Time to reform global credit, say US bishops
Just a few years ago, historically low interest rates sparked a debt frenzy among developing country governments, partly funded by new geopolitical players like China or cheerfully embedded in new lending instruments by First World banks and investors seeking to maximize returns on capital reserves. . When the debt bazaar closed, developing countries owed record amounts to foreign investors, banks and governments. New York Times reports.
Over $ 2.1 trillion in debt has been assumed by countries classified as “low income” and “lower middle income” by the World Bank, including unstable states like Afghanistan, Bolivia , Chad and Zimbabwe. The International Monetary Fund has called it “the largest, fastest and most widespread debt increase in these economies in the past 50 years.”
By strictly adhering to Murphy’s Law, billions of dollars in payments on these debts matured in 2020 and 2021 just as the COVID-19 crisis threw a flash drive into the global economy, slashing revenue. taxes that borrowers in the developing world were anticipating. Sub-Saharan Africa, closed to COVID-19 and devoid of vaccines, is heading into its deepest recession in 50 years. In November, Zambia became the first among new debtors to default, waiving a euro bond payment of $ 43 million. More than 20 other African states are considered to be at serious risk of default.
The problem can be obscured by accounting jargon, depreciation formulas and numbers, numbers, numbers. Yet at the end of the day, the question is relatively simple: Will the world’s poorest countries again be forced to choose between saving lives and paying off debts? In the past, countries that chose to put people first were excluded from development loans for years, a move that meant another kind of prolonged suffering for their people.
In a joint letter in February, the interfaith religious development group Jubilee USA Network and the United States Conference of Catholic Bishops urged the Biden administration to take the lead in preventing such dismal trade-offs. Their call calls for a short-term response to address immediate humanitarian needs this year, freezing debt service and canceling some loans outright. But the authors of the letter also argue that long-term reform of global lending practices must be part of a rational response to prevent a flush and recurrence of such crises. Too often, resource-rich but capital-poor states accept debt deals that promise prosperity, but just as often cause economic and social catastrophe.
There are of course practical reasons for government, banks and private investors to rebalance debt terms or accept modest losses on non-repayable debt. International Monetary Fund analysts called the global pandemic “the once-in-a-century shock that deserves a generous response” to “preserve the world trading system and help countries overcome debt problems.”
Will the world’s poorest countries once again have to choose between saving lives and paying off their debts?
The subtext here is that allowing the COVID-19 debt crisis to get out of hand will eventually shatter even advanced economies. No one wants to see the golden goose of international lending and borrowing choked to death on bad paper. It should be noted that in response to the COVID-19 pandemic, rich states have taken on debt themselves, raising nearly $ 20 trillion in government and corporate bonds to help their countries weather the crisis.
Getting poor countries to swap emergency public health spending for debt repayment will certainly mean higher death tolls and the likelihood of the pandemic going on longer than necessary. In this sense, a merciful debt response is a wise investment for all, which helps economies around the world return to normal more quickly and with fewer losses. No one should be forced to choose between life and debt.
This article also appears in the May 2021 issue of US Catholic (Vol. 86, # 5, page 42). Click here to subscribe to the magazine.
Image: Unsplash / Christine Roy