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Analysis

G20 rolls out half-measure as COVID-induced global debt crisis looms

The Group of 20, a loose organization of the countries with the largest economies in the world, announced on Oct. 14 a plan to extend payment suspensions from indebted countries’ to rich creditor nations by just six months. This is half of what indebted countries requested. 

This extension is not enough — the debt itself is unjust. Many countries are forced to spend more on interest on debt than on life-saving public services, even while struggling with the pandemic and the global economic crisis.

The G20’s Debt Service Suspension Initiative by itself is not an automatic extension. Each country that fits the qualifications — membership in the World Bank’s International Development Association or UN-designated “least developed countries” —  will be able to apply. In April the participating institutions announced the first temporary suspension of debt payments. Only 43 countries out of 73 that are eligible signed up.

Social movements and leftist leaders around the world call for the cancellation of debt owed by developing countries. In a July statement, several of these prominent leaders explained that “debt suspension or postponement does not provide a foundation for the necessary development of these countries. It merely puts off the reckoning.” Signatories to the statement include former Brazilian president Dilma Rousseff, Foreign Minister of Venezuela Jorge Arreaza, and former Finance Minister of Greece Yanis Varoufakis.

Debt a key tool of imperialism

All nations need investment for their economies to develop and grow. This provides the basis for employment, infrastructure and other aspects that are needed in a society. Many poor countries already grapple with centuries of colonial underdevelopment, theft and enslavement while the rich countries were made rich through that very process.

That process continues today but in altered form. Imperialist institutions such as the Western-dominated International Monetary Fund and the World Bank dangle access to desperately needed funds, but at the cost of usurious interest rates and “structural adjustment programs”. High interest rates trap entire nations in a cycle of debt, and the “adjustment” programs force deep cuts to social services, including privatization of public health systems.

For instance, on Oct. 1, the IMF approved a $6.5 billion loan to Ecuador. This loan included requirements to make cuts in the public budget, along with increases in the value-added tax that disproportionately affects the poor.

Missing from the G20’s loan relief initiative are any requirements for private lenders. The East African country of Zambia is nearing default from the $3 billion worth of bonds held by Western hedge funds. Zambia’s request to suspend interest payments was rejected by these private creditors, who combined hold 40 percent of the country’s bonds.

An anonymous investor reported to the Financial Times that any restructuring would depend on Zambia pursuing an IMF loan. Zambia’s public and private debts total to more than 100 percent of the annual size of its economy.

West threatened by conditions-free Chinese loans

The U.S. and its allies claim that Chinese loans to African nations are the reason the payment suspensions were limited to six months. Yet China has taken proactive measures in response to the pandemic and economic crisis.

In accordance with the DSSI, China signed debt suspension agreements with 11 African nations, and China additionally waived some loans for 15 African countries in their entirety.

Chinese central bank governor Yi Gang has encouraged the IMF to issue new Special Drawing Rights for countries affected by COVID-19, enabling them to rely on another reserve of currency to fight the virus. And the Chinese export-import bank helped Angola restructure a loan through the IMF.

Unlike their IMF counterparts, Chinese loans do not come with political strings to force countries to cut social spending and implement austerity, nor are Chinese loans tied to privatization projects. In fact, most of the loans help make up gaps in infrastructure funding.

According to the Washington Post, “On a continent where over 600 million Africans have no access to electricity, 40 percent of Chinese loans paid for power generation and transmission. Another 30 percent went to modernizing Africa’s crumbling transport infrastructure.”

As the pandemic and subsequent economic collapse deepen inequality inside of societies around the world, so too is the inequality between nations. In this context, comprehensive relief for heavily indebted countries is more needed than ever.

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