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Imperialism and the Political Economy of Global South's Debt

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Research in Political Economy

Series Editor: Paul Zarembka

State University of New York at Buffalo, USA

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Research in Political Economy Volume 38

Imperialism and the Political Economy of Global South's Debt

Edited by

Ndongo Samba Sylla

Rosa Luxemburg Foundation, Senegal

United Kingdom – North America – Japan – India – Malaysia – China

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Emerald Publishing Limited

Howard House, Wagon Lane, Bingley BD16 1WA, UK

First edition 2023

Editorial matter and selection © 2023 Ndongo Samba Sylla.

Individual chapters © 2023 The authors.

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British Library Cataloguing in Publication Data

A catalogue record for this book is available from the British Library

ISBN: 978-1-80262-484-7 (Print)

ISBN: 978-1-80262-483-0 (Online)

ISBN: 978-1-80262-485-4 (Epub)

ISSN: 0161-7230 (Series)

List of Tables and Figures

List of Abbreviations

BRI

Belt and Road Initiative

CACs

Collective Action Clauses

CF

Common Framework (for Debt treatments beyond the DSSI)

DSA

Debt Sustainability Analysis

DSSI

Debt Service Suspension Initiative

FDI

Foreign Direct Investment

FFC

Forces of Freedom and Change

GA

(United Nations) General Assembly

GDP

Gross Domestic Product

GNI

Gross National Income

HIPC

Heavily Indebted Poor Countries (initiative)

IBRD

International Bank for Reconstruction and Development

ICESCR

International Covenant on Economic, Social, and Cultural Rights

ICJ

International Court of Justice

IDA

International Development Association

IFFs

Illicit Financial Flows

IFIs

International Financial Institutions

IGE

Intergovernmental Group of Experts

IIF

Institute of International Finance

IMF

International Monetary Fund

LMICs

Low and Middle Income Countries

MDRI

Multilateral Debt Relief Initiative

MMT

Modern Monetary Theory

NCP

National Congress Party (Sudan)

NIEO

New International Economic Order

ODA

Official Development Assistance

OECD

Organization for Economic Co-operation and Development

PCR

the People's Republic of China

RSF

Rapid Support Forces

SAP(s)

Structural Adjustment Program(s)

SDRM

Sovereign Debt Restructuring Mechanism

SST

State Sponsors of Terrorism

TDB

Trade and Development Board (UN)

UN

United Nations

UNCTAD

United Nations Conference on Trade and Development

About the Editor

Ndongo Samba Sylla (PhD) is a Senegalese Development Economist. He is currently a Senior Research and Program Manager at the West Africa office of the Rosa Luxemburg Foundation (Dakar). He authored The Fair Trade Scandal: Marketing Poverty to Benefit the Rich (Pluto Press & Ohio University Press 2014). He co-authored Africa's Last Colonial Currency: The CFA Franc Story (Pluto Press 2021). He is a co-editor of Economic and Monetary Sovereignty in twenty-first century Africa (Pluto Press 2021) and of Revolutionary Movements in Africa: An Untold Story (Pluto Press 2023).

About the Contributors

Olufunmilayo (Funmi) Arewa is the Shusterman Professor of Business and Transactional Law, Temple University Beasley School of Law. Her scholarship focusses on music, entrepreneurship, business, technology, and Africana studies. Prior to becoming a law professor, Professor Arewa worked in legal and business positions in the entrepreneurial and technology startup arena. She received an MA and a PhD (Anthropology) from the University of California, Berkeley, an AM (Applied Economics) from the University of Michigan, a JD from Harvard Law School, and an AB from Harvard College. Her book, Disrupting Africa: Technology, Law and Development, which is based on a decade of archival research about patterns of colonial era law making in former British colonies and the continuing implications of such patterns today, is now available through Cambridge University Press.

Harry Cross is an Assistant Professor of Humanities and Social Sciences in Prince Mohammad bin Fahd University (PMU) in Dhahran, Saudi Arabia. His research examines the history of banking and financial institutions in the Middle East since 1945, with a focus on the relationship between financial power and political power. Harry holds a PhD in Economic History from Durham University, UK, which was awarded in 2021.

Mariano Féliz holds a BA in Economics (UNLP), an MA in Economic Sociology (UNSAM), a PhD in Economics (Paris XIII/Nord) and a PhD in Social Sciences (UBA). Féliz is Professor at UNLP, Researcher from CONICET at the Centro de Investigaciones Geográficas of the Instituto de Investigaciones en Humanidades y Ciencias Sociales (CIG-IdIHCS) of CONICET and UNLP, Member of the DECkNO (Centre for Decolonising Knowledge in Teaching, Research and Practice; University of Bath), and Fellow of the International Research Group on Authoritarianism and Counter-Strategies (IRGAC) of the Rosa Luxemburg Stiftung. He is part of the Work Group “Cuerpo, territorio y feminismo” of CLACSO, and is an activist of the research/action collective Al Borde (construyendo pensamiento indisciplinado). He works on themes related to Marxian dependency theory, critique of development, and social movements.

Christina Laskaridis is Lecturer (Assistant Professor) in Economics at the Open University, United Kingdom and an Associate Fellow of Saïd Business School of the University of Oxford. She works on the political economy of sovereign debt, international organizations, and monetary and debt debates. Her work examines the nature of economic expertise in historical perspective. She is the 2022 recipient of the Joseph Dorfman Best Dissertation Prize by the History of Economics Society. She was a resident research fellow at the Center for the History of Political Economy at Duke University. She has worked with several organisations focusing on debt: the OHCHR supporting the work of the Independent Expert on Foreign Debt and Human Rights, UNCTAD and several NGOs.

Basil Oberholzer received his PhD from the University of Fribourg, Switzerland, and is currently an associated researcher at the Centre for Development and Environment at the University of Bern, Switzerland. His research focus is on monetary economics, development macroeconomics, and ecological economics. Moreover, Basil is an economic officer at the Global Green Growth Institute, which supports governments and other stakeholders in developing countries regarding decarbonization strategies and green economic policies. His main publications include the books Monetary Policy and Crude Oil: Prices, Production and Consumption as well as Development Macroeconomics: Alternative Strategies for Growth at Edward Elgar Publishing.

Juan Manuel Padín is a researcher at the Universidad Nacional de Quilmes in Buenos Aires, Argentina. He has published numerous papers in academic journals. His current research interests are international trade, global political economy, development, and economic policy-making in Argentina.

Milan Rivie (@RivieMilan) is a Political Scientist and member of CADTM (Committee for the Abolition of Illegitimate Debt, www.cadtm.org) since 2015. He specializes in the debt of sub-Saharan African countries.

Juan E. Santarcángelo is a researcher at the National Scientific and Technical Research Council, Chair of the graduate program in economic development, and Associate Professor at the Universidad Nacional de Quilmes in Buenos Aires, Argentina. Since 2014, he has been the series editor of the Palgrave Studies in Latin American Heterodox Economics Series.

Shalendra Sharma is the Lee Shau Kee Foundation Chair Professor of Political Science at Lingnan University in Hong Kong. Since 2015 he is also the Academic Vice President at Lingnan University in Hong Kong. Between 1993 and 2018 he was Professor of Political Science at the University of San Francisco. Sharma is the author of several books, including three published by Cambridge University Press. These books include Prosperity with Inequality: A Comparative Political Economy of the United States, China and India; Global Financial Contagion: Building a Resilient World Economy After the Great Recession; and China and India in the Age of Globalization.

Preface

The Global South, as a geo-historical concept, occupies in the age of neoliberal globalization the intellectual space opened up during the Cold War by the concept of the Third World. Like its predecessor, the Global South connects Latin America, the Caribbean, Asia, Africa, and Oceania as a set of territories that share characteristics pertaining to history (former European colonies/victims of imperialism), international law (countries that are international norm-takers rather than international norm-producers), economic status (nonindustrialized or late industrialized countries), knowledge production (marginalized and distorted subjectivities of Western-centric epistemology), geopolitics (dominated countries that try to challenge the world system), etc. In common academic usage, the concept refers to empirical sets that may differ according to the themes studied, the statistical sources used, etc.

A condition common to the Global South countries following the different waves of political independence has been the recurrence of foreign currency debt crises. In most episodes, the script was already written, with some nuances. In economic booms, there is a large demand for external financing that is met by eager creditors attracted by the prospect of high returns based on exaggerated risk perceptions. When granted, the financing is not always used for productive projects that will allow it to be repaid or in the interest of the population. Sometimes the new loans are intended to repay debts previously contracted. The crisis generally occurs when the terms of trade deteriorate. Declining export prices reduce the ability to service the debt. Creditors become less enthusiastic and fear defaults on their loans. The costs of refinancing the debt increase accordingly.

As countries become insolvent and face a balance-of-payments crisis, they apply for emergency loans to the International Monetary Fund (IMF), a twentieth-century-born institution that updates the goals of “gunboat diplomacy” with “civilian” methods. In its capacity as bailiff and policeman for Global North-based creditors, the IMF provides “assistance” in return for the austerity measures it invariably imposes. The objective is to get the states to reduce their “lifestyle,” which is considered “expensive”,” and to try to quickly obtain external surpluses (export revenues) to continue to service the debt. Meanwhile, the World Bank also provides “assistance” in return for privatizing public enterprises and liberalizing the economy (foreign trade, finance, labor relations) for the benefit of foreign capital and its local junior allies. When the debt proves impossible to service, even with the “assistance” of the two Bretton Woods institutions, there comes talk of restructuring it. In this fragmented process, private and multilateral creditors rarely lose out, while bilateral creditors make some concessions, always bearing in mind their diplomatic and geostrategic interests. The debt relief granted by the “creditor nations” often falls far short of the expectations of the movements campaigning for the abolition of Third World's (now Global South's) debt. In the end, the populations of debtor countries, especially the most vulnerable among them, are the adjustment variables. Their cries of anger in the streets may have led to the overthrow or nonreelection of certain governments in place.

This scenario is being played out again before our very eyes, as the period opened by the COVID-19 pandemic has brought the issue of the Global South's external debt back to the forefront. Faced with this “black swan” event, the Southern countries found themselves with reduced ammunition. In some cases, as in Africa, the economic crisis even preceded the health crisis. The deterioration of the terms of trade, the drop in export and tourism revenues, the decline in foreign direct investment flows, the increase in risk premiums on bonds issued by Southern governments, currency depreciation, etc. were the immediate consequences of the health crisis that started in China before spreading to Northern countries and the rest of the world. In this particular configuration, many governments in the South were faced with a difficult choice: to service the debt or to fail to mitigate the health, economic, and social consequences of the COVID-19 pandemic. In the same vein, shocking inequalities in physical and financial access to COVID-19 vaccines have compromised prospects for a strong economic “recovery” in the South.

The COVID-19 pandemic has certainly revealed the many flaws in the multilateral system, the various facets of the dependence of Southern countries (commercial, technological, financial) on Northern countries, and the strong reliance of the latter on Southern labor and raw materials. It has also been an accelerating factor. The ongoing debt crisis in the Global South was on the cards before Sars-Cov-2 appeared. External solvency indicators – debt service to exports; exports to external debt stock; official reserves to external debt stock – tended to deteriorate in most Southern countries during the 2010 decade. Despite the partial cancellation of sovereign debts under schemes such as the Heavily Indebted Poor Countries (HIPC) and the Multilateral Debt Relief Initiative (MDRI), Southern countries reindebted massively in the wake of the Great Financial Crisis (2007-8). This context is marked both by the gradual exhaustion of the primary products supercycle observed since the early 2000s and by the pursuit of nonconventional monetary policies by Northern countries' central banks (quantitative easing, zero interest rate policy). These have led to an abundance of liquidity on international financial markets that could be invested in exotic destinations (“emerging markets/frontier markets”) offering returns much more attractive than those prevailing in the Global North.

Though a similar structural logic led to their genesis, the debt crisis of the 1980s and the current one differ in at least two aspects. On the one hand, the immediate triggers were not the same: declining terms of trade and a drastic rise in the Federal Reserve interest rates (“Volcker Shock”) in the first case; a pandemic in the second. On the other hand, the composition of creditors changed significantly. The share of official loans (bilateral and multilateral) in the public external debt stock of Southern countries was more important at the time. Since then, one country in particular acquired the new status of a global creditor vis-à-vis the Southern countries: China. Moreover, private creditors are now dominated by Eurobond holders rather than commercial banks. This latter change reflects the transition in the North to market-based financial systems, but also the trend toward increasing concentration and centralization of capital. Trillion-dollar asset management companies like Blackrock now hold the sovereign debts issued by countries like Zambia, one of the sovereign defaulters that made the headlines in 2020. This new environment, marked by the emergence of China and private creditors, is making the process of restructuring Southern sovereign debts more complex and their outcomes more uncertain.

Seizing the opportunity offered by current events, this volume aims to revisit the issue of Global South's external/foreign currency debt, with a particular focus on sovereign debt. The starting point of the contributions gathered here is the recognition that Global South's external debt crises are structural in nature. As such, they cannot be explained away as the result of “mismanagement”, “fiscal irresponsibility”, etc. These idiosyncratic considerations are potentially aggravating rather than structural factors helping account for the longevity and recurrence of this problem across the Global South.

Among the questions addressed in this volume: How can we explain debt cycles in the South? In what ways are they indicative of the subordinate economic and monetary status of the Southern countries, or even of the particular constraints imposed on them by economic, monetary, and financial order? In what way does foreign currency debt constitute an instrument of imperialist domination? What is the role of the ruling classes of the South in the persistence of this pattern? How true is the view that China is practicing a “debt trap diplomacy” to loot Southern countries? What are the implications of creditors' view on debt sustainability on the sustainability of social reproduction and the environment? Why have repeated calls for an international mechanism to restructure sovereign debts not yet been successful? What alternatives can be considered in the absence of such a mechanism? More importantly, what practical measures could help turn the page on debt crises in the Global South countries and rid them of the iron fist of their creditors?

The contributions in this volume allow us to consider the external debt of Global South countries as a legacy of imperialism in its colonial phase (visible through the longevity of legal structures of colonial origins and the dependence on exports of primary and low wage-based products), the ongoing outcome of a global economic, monetary and financial order that constrains their autonomous development, and an instrument of imperialist domination that makes it possible to shape their economic policies according to the requirements of core countries and their capitalist interests. Using various theoretical lenses, Imperialism and the Political Economy of Global South's Debt critically engages with policy proposals to overcome the structural conditions that create the enduring foreign debt burden and its long trail of avoidable human sufferings.

Ndongo Samba Sylla

July 2022

Acknowledgments

I would like to thank Paul Zarembka and the board members of the Research in Political Economy series for their support and encouragement. Thank you as well to the contributors to this volume and to the colleagues who helped during the editorial process as anonymous reviewers.