printer printer Click on the green icon on the right
UNCTAD calls for aid plan and hard tackles creditors
by Milan Rivié
15 May 2020

The coronavirus pandemic has triggered a real economic crisis whose effects will be as severe as they are long-lasting, even more so in the countries of the South. In recent days, the international financial institutions’ announcements to cancel their public foreign debt have multiplied. The United Nations Conference on Trade and Development (UNCTAD) has been more disappointing than ever, criticizing them severely in its latest report published on 23 April 2020 [1] and calling for a massive aid plan.

1. Those responsible for the unsustainability of the debt of the countries of the South are in the North

In the space of about ten years, the total debt (public and private, domestic and external [2]) of the so-called developing countries (DCs) has increased from 120% to 191% of GDP, with 28% of public debt and 72% of private debt. This record level concerns all income categories, from the poorest countries to emerging countries.

Graph 1: Total debt of the countries of the South, 1960-2018 (as a % of GDP) [3]

Contrary to the dominant discourses that attribute this increase mainly to poor governance, endemic corruption or incapacitated state apparatus, UNCTAD points the blame at the international economic and financial system that is largely shaped by and for the G7 countries. "Over the past decade, developing countries have experienced rapid and often premature integration into highly under-regulated international financial markets, including shadow banking. [4]

The rhetoric aimed at regulating finance and moralizing capitalism in the wake of the 2007-2008 crisis has remained unheeded

The great speeches aimed at regularising finance and moralizing capitalism following the 2007-2008 crisis have remained unheeded. The policies of the major central banks encouraged investors seeking more remunerative investments to use their large liquidities for short-term investment and to speculate on the public and private debt of the economies of the South. "Developing countries have become very vulnerable to massive but volatile flows of high-risk but relatively cheap short-term private credit offered by financial speculators in search of returns.

2. Creditors protect their interests

The liberalization of the economy (national deregulation, privatization of enterprises, introduction of VAT, devaluation of local currencies, significant removal of customs barriers, exchange controls and capital movements) imposed for decades by creditors in the name of debt repayment has only aggravated the situation and increased the vulnerability of the countries of the South to exogenous factors, all while imposing “strict macroeconomic austerity programmes”.

As UNCTAD explains, the decisions taken by bilateral creditors in the Paris Club are primarily aimed at protecting their collective interests

As explained by UNCTAD, the decisions taken by bilateral creditors in the Paris Club are primarily aimed at “protecting their collective interests”, while “the IMF, the World Bank and other multilateral development banks are generally exempted from debt relief or restructuring programmes in exchange for the provision of exceptional concessional loans, linked to specific conditionalities”. As for the London Club, representing private creditors, “there is currently no comprehensive mechanism for the restructuring of sovereign debt owed to private creditors [allowing] vulture funds [5]... to take aggressive legal action to recover the full value of the debt plus interest”.

The measures announced in recent days illustrate UNCTAD’s findings. The IMF has announced the cancellation of debt repayments it would be due to receive during May to December 2020 from the 25 poorest countries. In reality, a trust fund [6] supported by various countries will ensure the repayment of the approximately 215 million dollars concerned. The World Bank and other regional development banks have excluded themselves from any debt relief initiative by putting forward the questionable argument of their creditworthiness. The G20 has declared a moratorium on the repayment of bilateral debts of 77 countries for the last 8 months of the year 2020 while inviting private creditors to take similar measures on a “voluntary basis”. The total result of the operation was $20 billion, or 0.67% of public external debt carried over to 2022, 2023 and 2024. Possibly $40 billion, if all multilateral and private creditors joined in. For UNCTAD, “the initiative ... does not constitute debt relief in any way” and goes on to state, “On the contrary, by linking eligibility to new or existing borrowing, even on concessional terms, the initiative privileges concessional loans (and thus new debt) over debt relief”. In fact, the various creditors will maintain their grip on the countries of the South. CQFD.

3. UNCTAD calls for the replacement of the Paris Club

To enable the countries of the South to cope with Covid-19 and its consequences, the IMF and UNCTAD are proposing a US$2500 billion “global debt deal”.$ 500 billion in the form of a “Marshall Plan”, $1000 billion in cash injections via IMF special drawing rights and another $1000 billion in the form of debt cancellation or restructuring.

While the CADTM welcomes what could be a step forward, it is in favour of acts of self-defence, aimed at repudiating the illegitimate and odious parts of the debt after it has been examined by citizen debt audits

In order to benefit the populations, this “Marshall Plan” must not be transformed into a disguised tied aid plan for the benefit of the countries of the North. As for recourse to the IMF, it does not seem indispensable in view of the measures it recommends, as the current situation in Argentina and other countries monitored by the Fund shows.

But by proposing the creation of an “International Debt Authority for Developing Countries” (IDA), UNCTAD is in fact addressing a strong challenge to the Paris Club and calling for its replacement.

While the CADTM welcomes what could be a step forward, it favours sovereign acts of self-defence, aimed at repudiating the illegitimate and odious parts of the debt after examination by citizens’ debt audits. Such acts are entirely possible. [7] It is fundamental to ensure that human rights prevail over those of creditors and to put the debt issue back into the hands of the people. [8]

The author would like to thank the members of CADTM for their review and suggestions.


Footnotes :

[1UNCTAD, From the Great Lockdown to the Great Meltdown: Developing Country Debt in the Time of Covid-19, April 2020. Available at:

[2Public debt is the debt contracted by the State and/or guaranteed by the State. Private debt is the debt of non-public bodies. Domestic debt is contracted with creditors located within the borders of the State concerned, as opposed to external debt.

[3Ibid, p.3. Unless otherwise stated, all data and quotations are taken from the UNCTAD report.

[4Shadow banking or parallel banking: The financial activities of shadow banking are mainly carried out on behalf of large banks by financial companies created by them. These financial companies (SPVs, money market funds...) do not receive deposits, which means that they are not subject to banking regulation and supervision. They are therefore used by large banks to escape national or international regulations, in particular those of the Basel Committee on Capital and Prudential Ratios. Shadow banking is the complement or corollary of universal banking.

[5Investment funds that buy on the secondary market (the debt flea market) debt securities from countries experiencing financial difficulties. They obtain them at a much lower amount than their nominal value, buying them from other investors who prefer to get rid of them at a lower cost, even if it means incurring a loss, for fear that the country in question will default. The vulture funds then demand full payment of the debt they have just acquired, going so far as to take legal action against the debtor country in courts that favour the investors’ interests, typically the American and British courts.

[6A trust fund brings together aid from different donors.

[7See Éric Toussaint, Le Système Dette, Histoire des répudiations de dettes souveraines.

[8CADTM, “Why can’t international arbitration solve the problem of public debt in developing countries?”27 April 2011. Available at:

Milan Rivié

CADTM Belgium
milan.rivie @
Twitter: @RivieMilan