Japan Islamic Foundation

(Eric Toussaint is president of the Committee for the Abolition of Third World Debt (CADTM), and author of numerous books on economic policy. Extracts from his book, "Debt, the IMF, and the World Bank: Sixty Questions, Sixty Answers (pp. 7-8). Monthly Review Press. Kindle Edition.)


QUESTION 39. Why do the governments of the South continue to repay the debt?

Since the debt crisis of the early eighties, the developing countries have become dependent on loans from the international financial institutions. The financial institutions thus have an efficient means of putting pressure on them to endlessly continue their repayments. This is why the Southern governments who try to oppose the Washington consensus are few and far between. For example, when East Timor became independent in May 2002, its leaders were immediately encouraged to take out debts but luckily, they refused to do so.

This pressure, as we have seen, is facilitated by a system of case-by-case negotiations which keeps the indebted state in a constant position of weakness—unlike the IMF, the World Bank, the Paris Club, and the London Club, which are extremely well organized. It is far more difficult for the government of a developing country to say no to all that than to simply accept the loans from these international institutions.

However, do the leaders of the developing countries really want to oppose the dominant model?

During the last twenty-five years, with a few rare exceptions, most governments have not been willing to act counter to neoliberal policy. The links between the leaders of these countries and the hub of decision making in most industrial countries are multifarious. Some of the ruling presidents, in particular in Africa, were brought to power during the Cold War, or owe their positions to it. Some are in power because they helped the elimination of or allowed the overthrow of heads of state who, like Thomas Sankara, the president of Burkina Faso and assassinated in 1987, wanted to commit their country to alternative, locally generated development and social justice. Others simply prefer to follow the neoliberal current for fear of being destabilized or overthrown.

Even among those who harshly criticize the domination of the G7 countries and who try to implement alternative policies, a large majority still believe that they have to remain credible to international finance, and that it is necessary for the development of their country to have recourse to large-scale debt, both internal and external debt.179 Of course, there are external pressures from the capitals of the most industrialized countries, from international financial institutions and from private creditors of the North.

But there is another factor of conservatism that works in favor of large debt and should not be underestimated. Most governments, both left and right wing, try to gain the goodwill of the local capitalists who have every interest in seeing the debt mechanism continue. This mechanism assures them (as it does for capitalists in the North) a juicy profit because they lend money to the state which then pays them back at very advantageous rates of interest. It is extremely rare to find a recent case in which a state has repudiated its public debt to local bankers. So most bankers prefer to lend to the state and to other public institutions where their loans are guaranteed by the government, rather than to local producers—especially if they are small or medium-sized producers. Lending to the government is far less risky and far more profitable. Several presidents in power today have been elected promising to reduce social inequality. They promised to put an end to the parasitic rent-collecting bankers and to free the country from the yoke of the international creditors. Brazil’s experience is a case in point. Today, bankers and the rest of the local capitalist class are rubbing their hands in glee under the friendly governance of the party in power—the Workers’ Party!—and President Inacio Lula Da Silva.

If an older adult considers himself belonging to the left, it’s because he has problems. If a young person is right-wing, it’s because he has problems too. . . . I’ve shifted toward social democracy. When you’re 61 you reach some kind of balance. . . . It’s part of the human species’ evolution. Someone who was left-wing becomes more centrist, more social-democratic and less left-wing. It depends on how much gray hair you have. . . . For many years I criticized the former minister, Delfim Neto [in charge of the economy during the military dictatorship, 1964–85], and now he’s my best friend.

—LULA, president of Brazil, December 2006

To complete the picture, many of the top leaders in the countries of the South are graduates of the top business schools or universities of the North (Harvard, Columbia, Princeton, Yale, Stanford, Oxford, Cambridge, HEC Business School in Paris) and have been educated in the liberal mold.

Before becoming governor of the Central Bank of Brazil, Arminio Fraga Neto managed an investment fund for the speculator George Soros. The Ivorian Alassane Dramane Ouattara was director of the Africa Department of the IMF from 1984 to 1988 before becoming prime minister of Côte d’Ivoire from 1990 to 1993 and then assistant director-general of the IMF from 1994 to 1999. At the time of the crisis in Turkey in February 2001, the most symbolic gesture of the international financial institutions was to lend Turkey (along with money) Kemal Dervis, then vice president of the World Bank, who became Minister of Finance in his country (before managing UNDP). Vicente Fox, the Mexican president elected in 2000, was also manager of the Mexican subsidiary of Coca-Cola. Alejandro Toledo was a consultant employed by the World Bank before becoming president of Peru in 2001. Ellen Sirleaf-Johnson worked for the World Bank before becoming president of Liberia in January 2006. Is it any wonder that the policies followed conform perfectly to the wishes of Washington?

The populations in the South are never seriously consulted and are kept carefully out of the picture. However, it is perfectly possible for a democratic government to break the chain of debt. This can be done by repudiating illegitimate debt using the basis of a debt audit. International law provides efficient means for a Southern government to repudiate proceedings for odious or other illegitimate debt. However, Southern governments need to be ready to use these means.