the current phase of capitalist globalization. In other words, we are faced with a new world-wide attack of Capital against Labour, of imperialist countries against all of the Periphery populations. World-wide capitalist globalization has incited a globalization of resistance and struggle in favour of alternatives along the themes mentioned here above.

Of course, world-wide globalization did not start in the last twenty years. It began in the late 15th century - early 16th century when Spain began to exploit the Americas, soon followed by Portugal, Great Britain, France, the Netherlands and others. Europe began to impose its domination on a universal scale by inducing a brutal relationship between the world’s continents, and progressively and violently imposing capitalism.

International battles for liberation are not new either. They began, at the latest, at the end of the 18th century and in particular paved the way for the successive creation of four internationals, from the second half of the 19th century up to the first half of the 20th century. Social movements and these internationals were the foundations for large international campaigns on themes of liberation. At the same time, some themes were of national concern: this was especially the case of the issue of the external debts of countries dominated by imperialism. As early as the 19th century, the external debt was used as a means of domination over populations of Latin America, the Caribbean, Asia and Africa. As early as the 19th century, Periphery countries tried to refuse to repay an unfair debt. Let us cite Mexico as an example in 1861, under the first native president of Latin America, the Amer-Indian Benito Juarez. During the 1930’s no less than fourteen Latin American governments decided one after another, without conferring, to stop paying off the external debt owed mainly to Europeans and North Americans [1].

It was not until the middle of the 1980’s that the theme of non-payment of the external debt began to be debated by popular movements together outside of the national borders. This started with Latin America, with Cuba playing a leading role and looking to provoke the creation of an international front for non-payment, unfortunately without the support of other governments. From 1984-1985 popular uprisings succeeded one another all around the world against structural adjustment Structural Adjustment Economic policies imposed by the IMF in exchange of new loans or the rescheduling of old loans.

Structural Adjustments policies were enforced in the early 1980 to qualify countries for new loans or for debt rescheduling by the IMF and the World Bank. The requested kind of adjustment aims at ensuring that the country can again service its external debt. Structural adjustment usually combines the following elements : devaluation of the national currency (in order to bring down the prices of exported goods and attract strong currencies), rise in interest rates (in order to attract international capital), reduction of public expenditure (’streamlining’ of public services staff, reduction of budgets devoted to education and the health sector, etc.), massive privatisations, reduction of public subsidies to some companies or products, freezing of salaries (to avoid inflation as a consequence of deflation). These SAPs have not only substantially contributed to higher and higher levels of indebtedness in the affected countries ; they have simultaneously led to higher prices (because of a high VAT rate and of the free market prices) and to a dramatic fall in the income of local populations (as a consequence of rising unemployment and of the dismantling of public services, among other factors).

IMF : http://www.worldbank.org/
policies established by 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.

and the 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
who enjoyed the complicity of local governments and the dominant classes.

It took another ten years or so before a world-wide campaign developed on this theme within the organization of the Jubilee 2000 campaign (in part controlled by the Vatican and reformed Christian churches - Anglican, Luther, and Calvinist- which are by no means progressive). Motivation of the leaders of the various churches to position themselves in favour of cancelling the world debt for the poorest countries, situated mainly in Africa and Central America, resulted from the pressure from national churches in sub-Saharan African countries, Latin America and the Philippines, where the Christian religion is strongly rooted. The Vatican and reformed churches found new followers in these countries suffering greatly from the yoke of external debt. The churches needed to promote a solution as part of the Christian tradition: forgiveness of debt on the occasion of the Jubilee. It was the chance to intercede with those in high places in this world in favour of the damned.

In 1998-1999, some churches dedicated mass or other church services to the Jubilee and the debt, and a number of the millions of signatures on petitions for cancellation of poor countries’ debts were collected directly at the church door. The main NGO’s and Christian charities were mobilized in favour of the campaign with very limited objectives: cancellation of unpayable debts in poor countries. Hundreds of full-time employees were mobilized to make the campaign a success. In June 1999, during the G8 G8 Group composed of the most powerful countries of the planet: Canada, France, Germany, Italy, Japan, the UK and the USA, with Russia a full member since June 2002. Their heads of state meet annually, usually in June or July. summit in Cologne, while the heads of state of the most powerful countries in the world were making promises that they would once again not keep, church leaders and the movements they influenced congratulated themselves on the results. Consequently, these movements, starting with the British campaign, were led to stop mobilization, much to the dismay of other campaigns who, especially in the South, believed that the objectives were far from being reached.

During the campaign, which lasted two years, hundreds of thousands of people’s consciences had evolved, so much so that a series of movements in the North, like in the South [2], collected signatures on a more radical petition than the one officially presented by the 2000 Jubilee campaign. As for the Vatican, it decided in 2000 to name Michel Camdessus, ex-general director of the IMF, to the Justice and Peace Committee as an advisor on matters concerning the debt. Everything was to sort itself out and there was no need to mobilize anymore. Some large NGO’s in the North, who had full-time staff in southern countries, gave orders to abandon the debt issue and to work more on other subjects like that of fair trading Market activities
trading
Buying and selling of financial instruments such as shares, futures, derivatives, options, and warrants conducted in the hope of making a short-term profit.
. In the North, full-time staff in Christian NGO’s who had been employed for the debt campaign, were made redundant or redeployed.

Some campaigns in the South, given the context, decided to create Jubilee South in 1999. The CADTM network, which had begun to spread throughout the world, decided to form a strategic alliance with Jubilee South and to contribute towards giving the anti-debt movement a second lease of life after the Jubilee 2000 year [3]. This is why a large summit was organized in Dakar in December 2000 under the title: « Africa: from resistance to alternatives », a meeting followed immediately by the first South-North Dialogue.

In March 2000, a referendum initiated by popular request (la « consulta ») was carried out in Spain by the RCADE (Citizens’ Network for the Abolition of External Debt) and another one organized in Brazil in September. They were a great step forward. In this type of action, the quality of mobilization as well as the level of politicization of the population are far greater than in a straightforward collection of signatures on a petition. It is a pity that we have not been able to reproduce the same type of initiative in a large number of countries.

Politically, the RCADE is absolutely right to think that : “the debt is not a flaw in the system, but a deliberate product of it, which means that to solve the debt problem, we have to campaign for structural changes. If the debt is cancelled without transforming political, economic, social and cultural structures, the problem will recur. Thus debt cancellation implies structural changes.”

This is a controversial issue amongst debt campaigns: some, like the RCADE, CATDM and Jubilee South, think that the struggle to cancel the debt should result in a questioning of the capitalist system as a whole; others think that the system cannot or should not be modified. For them, it is about resolving certain problems like excessive and odious debts by freeing the countries of the debt without questioning the system.
Of course there should be a debate on these deep political differences but this should not prevent unity of action on specific objectives, indeed quite the contrary.

There are other subjects that provoke conflict within the movement between radicals and moderates, for example that of conditionalities. Jubilee South and the CADTM do not agree that northern governments and international financial institutions should set conditions for those countries who obtain reductions in debts. Jubilee South and the CADTM believe that only the populations in the South can set the conditions because their future is at stake. As far as some organizations in the South and the majority of organizations in the North are concerned, northern governments and IFI’s can, or even must, impose conditions, for example on the issue of fighting poverty. On the contrary, Jubilee South and the CADTM think that northern governments and IFI’s resort to the argument of fighting poverty (to which they added the pursuit of the Millennium Development Goals in 2000) as a pretext to reach other objectives that are part of a hidden agenda: an increase in privatizations, a more open economy in southern countries, etc. Northern governments and IFI’s hypocrisy may be described as paving the road to hell with good intentions. Do not let us forget that the pretext for the Crusades was to recover Jesus Christ sepulture; that the Vatican justified slavery from the 15th century [4] and justified witch-hunting amongst unmarried women under the pretext that they had no soul; that Leopold II, King of Belgium, managed to obtain the Congo from his peers at the Berlin conference in 1885 under the pretext of fighting slavery run by the Arabs; nor let us forget, to give a more recent example, that the United States and their allies invaded Iraq in 2003 under the pretext of liberating its people from tyranny and protecting humanity from weapons of mass destruction.

In the debate described above, an enormous step forward was made in June 2005 and confirmed in September of the same year at the second South-North Dialogue which was held in Havana. Moderates and radicals agreed to refuse together all the conditions imposed by the North from now on.

Another subject incites debate: what attitude should be adopted with regard to the rich in countries in the South and their governments? Firstly, it should be noted that nearly all governments in the South make policies that protect the interests of the local dominant classes. It should be added that over the last 20 years, the number of governments in the South who have demanded that the debt be cancelled can be counted on the fingers of just one hand. What is the reason for this?

The dominant classes in the South benefit from repayment of the external debt. A large part of the capital they have amassed has been invested in the North. The rich in the South lend their own money to governments in the South by purchasing bonds and securities on the external debt. This is why the non-payment of the debt could threaten their interests. The rich in the South identify with global capitalism and share Share A unit of ownership interest in a corporation or financial asset, representing one part of the total capital stock. Its owner (a shareholder) is entitled to receive an equal distribution of any profits distributed (a dividend) and to attend shareholder meetings. the same interests as the rich classes in the North.

Jubilee South and the CADTM demand that southern governments organize an audit of the public debt [5], that they suspend payments and that they repudiate it. In this quest, they have not had support from governments, who in exchange for a docile repayment of the public external debt, are guaranteed permanent access to finance from IFI’s and private financial institutions. The reward for their obedience is their continued access to credit. The lenders do not pay much attention to how the borrowed funds are used. Governments in the South get rich while impoverishing their country and their people.

Jubilee South can take credit for introducing the notion of historical, social, cultural and ecological debt to the collective elaboration of debt movements. And its watchword : « Don’t owe, won’t pay! » was adopted by many movements.

Links have been established between different themes by militant movements: the link between debt and migration [6], the link between food sovereignty and rejection of the debt and structural adjustment policies; the shared struggle against the trio WTO WTO
World Trade Organisation
The WTO, founded on 1st January 1995, replaced the General Agreement on Trade and Tariffs (GATT). The main innovation is that the WTO enjoys the status of an international organization. Its role is to ensure that no member States adopt any kind of protectionism whatsoever, in order to accelerate the liberalization global trading and to facilitate the strategies of the multinationals. It has an international court (the Dispute Settlement Body) which judges any alleged violations of its founding text drawn up in Marrakesh.

, WB and IMF; collaboration between debt movements [7] and movements fighting the great dams and other energy mega-projects; also collaboration with movements fighting deforestation.

Over the last few years a new issue has been introduced into the debate, mainly by the CADTM [8]: contrary to common belief, countries in the South do not have to inescapably turn to external debt from the North for development. Alternative policies, which do not generate more debts, are perfectly applicable as much within a national framework as in an international one.

Present situation and prospects for the future

The situation in 2006-2007 is characterized by the level of stocks of hard currency (US dollars, euros, sterling, yen...) of countries in the South: it has never been as high, and this is the consequence of the relatively high price of raw materials and some agricultural products that are exported for international markets. It is also characterized by 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.
which are lower than they were between 1980 - 1990 (even if they have started to rise again since 2004). Other characteristics : private companies’ level of debt has reached phenomenal proportions; countries in the South with intermediary revenues (like Brazil, Argentina, Mexico, Uruguay, Algeria...) anticipate their repayments to the IMF and contract new debts through financial markets and banks ; China is lending a lot to the poorest countries, especially in Africa, thus ensuring itself sources of raw materials and outlets ; part of the public external debt is replaced by public internal debts. These elements together create an impression of calm on the debt front. Anticipated repayments to the IMF give the false impression that the debt is a thing of the past. In reality, once again, conditions for more financial instability and another debt crisis are coming to a head. Where, when and what form will it take when it breaks out? Difficult to say.

The debt issue will return to the forefront in the coming years and it is hoped that governments in the South, under popular pressure, will question its repayment. Let us hope that alternative proposals will be heard.

In 2005 - 2006, despite numerous pitfalls, a lot of progress has been made along the road to convergence between the different movements that are fighting to liberate populations from the enslaving yoke of debt. Moreover, social movements and the major campaigns that have acted worldwide have asserted their wish to improve coordination [9] . To succeed in winning, it is obviously essential to carry on with this combat.




Translated by Deborah Worsdale in collaboration with Vicki Briault

Footnotes

[1Eric Toussaint, Your Money or Your Life. The Tyranny of Global Finance, Haymarket, Chicago, 2005, p. 131-134

[2This was the case of Dialogo 2000 in Argentina which opted for a more radical petition that was subsequently used by CADTM.

[3As early as March 1999, at a meeting in Brussels, the CADTM suggested to leaders of the campaigns in the South who were about to create Jubilee South that they launch a South/North world movement; but the latter announced that they would prefer to create a South-South movement, which they did a few months later. They most probably wanted to avoid interventionism of northern organizations. From this point, the CADTM developed mainly in « French-speaking» countries in Europe, sub-Saharan Africa, North Africa, the Middle East and Haiti. It also developed, on a smaller scale, in Latin America (Venezuela, Colombia and Ecuador) and in South Asia (India and Pakistan). Most organizations in the South who are members of the CADTM network are also affiliated to Jubilee South. There is a definite complementarity between the establishment of Jubilee South, mainly situated in « English-speaking » countries in Asia and Africa, as well as in Latin America and that of the CADTM, present mostly (but not exclusively) in the French-speaking zone and the Arab countries.

[4The slave trade was made legitimate by the Pope in 1455 in his bull Romanus Pontifex, which analyzed it as a missionary activity. See Angus Maddison, L’ÉCONOMIE MONDIALE : UNE PERSPECTIVE MILLÉNAIRE, CENTRE DE DÉVELOPPEMENT DE L’ORGANISATION DE COOPÉRATION ET DE DÉVELOPPEMENT ÉCONOMIQUES (OCDE), Paris, 2001.

[5See the book published jointly by the CADTM, the CETIM and Jubilee South, entitled “LET’S LAUNCH AN ENQUIRY INTO THE DEBT!” A MANUAL ON HOW TO ORGANISE AUDITS ON THIRD WORLD DEBTS, Geneva, 2006, 96 p. ISBN 2-930443-04-9 http://www.cadtm.org/texte.php3?id_article=2296

[6See the meeting between North African and sub-Saharan African social movements (amongst whom were CADTM militants from Morocco, DR Congo, Ivory Coast and Niger) in Rabat, July 2006 in parallel with the Euro-African summit. See also the CADTM and the movement of undocumented foreigners in Belgium.

[7See CALL FOR GLOBAL ACTION AGAINST INTERNATIONAL FINANCIAL INSTITUTIONS, September 2006, launched by Jubilee South, CADTM, 50 Years is Enough, Eurodad...and joined by Greenpeace, Oil Watch and Friends of the Earth. http://www.cadtm.org/texte.php3?id_article=1893

[8Eric Toussaint (CADTM) « DEBT: NEW CHALLENGES ». Contribution to the International conference « Resistances and Alternatives to the domination of the Debt [1], La Havana 28-30 September 2005. http://www.cadtm.org/article.php3?id_article=1671 ; Eric Toussaint « BANK OF THE SOUTH, INTERNATIONAL CONTEXT AND ALTERNATIVES » http://www.cadtm.org/article.php3?id_article=2040

[9This was particularly the case during the SEMINAR STRATEGIES OF THE SOCIAL MOVEMENTS held in Brussels at the end of September 2006 on the request of Social Continental Alliance (Americas), CADTM (Committee for the Abolition of Third World Debt, www.cadtm.org), COMPA-Americas, Focus on the Global South (Asia), Grassroots Global Justice-United States, Jubilee South ,World Women March, Via Campesina. See : http://www.cadtm.org/article.php3?id_article=2131

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: https://en.wikipedia.org/wiki/%C3%89ric_Toussaint
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.

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