Over 100 experts call on BlackRock to cancel Zambia’s debt

17 September by Collective


Over 100 economists and development experts have called on BlackRock and other creditors to cancel a significant amount of Zambia’s debt. In an open letter released today, the signatories – including Jeffrey Sachs, Jayati Ghosh, Philip Alston, Raj Patel and Cephas Lumina – call for a large-scale debt restructuring, and for the UK and New York to pass legislation to ensure that all private creditors comply with the G20’s debt relief scheme.

Over 100 economists and development experts have called on BlackRock and other creditors to cancel a significant amount of Zambia’s debt. In an open letter released today, the signatories – including Jeffrey Sachs, Jayati Ghosh, Philip Alston, Raj Patel and Cephas Lumina – call for a large-scale debt restructuring, and for the UK and New York to pass legislation to ensure that all private creditors comply with the G20 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 in the 1990s. Its aim is to encourage international consultation on the principle of broadening dialogue in keeping with 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, USA, UK and the European Union (represented by the presidents of the Council and of the European Central Bank). ’s debt relief scheme.

Zambia is starting negotiations with private creditors this month to reduce the amount of debt owed. On 6 September the IMF called for $8.4 billion of Zambia’s debt payments between 2022 and 2025 to be cancelled.

In the letter the experts say:

Because of the high 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.
and the fact Zambia’s bonds have been 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.
at well below face value since 2018, many bondholders stand to make huge profits at the expense of both Zambian citizens and creditor countries if paid at face value. It is therefore imperative that BlackRock and other bondholders agree to fully engage in a large-scale debt restructuring, including significant haircuts, in order to make Zambia’s debt sustainable
.”

They continue:

Zambia’s bonds are all governed by English law. In 2010, the UK parliament passed a ground-breaking Act to enforce a previous debt relief scheme, the Heavily Indebted Poor Countries Heavily Indebted Poor Countries
HIPC
In 1996 the IMF and the World Bank launched an initiative aimed at reducing the debt burden for some 41 heavily indebted poor countries (HIPC), whose total debts amount to about 10% of the Third World Debt. The list includes 33 countries in Sub-Saharan Africa.

The idea at the back of the initiative is as follows: a country on the HIPC list can start an SAP programme of twice three years. At the end of the first stage (first three years) IMF experts assess the ’sustainability’ of the country’s debt (from medium term projections of the country’s balance of payments and of the net present value (NPV) of debt to exports ratio.
If the country’s debt is considered “unsustainable”, it is eligible for a second stage of reforms at the end of which its debt is made ’sustainable’ (that it it is given the financial means necessary to pay back the amounts due). Three years after the beginning of the initiative, only four countries had been deemed eligible for a very slight debt relief (Uganda, Bolivia, Burkina Faso, and Mozambique). Confronted with such poor results and with the Jubilee 2000 campaign (which brought in a petition with over 17 million signatures to the G7 meeting in Cologne in June 1999), the G7 (group of 7 most industrialised countries) and international financial institutions launched an enhanced initiative: “sustainability” criteria have been revised (for instance the value of the debt must only amount to 150% of export revenues instead of 200-250% as was the case before), the second stage in the reforms is not fixed any more: an assiduous pupil can anticipate and be granted debt relief earlier, and thirdly some interim relief can be granted after the first three years of reform.

Simultaneously the IMF and the World Bank change their vocabulary : their loans, which so far had been called, “enhanced structural adjustment facilities” (ESAF), are now called “Growth and Poverty Reduction Facilities” (GPRF) while “Structural Adjustment Policies” are now called “Poverty Reduction Strategy Paper”. This paper is drafted by the country requesting assistance with the help of the IMF and the World Bank and the participation of representatives from the civil society.
This enhanced initiative has been largely publicised: the international media announced a 90%, even a 100% cancellation after the Euro-African summit in Cairo (April 2000). Yet on closer examination the HIPC initiative turns out to be yet another delusive manoeuvre which suggests but in no way implements a cancellation of the debt.

List of the 42 Heavily Indebted Poor Countries: Angola, Benin, Bolivia, Burkina Faso, Burundi, Cameroon, Central African Republic, Chad, Comoro Islands, Congo, Ivory Coast, Democratic Republic of Congo, Ethiopia, Gambia, Ghana, Guinea, Guinea-Bissau, Guyana, Honduras, Kenya, Laos, Liberia, Madagascar, Malawi, Mali, Mauritania, Mozambique, Myanmar, Nicaragua, Niger, Rwanda, Sao Tome and Principe, Senegal, Sierra Leone, Somalia, Sudan, Tanzania, Togo, Uganda, Vietnam, Zambia.
initiative, on debts governed by English law. The UK should do the same again to ensure that all private creditors comply with the terms of G20 Common Framework debt restructurings. New York – the other key jurisdiction for sovereign debts – should do the same
.”

The signatories conclude by saying:

At a time of global crisis, it is economically inefficient and morally wrong for high 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. debts to be paid to private lenders, while governments cut back on support for their own people. The world urgently needs a strengthened scheme to deliver debt restructuring for countries and people in need.”

Zambia first applied for debt relief through the G20’s Common Framework for Debt Restructuring in February 2021. No debt has yet been restructured, but in July 2022 government lenders including China agreed in principle to conclude a restructuring in line with 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
’s assessment of how much debt relief is needed. Zambia is now seeking to reach agreement with private lenders which is also in line with the IMF’s assessment.

BlackRock is the largest owner of Zambia’s bonds, holding $220 million. Debt Justice has estimated that BlackRock could make 110% 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. for itself and its clients from Zambia’s debt if paid in full. The Zambian Civil Society Debt Alliance, Debt Justice, Global Justice Now, Action for Southern Africa (ACTSA), Christian Aid, Cafod and Jubilee Scotland are campaigning for BlackRock and other private lenders to cancel the debt.




Source : Debt Justice

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