UNSUSTAINABLE and ILLEGITIMATE DEBT
At the close of the Spring Meetings of the Bretton Wood institutions, there was no sign of the “fair shot” that they want to give the world. Instead, Kristalina Georgieva’s “fair shot” rolls out more of the same prescriptions – more debt, more austerity, less of governments and more of the private sector.
New financing of $107 billion is offered to 85 countries, but it is heavily conditioned on fiscal consolidation. Austerity measures such as budget cuts and diminishing social protection to cuts in public sector wages, freeze hires of health and social workers and promoting privatization – count among the very reasons behind the dire state of public health systems in developing countries today, unable to deal with the pandemic.
The IMF and the Bank call the G20 Debt Service Suspension Initiative (DSSI) and the Common Framework “a good start”, but stop short of saying towards what end. Perhaps because they bring to mind failed debt relief schemes of the past, that do not cancel debt but only defer payments. Of the 73 eligible countries, only over 40 have accessed the funds; they face the cascading and accumulated impacts of the COVID-triggered multiple crises when the temporary suspension ends in December 2021 and debts eventually fall due next year.
Then, there is the IMF's Catastrophe Containment and Relief Trust (CCRT) for 29 of the Fund’s poorest members which, like the DSSI, temporarily suspends debt service payments. The irony is that several of these countries are not even that heavily indebted to the IMF. We recall the HIPC (Heavily Indebted Poor Countries) initiative that ran along the same vein, and failed. Many of the countries with unpayable debt overhangs today were HIPC countries. The same warped logic operates more than two decades hence, that the answer to a debt crisis is to incur more borrowings for current debt service payments.
Again, the demand for debt cancellation for all countries in need, which include most of middle-income countries (MICs), continues to be sidelined. From the WB’s own report, MICs are home to millions of those pulled deeper into extreme poverty by the multiple crises around COVID, or over four-fifths of the estimated global total of up to around 94 million. MICs or so-called emerging markets also saw massive capital outflows upwards of $83 billion in the early days of the pandemic, the largest recorded thus far.
Similarly responding to crises with more loans, the WB opened a $14 billion fast-track lending facility to support national public health systems, disease containment, diagnosis, etc. But just how much of this fund will work towards directly strengthening public health systems appears to have already been determined by the bulk share of the International Finance Corporation, the Bank's private sector financing arm. It is trailed, among others, by a record of dubious Public-Private Partnerships in health, of bank-rolling health and climate-threatening coal projects.
No mention was made of compelling private creditors’ involvement in debt relief efforts, limited and short-term as they may be, even as the World Bank itself underlines their participation as “critical”. As of 2019, private creditor debts already reached as high as 38% and 51% of the long-term external debts of Sri Lanka and Indonesia, respectively. Many other Asian countries are in similar circumstances. But private lenders have continued to decline calls for them to join in the effort. Were such impunity allowed to prevail, public financial resources will only be siphoned into bailing them out, rather than for survival and development.
Discredited many times before, from the height of structural adjustment in the 80s to the financial crises of more recent years, the IMF and the World Bank have often needed to refurbish their image and regain the relevance of their roles from time to time. But just when an unprecedented moment of crises and opportunity arises, they fail to board the train again, confirming anew the vain hope in their capacity for higher ambition.
Philippines (30 March 2021) -- “The multiple crisis has indeed imbued a much greater urgency to address the debt problem that so many countries have been grappling with for decades. It is a problem that past debt relief measures have failed to solve and present measures are also failing… The debt problem must be understood more broadly, deeply and sharply”.
APMDD Coordinator Lidy Nacpil delivered the intervention at a UN High Level Event on International Debt Architecture and Liquidity held March 29 that aimed to address debt vulnerability as an issue of “sustainability” or capacity to pay.
Nacpil stressed however, that the debt problem is "more than just a problem of liquidity and insolvency". She noted that the “tiny relief that is the temporary suspension of bilateral debt payments for too few countries” will not solve a systemic and structural problem.