We fool ourselves when we talk about change. I’ve seen a lot of Op Ed material lately from the so-called left that seems to imply, for example, that those concerned about climate change are really just handing the keys to capital, which will use the desire for “change” to implement punitive policies like these The shift would harm poorer households and communities while strengthening elite control over income distribution and government. Some on the left also think we can “cure” capitalism — somehow by redefining what “capital” means. This turns into an assertion that the main problem is that private banks can create credit at will, so much so that we allow the “privatization of the credit commons” which in turn drives unsustainable demand for growth to continue paying interest. I will comment more on this idea in another article as part of my Degrowth series. But the relevant point here is that capitalism has created institutions that work to perpetuate the power relations that define who owns capital. These institutions extended to multilateral government-funded organizations such as the International Monetary Fund and the World Bank, which now operate much differently than they were originally envisioned. I was thinking about this while reading the latest World Bank publication – International Debt Report 2022 (posted 6 Dec 2022) captures the real problem with capitalism and leads to the conclusion that “curing” requires killing the sick!
The report itself is distressing.
We understand that the problem outlined is another aspect of the massive redistribution of global income from the poor to the rich, which is caused by rising interest rates imposed by central banks.
I’ve written about it several times – most recently in this blog post – The champagne socialists of banking get millions from public money (November 23, 2022).
In that article and others, I focused on domestic transfers—from low-income debtors to bank shareholders (increasing debt burdens), and from central banks to bank shareholders (increasing excess reserve payments).
In the accompanying media release — Debt servicing puts greatest pressure on poor countries since 2000 – The World Bank states:
The poorest countries eligible to borrow from the World Bank’s International Development Association (IDA) now spend more than one-tenth of their export earnings on long-term public and publicly guaranteed external debt – the highest share since 2000. …
Over the past 10 years, the external debt of low- and middle-income countries has more than doubled.
Debt of the 75 IDA countries considered poorest – “defined as GNI per capita below established threshold and updated annually ($1,255 in FY2023)” (resource) – “nearly tripled to $1 trillion” over the past 10 years.
The debt problems of the poorest countries are getting worse as central banks raise interest rates in an ideologically motivated but futile attempt to counter inflationary pressures driven by non-interest rate sensitive factors.
The latest World Bank report shows:
Some 60% of the poorest countries are already at high risk of debt distress or already in trouble.
This is at the forefront of the pandemic-related health catastrophe these countries face — given their lack of health resources to deal with it, and climate change’s disruption of food production and infrastructure continuity.
The debt problem is multifaceted:
1. Most debt is denominated in dollars, so exports are needed to generate foreign exchange.
2. Countries borrow to build export infrastructure and spend less on domestic infrastructure (such as health and education), which delays any long-term human resource building.
3. The imperative of export orientation can undermine local sustainable agriculture and, in the case of primary commodity production (eg mining), cause environmental damage.
4. Flooding world markets with exports tends to depress prices, making it difficult to repay the original debt.
5. More debt was subsequently taken on, and institutions such as the IMF and World Bank then insisted that the country implement domestic austerity policies as a condition for providing these debts – further weakening education and health spending.
6. Rising interest rates in developed countries not only make debt servicing more expensive, but also draw speculative capital back into dollar-denominated assets and depreciate the currencies of other countries. As a result, the debt service burden has further increased.
7. Social instability has intensified and the governance structure has been corrupted.
The vicious cycle continues.
I saw a movie about Haiti the other day that detailed the way private militias colluded with corrupt government officials to wreak havoc on society’s collapse.
The fabric of the state was destroyed.
On top of what we already know, there is an additional element that has been discovered in recent years.
The World Bank report states:
The composition of debt owed by IDA countries has changed significantly over the past decade. The share of external debt owed to private creditors has increased dramatically. By the end of 2021, 61% of public and publicly guaranteed debt in low- and middle-income economies is owed to private creditors – an increase of 15 percentage points from 2010…In addition, the share of debt owed to government creditors belongs to the Paris Club (e.g. China, India, Saudi Arabia, United Arab Emirates, etc.) soared. China is the largest bilateral lender among IDA countries by the end of 2021, accounting for 49% of their bilateral debt stock, up from 18% in 2010.
The figure below, taken from the report (Figure 0.10), shows how the composition of debt has shifted to provide sources.
While debt is not guaranteed by the state, private creditors “have a claim on a country’s international reserves, especially when private entities cannot hedge their foreign currency liabilities with foreign currency assets.”
These foreign creditors are “mainly commercial banks”.
So countries are grateful to hedge funds.
This British Guardian article – BlackRock urges delay in debt repayment from crisis-ridden Zambia (April 11, 2022) – Give us a preview of who will be involved.
New York-based BlackRock “is among the private sector lenders that have refused to lower interest rates or delay payments on Zambian bonds” even as the country cut “health and social care… by a fifth” over the past two years. spending to balance its budget”.
The country has experienced a severe drought, which has crippled its hydroelectric capacity. It tried to diversify into solar, but the combination of the borrowing required for this infrastructure shift and the subsequent pandemic has sapped its ability to service foreign currency-denominated debt.
But firms like BlackRock aren’t the only ones squeezing the country.
Uniquely, the IMF is only prepared to lend for infrastructure if governments end “fuel subsidies to households and businesses,” a shift that pushed “inflation above 20%” in 2001 .
BlackRock stepped in and scooped up the country’s bonds “at rock-bottom prices when it was clear the country was in trouble.”
This shift has accelerated, in part because of the obsession with fiscal surpluses in developed countries, which have largely reneged on foreign aid commitments as neoliberal dominance of policy design intensified over the past 20-30 years.
Instead of maintaining cozy offices in big cities and imposing punitive conditions on the poorest countries, the richest countries could easily cancel all their debts and fund a new multinational agency charged with promoting human progress.
Meanwhile, the United Nations insists that its — 2030 Agenda – It has lofty goals, including world peace and eradicating poverty, and protecting “the planet from degradation,” but at the national level of these hedge funds and antisocial organizations like the IMF and World Bank.
The challenges these countries face are enormous—health, climate, poverty, housing, energy dependence, gangs, corruption—the list goes on.
It is almost cliché to conclude that the way out is through the so-called debt jubilee.
Headquartered in the UK – debt justice (formerly known as “Jubilee Debt Campaign”) – Well done and understands the problem on one level.
Organizations like it clearly want debt cancellation.
I want that too.
But like movements advocating a “green new deal” or “deep adaptation” or “de-growth” or other progressive-sounding ideals, their advocacy lacks reality.
The massive increase in debt held by the poorest countries and the damaging increase in debt repayments that are funneling trillions of dollars into the hands of the world’s richest are just direct manifestations of the problem.
Claims that we can “cure” capitalism through debt celebrations or some other method (like more corporate social responsibility) focus on the symptoms rather than the causes.
The reason is the power held by those with vested interests in finance capital.
The GND agenda is likely to lead to decarbonisation, but only because elites have been able to find new ways to redistribute income for themselves in a low-carbon environment.
If the elites can continue to prosper, the planet can only be saved under the current institutional arrangements.
Hedge fund managers in New York cannot ignore poverty in Zambia or the continued inability of African countries to come up with stable and sustainable solutions to poverty.
The financial elite profit from poverty.
this is the truth.
How will owners of capital agree to initiatives that undermine their ownership and, by extension, their power?
in conclusion
By focusing on the most immediate issues and avoiding discussing the elephant in the room, progressive voices get nowhere.
We might feel warm inside because we’re doing something “about it.”
But, at the same time, the same dynamics that are driving the show, and taking different forms here and there, keep us quiet about what really needs to be done.
Nineteenth-century political Marxists and anarchists knew very well what needed to be done.
Meanwhile, the rest of us are busy comparing the sizes of flat-screen TVs in fancy catalogs or similar offerings.
Enough for today!
(c) Copyright 2022 William Mitchell. all rights reserved.
