Growing a 'flattened' Philippine economyLast week saw a divided world on the issue of debt.

On October 12 to 18, the International Monetary Fund (IMF) and the World Bank (WB) gathered the world’s finance officials and central bankers in their annual Joint Conference, held online for the first time. The main agenda: how to address the world’s health and economic crises through new loans, new financing mechanisms and new programs to ease the debt servicing burden of borrowing countries.

But outside the IMF-WB Conference, another and bigger gathering was taking place. Through a Global Week of Action for Debt Cancellation (GWADC), trade unions, farmer organizations, Church groups, civil society movements and other organized sectors of society around the world held daily protest actions, online and on the streets, against the failure of the twin international finance institutions (IFIs), G-20 governments and big private banks to address the debt crisis of the developing countries and the survival needs of humanity in Covid times. Over 550 civil society and people’s organizations from 93 countries participated in the week of protest action (October 10 to 17) against the back-breaking debts. They were united in the call for the cancellation of unjust and usurious debts, the use of resources freed from debt to cover the vital health and life needs of the people, and the establishment of a new people-centered global financial architecture under the UN system. 

The GWADC was organized by the Asia-Pacific Movement on Debt and Development, Action Aid, Oxfam International, Jubileo Sur Americas, African Forum on Debt and Development, European Network on Debt and Development, Fight Inequality Alliance,  and numerous national organizations representing millions from all regions of the world: Latin America, Africa, Europe, North America, Middle East and Asia-Pacific. The daily protest actions were capped on October 14 by a global concert-rally, held online for half a day, featuring singers, poets and testimonies of people from all walks of life against unjust debt. The GWADC was a demonstration of people’s unity and solidarity against the failure of the international creditors led by the twin IFI sisters to find decisive solutions to the multi-sided crises facing humanity due to the twin pandemics: Covid and debt.

And yet, at the IMF-WB Joint Conference, officials were claiming that they were hard at work finding such solutions. The information bureaus of the twin sisters were busy releasing daily communication bulletins on the various “development initiatives” that the IMF and World Bank have lined up to ease the debt burden of developing countries, bolster their efforts to contain the Covid spread and manage the health-economic crises affecting their respective populations.

The IFI leaders also tried to project the image that they were listening to the CSOs’ pleas for debt justice. In fact, WB’s President Davil Malpass, in his remarks to the  Development Committee of the Annual Conference, sounded like a radical activist. He said “we must consider debt stock reduction,” meaning the World Bank is pushing for measures that go beyond the cosmetic “debt relief” program. He declared: “Otherwise, there’s no light at the end of the debt tunnel for the people in the debtor countries.” He also cited the need for changes in the “global financial architecture” in order to solve financial inequities and stop the “net transfer of resources.”

Aha, “net transfer of resources”!  What does this mean?

The World Bank failed to elaborate what the transfer mean. However, net transfer of resources is indeed at the heart of the inequity in the present debt and financial architecture. By borrowing and accumulating debts, developing countries end up transferring more capital resources to the creditor governments and the big global banks. The equation easily becomes negative for the borrowers because of the requirement of the creditors for the continuous servicing of principal and interest for debts that keep swelling or piling up due to debt rollovers, growing debt servicing burden, debt restructuring programs and the failure of the borrowing countries to meet growth targets under tough austerity program and questionable policy conditionalities imposed by the creditors.

The last, questionable policy conditionalities, include the neo-liberal structural adjustment policies which paralyze a debtor country’s capacity to shape its own economic program based on its existing level of development and development priorities. For example, a policy conditionality requiring a poor and underdeveloped borrower country to adopt a one-sided unilateral trade liberalization program can lead to an unequal trade arrangement pattern: exportation by the said borrowing country of cheap unprocessed raw materials and the importation of expensive finished products. This, in fact, is at the roots of the present debt crisis facing a number of African countries, whose earnings from commodity exports have been dwindling under the Covid pandemic.  

The unjust debt situation is further compounded by what the GWADC organizers dubbed as the “illegitimate” character of a large portion of the debts incurred by developing countries. The “illegitimate” debts are those “lent irresponsibly and unfairly, driven by predatory lending, used to finance harmful projects and policies, failing to comply with legal and democratic requirements, saddled with onerous and unjust terms, incurred by private corporations but assumed by governments or incurred through public guarantees of private profits, wasted or stolen.”

To complete the debt picture, some of the global creditors who are hiding behind the protective mantle provided by the IFIs and the Paris Club are speculative hedge funds or private equity firms. They can withdraw from a market in a herd-like fashion after profit-taking from speculative investments (stocks, currencies, land prices, futures markets), triggering in the process a capital outflow that can bring down economies of borrowing countries to their knees in a matter of weeks or months such as what happened during the 1997-1998 Asian financial crisis.

The Philippine debt history from the 1980s to 2010s is a classic illustration of the dynamics of the net resource transfer. The country spent through the decades over $100 billion servicing the original $26 billion bequeathed by the Marcos Administration; yet, it still ended up with a bigger stock of debt that keeps growing up to the present. The decades of the 1980s to 2010s became “lost decades” for the nation in  terms of growth because of a major stumbling block to development: the government’s subservience to the austerity program of the twin sisters, the one-sided trade and investment structural adjustment programs (which wiped out large segments of domestic manufacturing and agriculture), and the unreasonable “automatic debt servicing” arrangement (a Marcos-era law requiring government to automatically allocate funds for debt service, no matter how big is the share of the debt service in the national budget). The Philippines was also forced to pay for debts used to finance odious and unproductive projects such as the Bataan nuclear power plant, whose cost was originally priced at $500 million but  ballooned to over $2 billion without generating a single watt of power. And yes, the Philippine economic landscape is littered with debt cases in support of questionable and expensive infra projects.

Now the big question: was the recently-concluded IMF-WB Annual Conference able to address the inequities in the global debt architecture cited by WB President Malpass?

Unfortunately, the results of the Conference, as summarized in the Communique of the Development Committee of the said Conference, indicate a big NO. The pro-people rhetorics of the leaders of the twin sisters do not match the debt programs that they are lining up on the ground. The overwhelming focus was on how to increase or enhance further the lending capacity of the two IFIs and how to ameliorate the debt burden of borrowing countries by extending the Debt Service Suspension Initiative up to the middle of next year. The DSSI, a project involving the G-20 countries, does not reduce the debt stock of developing countries. Nor does it insure the world from a possible systemic debt crisis similar (or even bigger) to the 2008-2010 global financial crisis.

Clearly, the IFIs and goverments of the world should take a historic pause and heed the call of the GWADC organizers: bolder solutions to the inequities in the global debt and financial architecture. Yes, debt justice now!

By Rene E. Ofreneo
October 21, 2020

Reprinted from the opinion column, Laborem Exercens, of Mr. Rene Ofreneo on Business Mirror