As stock markets in the rich world cling on to the gains made on the back of government and central bank largesse, emerging market economies are still being battered by the pandemic.
Last month, the IMF informed the world that the global South was facing the biggest capital outflow ever recorded. Managing director Kristalina Georgieva has said that the fund will make available $1trn worth of loans to its members, on top of the $160bn in loans and grants already promised by the World Bank. But not all countries are eligible for these loans – preferential treatment is given to obedient adopters of the Washington consensus.
States in the global South would have good reason not to participate in IMF lending programmes. From the structural adjustment programmes of the 1970s and 80s, to the more recent lending programmes couched in the language of ‘human development’, states in the global South have been disciplined by these institutions into implementing policies that have devastated their economies.
But even a significant programme of IMF lending to counter the impact of the immediate financial crisis ripping through the global South would not be enough to deal with the longterm issue of debt sustainability. Piling new debt on top of old debt is not going to allow poor states to escape the cycle of debt and dependency that many have endured since independence.
What is needed is a debt write-off. In April, G20 finance ministers agreed to halt debt servicing payments for low income countries until the end of the year. But a payment pause is not enough – it will simply delay the pain until the end of the year, when the global economy is likely to remain in a deep depression.
Moreover, the initiative doesn’t include all bilateral lenders. Certain states and financial institutions that own significant chunks of global South debt have been asked to support the initiative and work constructively with debtors during the pandemic, but they have no legal obligations to do so.
The issue of debt cancellation has been central to what was once known as the ‘Third World movement’ since its inception. Many newly independent states were saddled with debts accrued by colonial administrations, with citizens forced to repay debts that had been used to subjugate them.
Even later in the postcolonial period, many repressive regimes accrued vast debts in order to consolidate their power (often with the support of the Untied States), which would then be passed on to democratically-elected leaders once they had been deposed. Activists have been campaigning for the cancellation of these ‘odious debts’ for years. They achieved some success with the millennium debt campaign, but for many countries it was not nearly enough.
One of these countries was Zambia, which has a long history of difficult relations with the international financial institutions. An economy highly reliant on the export of copper, Zambia was hit hard by the commodities price crash in the 1970s. Unable to borrow on international financial markets, Zambia was forced to approach the IMF for loans, and was one of the first countries to be placed on a structural adjustment programme.
The idea behind the structural adjustment programmes was to ‘open up’ poor economies to the rest of the world by pursuing a strategy of ‘export led growth’. Mainstream economists claimed that low income countries should focus on their ‘comparative advantage’ by exporting commodities to the rest of the world – this meant removing subsidies to domestic industry, ‘freeing’ the private sector from regulation and state intervention, and removing constraints on capital mobility.
In fact, these measures simply made it easier for multinational corporations to enter the economies of the global South and displace domestic capitalists before reshoring profits to the global North. It also made it easier for elites to siphon their cash out of the country and store it abroad, often in tax havens. Meanwhile, domestic producers faced huge barriers to exporting their goods on a global market weighted towards core countries who used their huge resources to protect their domestic producers.
Neoliberal economists claimed that Zambia fell behind because it failed to fully implement the proposed reforms and was uncooperative with international lenders. As a result, Zambia has remained in the IMF’s bad books, and has been forced to deal with less scrupulous lenders. Vulture funds, which buy up the debt of poor countries that look likely to default in the hope of suing them for huge sums of money, bought up $3m worth of Zambian debt during the financial crisis and, when it was unable to repay the full amount, successfully sued the country for $15m.
Zambia has remained in the low-income trap ever since its first IMF programme. It remains highly indebted, dependent upon copper exports and unable to generate the capital necessary to industrialise. When copper prices tanked as the pandemic hit global demand for commodities, the Zambian currency (the kwacha) fell with them, increasing the cost of its debt servicing.
Without much global demand for copper, and with remittances and FDI flows having halted almost entirely, the country cannot access enough foreign currency to repay creditors. Over the longer term, it is highly likely that Zambia’s debts are too high ever to be repaid. Much of its outstanding debt is owed to Chinese state-owned banks – as a relatively new large lender, it is unclear how China will respond to calls for debt restructuring.
One thing is clear: the fate of millions of the world’s poorest people hinges on a debt write-off for the global South. This must be one of the central demands of socialists internationally as the pandemic comes to an end.
Grace Blakeley is an economics commentator and author of Stolen: How to Save the World from Financialisation.