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The Domination of Global Finance Capital in the Form of Debt Domination
By Lidy Nacpil
For many decades now, the peoples of the South have
struggled with the problem of the debt. The so-called debts of the South
have grown steadily, and during some periods quite dramatically, over the
years. This is true not only for the collective amount of debts of all South
countries; this is also true for the "debts" of each country, with just very
few exceptions. Each year, our countries sink deeper and deeper in this
so-called debt, thus heightening the domination of global finance capital.
As of the year 2002, we are told that the developing countries collectively
owe an outstanding external debt of more than US$2.5 trillion.
The creditors of these so-called debts–international banks and corporations, multilateral financial institutions, northern governments, export credit agencies–say the problem is not the amount of the debts. In fact, they keep telling us, borrowing is necessary for the development of the South. They say we need to borrow because of our poverty and lack of capital.
If they were to be believed, it is no more a problem of repayment and capacity to repay the debts. Thus, the indicators they use to gauge the seriousness of the debt problem focus on the capacity to pay, rather than the consequences and impact of the debt and debt service on the lives of our people.
When the creditors speak of a debt crisis, they refer to a situation where a country is not able to meet its debt obligations. Thus, when the payments are made on time and in sufficient amounts, there is no problem and there is no crisis.
Certainly, these creditors do not consider it a crisis when hundreds of millions of people all over the South go hungry, do not have access to safe drinking water, cannot avail of adequate health and medical care, continue to be landless and homeless, lose their livelihoods, or cannot find adequate employment.
This is the reality even as every year, the peoples of the South pay hundreds of billions of US dollars in interest payments on the external debt. For the year 2002, the developing countries of the South paid almost US$380 billion in interest and principal payments out of a world total of more than US$460 billion.
For the peoples of the South, economic crisis, which is partly attributable to the debt problem, is a permanent state in their lives.
The creditors are only interested in two things as far as the debt is considered. First, they want to make sure the countries of the South pay their so-called debts. And second, they want to give the countries of the South just enough rope to hang themselves by deepening their dependence on borrowing.
Another assertion is that the countries of the South are having problems in repaying the debts because our economies are inefficient and our governments are irresponsible and corrupt. Following this reasoning, the creditors claim that South countries will grow out of their "debt problem" by reforming their economies and implementing programs for economic growth. The debt and access to credit is used as leverage by the International Monetary Fund, the World Bank and their various regional counterparts to push stabilization or austerity measures to ensure that countries service their debts, and structural adjustment programs or neoliberal free market policies to facilitate the rapid integration of our economies in the capitalist global economy. Today, these same measures are being packaged as poverty reduction strategy programs.
• These policies include financial liberalization and the unregulated movement of short term and portfolio capital that have led to greater vulnerability of our economies to capital flight, high interest rates and exchange rate fluctuations. Under such conditions, debts assume heavier weight and bigger risks for economies. The old debt indicators are rendered even more meaningless in expressing "safe" levels of public and private debts.
• Trade liberalization which has caused the further weakening of our domestic economies, further reduction in the value of already very low wages in the South, labor flexibilization and contractualizaton, massive displacement of workers and farmers, and other consequences we are all familiar with.
• Privatization which has reduced access to public services
In truth, the indebtedness of South governments and the promise of finance capital infusion are used as the perfect excuse for global corporations to dominate every facet of our lives. At this very moment, there is rapid expansion in global corporate control over one of the most basic requirements for life–WATER. There are but a handful of global corporations persistently seeking to control water resources worldwide.
The creditors say these policies will help South countries to achieve what they euphemistically call "sustainable" debt levels. But they do not necessarily mean reducing the debt stock of South countries. Still of interest to creditors is increasing the capacity to repay debts. More importantly, they are after restoring and increasing the ability to borrow whether through traditional forms of borrowing (bilateral, multilateral and commercial borrowings) or new forms of debt creating instruments like the bonds market, revenue guarantees in infrastructure privatization contracts and others. It is to their highest advantage after all that South countries continue to borrow and borrow heavily.
In addition to pushing stabilization and free market reforms as conditionalities–the creditors also offer debt restructuring and debt relief schemes for critical cases. These debt schemes are designed to make it easy for debtors to continue to pay their debts, and to borrow again. These include the debt restructuring schemes taken up in the Paris Club (official bilateral) and London Club (commercial). There was also the Brady plan and securitization in the early 1990s which enabled countries with huge, high interest bearing debts owed to commercial creditors to transform much of these debts to longer term, lower interest bearing bonds. In the late 1990s creditors offered the Highly Indebted Poor Country (HIPC) debt relief scheme–that offers very little actual relief. What it does, instead, is help creditors clean their books, lay the grounds for new lending, and push more economic conditionalities through Poverty Reduction Strategy Papers (PRSP) using debt relief as leverage.
Now we are being offered yet another debt relief scheme–the Sovereign Debt Restructuring Mechanism (SDRM). This new "magic" formula recognizes that indebtedness has become quite complex with the emergence of many forms of lending and the proliferation and increase of creditors in the financial and capital markets. Debt papers are no longer simply certificates of indebtedness; they are now instruments that can be traded over and over again.
The IMF claims that the SDRM will allow a country with repayment problems, to deal with its private creditors as a group and work for a timely and orderly restructuring process. What the SDRM actually does is protect the interests of private creditors, give the IMF greater powers in intervening in a country’s debt situation, and provide additional grounds for imposing IMF conditionalities on a country’s monetary, fiscal and exchange rate policies, bank restructuring, domestic payments system, and the nature of any exchange and capital controls.
We reject this solution to the debt problem and the other solutions being peddled by the creditors.
For the peoples of the South, the debt problem is more than just a financial problem entailing financial solutions.
It is no longer even just a problem of the external debt. The external debt problem and related economic structures and policies have given rise to
• Huge national domestic debts, which in some cases are almost as big as the external debt;
• Contingent liabilities representing public guarantees to debts and obligations of public and private corporations, which in many cases, are much bigger than the countries’ external debts; and
• Micro-debts–which were created and intensified because of macroeconomic policies, economic conditionalities and financing projects. These include farmers’ debts, a major issue in many Asian countries such as India, Thailand and the Philippines.
The debt problem is an issue of power and domination. The debt is a consequence of and an instrument for domination and power of global capital over our countries, our economies, our environmental resources, our communities and our lives. Our solution to debt domination is a matter of changing these relations of power–it is a matter of accumulating and building our own power to resist the forces of debt domination and neoliberal globalization, and build an alternative world order.
A basic requirement to building our own power and advancing our struggles against debt domination is promoting a critical understanding of the DEBT problem. We must debunk a perspective on the debt that reinforces political and economic oppression and subjugation, promotes powerlessness, and the notion that the solutions lie in the very hands of those who dominate and exploit us.
A critical perspective raises the fundamental and essential question of the legitimacy of the so-called indebtedness of the people of the South. We assert that this so-called indebtedness of the people of the South is illegitimate. Its illegitimacy is based on the following grounds:
a. The creditors themselves created the situation of poverty and the "need" for borrowing through a long history of colonization, neo-colonization and capitalist globalization involving the exploitation of the peoples, communities, natural resources, and economies of the South and the consequent impoverishment of South countries.
b. Creditors use debt as an instrument for the continued plunder of the South, actively cultivating dependence on borrowings, relentlessly pushing loans to governments and private corporations in the South, making huge profits through interest payments on the loans.
c. Creditors use debt and credit as leverage for economic conditionalities on the South, with the acquiescence, if not active collaboration of local elites. These economic conditionalities perpetuate the relations of dominance and exploitation and the concentration of wealth and power in the global capitalist system. These economic conditionalities have led to greater impoverishment in the South.
d. Debt is used as an instrument of the subversion of the rights and capacities of nations and peoples to define and direct their development programs and processes.
e. The debts were contracted and accrued without consultation and consent of the people. Many of our people have been kept ignorant of the massive amounts of dollars borrowed in their name and which they pay with their hard earned money. And yet our people have not benefited from these debts. Aside from the creditors, the local elites were the beneficiaries of these loans. Many of these debts lined the pockets of corrupt government officials. A sizeable amount of these debts that our people pay for are debts of private corporations and cronies which were guaranteed and subsequently assumed by governments.
f. Many of these debts were contracted by illegitimate parties through questionable, fraudulent and even illegal means, with illegitimate terms, for illegitimate purposes.
• Illegitimate parties include corrupt and undemocratic governments, dictatorship, and military regimes.
• Loans were contracted in manners and processes that involved deceit and fraud and other irregularities such as the use of bribes, overpricing of projects, coercion, abuse of power and various forms of violation and circumvention of proper procedures and requirements. In a number of instances, debts were contracted in violation of Constitutional and legal requirements.
• Many loans are saddled with onerous and unjust terms. One example was the unilateral increase in interest rates imposed by creditors, made possible because of the floating interest rates that were part of loan agreements. These high interest rates made the debts even more burdensome over time.
• Many loans were spent on projects harmful to people, communities and the environment. Funds from loans were used to finance anti-people policies and activities such as apartheid, military operations, and other acts of repression and subversion of human rights.
g. The servicing of these huge debts put an unsupportable burden on South countries, and has a devastating impact on our people, our economies, and the ecology and environment.
In many countries in the South, servicing of interests on debts is the single biggest item in public spending. Because of huge debt payments and the highest priority being given to debt servicing, basic rights of people are violated including the right to health, education, housing, food etc.
h. The Debt has actually been paid many times over by the people of the South, in financial and economic terms, in social and environmental terms, in human terms.
The peoples of the South do not owe these debts. Why should we pay for debts we do not owe? We say DON’T OWE, WON’T PAY! NO DEBEMOS, NO PAGAMOS!
The peoples and countries of the South are in fact creditors of an enormous historical, social, and ecological debt of the North. The so-called creditors–northern governments, international banks and corporations, multilateral financial institutions, export credit agencies–owe us, the peoples of the South! They must be made to pay restitution and reparations for the plunder, death and destruction they have cost us all these decades.
We have many struggles to wage before we are successful in transforming the neoliberal global system that oppresses all the peoples of the world, South and North. In our struggles, solidarity is paramount–especially now in the face of intensification of militarization and the build up of a global war that is being unleashed under the leadership of the United States. This war is being waged even as the neoliberal economic system that it seeks to protect is experiencing serious crises.
Let the occasion of the World Social Forum be an occasion for affirming our common commitment to resist neoliberal globalization and build another world.
The writer is international coordinator of Jubilee South and
Secretary-General of the Freedom from Debt coalition-Philippines
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