The IMF-World Bank ‘Debt Relief’ Fraud for Poor Countries
As the economic effects of the COVID pandemic swept across the world in March and April, the air was filled with promises that the poorest countries would receive aid and debt relief for face a crisis that threatened to plunge millions of people, especially children, into the most abject poverty.
In April, the Managing Director of the International Monetary Fund, Kristalina Georgieva, announced immediate relief from the IMF debt owed by 25 countries. She said the move would help “our poorest and most vulnerable members” channel scarce resources into emergency and related medical measures.
In March, the United Nations appealed to the G20 to organize a $ 2.5 trillion relief plan to deal with the pandemic.
Six months later, these statements read like a cruel joke. A series of reports make it clear that while trillions of dollars have been provided to big business and the financial system, helping the world’s most vulnerable people amounts to next to nothing.
A report written by London journalist Peter Goodman and published in the New York Times on November 1, noted that in April, the IMF and the World Bank “vowed to spare poor countries from despair.” Their economists warned that “immense relief was needed to avert humanitarian catastrophe and profound damage to global prosperity.”
Poorer countries have been hit by the drop in remittances sent by migrant workers, the virtual halt in international tourism, the decline in world trade and, in some cases, the drop in the price of oil.
The Times the article concluded that the IMF and World Bank “have failed to translate their concern into meaningful support,” even with the World Bank estimating that by next year the pandemic could plunge 150 million people. people in extreme poverty, defined as living on less than $ 1.90 per day. , the first increase in more than two decades.
According to the bank, between 9.1% and 9.4% of the world’s population live in conditions of extreme poverty. Almost 25 percent of the world’s population receive less than $ 3.20 a day and 40 percent, or nearly 3.3 billion people, receive less than $ 5.50 a day.
The Times The article said what it called a “relatively anemic response from the IMF and the World Bank” was due in part to the “predilections” of their major shareholder, the United States. He cited remarks by US Treasury Secretary Steven Mnuchin at the two organizations’ biannual virtual meeting last month.
“It is essential that the World Bank manages financial resources wisely so as not to burden shareholders with premature calls for new financing,” he said.
IMF chief Georgieva told the meeting that the fund would not hesitate to take advantage of its $ 1 trillion lending capacity. “This is humanity’s darkest hour in my lifetime,” she said.
However, the IMF only lent $ 280 billion. Of this amount, $ 31 billion is in loans to 76 member states, of which less than $ 11 billion goes to low-income countries.
Some 46 countries, many in sub-Saharan Africa, have obtained $ 5.3 billion in debt relief. This is not a cancellation, it is simply a postponement, and the debt has yet to be paid. Based on data from the European Network on Debt and Development, cited in the Times article, debt deferrals represent only 1.7% of total international debt payments owed by all developing countries this year.
Even when the money is provided by the IMF, in many cases it is not used to finance health and other measures needed to deal with the pandemic, but to repay private sector lenders.
According to a report released in July by the anti-poverty organization Jubilee Debt Campaign, the IMF is breaking its own rules because 28 countries at high risk of default used $ 11.3 billion to pay off debt holders in the country. private sector.
The organization’s chief policy officer, Tim Jones, said IMF funding “effectively saved private lenders by allowing poor countries to keep their payments.”
Jones noted that the level of government spending on debt payments in the poorest countries last year reached more than 14% of government revenue, the highest level since 2003, an increase of 110% since 2010. In Kenya and Ethiopia, debt service reached 50 percent of government revenues last year.
Seeking to justify using IMF funds for private profit rather than necessary health and social services, while maintaining that “our overriding goal at this time is to save lives and livelihoods,” said IMF spokesman Gerry Rice said the issue was complicated.
“Sometimes that means dealing with private sector bonds and without the country going into default, which would lead to a host of other problems,” he said.
The stranglehold of London, New York and Frankfurt-based banks and hedge funds over less developed countries, many of them in Africa, is illustrated by data collected by the Institute for International Finance, a financial industry lobby group. He found that in the third quarter of last year, external debt levels in the poorest countries of sub-Saharan Africa had increased on average to more than 60% of gross domestic product, down from 38% a decade earlier. .
No country in sub-Saharan Africa has been able to obtain financing from international capital markets since February of this year.
In the years following the global financial crisis of 2008, money poured into these countries as investment firms in major economies sought higher rates of return. Sub-Saharan governments contracted debt on the basis that rising commodity prices, spurred by rising demand in China, would allow them to repay the loans.
Falling commodity prices, already falling even before the pandemic hit, has led to financial disaster. Falling oil prices mean that Angolan government revenues are now less than what it needs to pay off debt.
When the pandemic struck, the G20 appealed to private investors to suspend debt repayments for poor countries at least until the end of this year. No relief was foreseen.
Zambia is another example of devastation. It raised billions of dollars in loans thanks to the rising prices of copper, its main export, with bankers and hedge funds eager to pile up because they could earn higher rates of return than elsewhere.
A slowdown in the Chinese economy from around 2015 halved the price of copper. Today, the deep recession induced by the pandemic has caused its economy to contract 5%. As a result, at least a third of government revenue is needed only for debt servicing, a proportion that is expected to increase in the coming years.
The collapse of its currency, the kwacha, from five to the dollar in 2012 to around 18 today, means Zambia has to repay three times as much in local currency as when borrowing.
The social consequences are expressed in figures released by the World Food Program, which show that at least 6.9 million of the country’s 17.4 million people do not have enough food.
The attitude of the World Bank and the IMF was aptly summed up in the words of Lidy Nacpil, coordinator of the Asian Peoples’ Movement on Debt and Development, based in Manila, quoted at the end of the Times article.
“International financial institutions are going to leave countries in a much worse condition than before the pandemic,” she said. “Their interest is not primarily to get these countries back on their feet, but to get these countries back into the debt trade.”