Imperialism and the Political Economy of Global South’s Debt: Volume 38

Following a successful debt-renegotiation process in the mid-2000s, Argentina consolidated a path of growth and debt relief. The outbreak of the global financial crisis in 2007–2009 and other domestic imbalances altered the economic scenario. In this context, the authorities tried to return to global financial markets, but legal conflict with vulture funds made that option unpalatable. In 2015, the triumph of a right-wing political coalition restored the dominance of neoliberal economic policies, including the return to debt and equity markets. The subsequent cycle of indebtedness and capital flight faced by Argentina not only unleashed a major crisis but also caused the return of the International Monetary Fund, which granted the largest lending arrangement to a single country in its history. The aims of this chapter are to analyze the winding cycle of debt reduction and overindebtedness experienced by Argentina between 2001 and 2022; to examine the set of structural factors as well as the role of certain domestic and foreign actors; and to consider the long-term effects of external indebtedness and some lessons that can be drawn for other countries in the Global South.

The cycle of external indebtedness of dependent countries has become a huge constraint on any strategy for radical social change.

Argentina has recently entered a new process of debt overhang and renegotiation with the International Monetary Fund and private global creditors. The dominant debate around the country's foreign debt revolves around the conditions that can guarantee the sustainability of repayment. The underlying objective is to remain in the debt system that produces and reproduces dependency.

This chapter will seek to analyze the question of debt sustainability from another point of view: Is it possible to guarantee the (financial) sustainability of the debt at the same time as guaranteeing the sustainability of life? Our argument is that by remaining in the global debt system, Argentina creates conditions that violate the requirements for the sustainability of human and nonhuman life. Drawing on a discussion from Marxist dependency theory and the traditions of Marxist feminism and environmentalism, we will discuss how the debt sustainability argument presupposes the impossibility of reproducing life. In particular, we will show how the conditions required to guarantee debt sustainability in Argentina entail the deepening of the superexploitation of the “productive” and “reproductive” labor force, and the exacerbation of extractivism, putting social reproduction in crisis.

In October 2020, Zambia failed to make a $42.5 million interest payment on $1 billion in Eurobonds maturing in 2024, becoming the first African country to default on its debt obligations in the aftermath of COVID-19. Zambia's default highlights the fragmented nature of governance in sovereign debt markets. The Zambian default also underscores the continuing impact of colonial hangover in former colonies in Africa. Fragmented governance and colonial overhang create incentives for both debtors and creditors that contribute to cycles of sovereign debt. These cycles of debt pose a particular hazard to residents within countries that issue such debt. In African contexts, this has led to flows of funds for debt repayment that may significantly jeopardize the well-being of people who are already poor. Zambia's default also reflects the increasing need of African countries to navigate among different external actors, particularly China, which has given loans throughout Africa for varied projects, including infrastructure lending as part of its Belt and Road Initiative. The Zambian default draws attention to the significant amount of Eurobond debt African countries have incurred in recent years and the burdens that such debt may impose. The circumstances of Zambia's default, as well as recent disputes about external debt in Mozambique, reflect continuing issues about transparency and public scrutiny of sovereign debt transactions and the broader societal impact of debt internally within African countries and in relations between African countries and varied external powers.

In 2019, a popular revolution toppled Sudan's long-term military president, Umar al-Bashir. The country then entered a three-year transition toward democratic rule during which power was shared between Sudan's military and civilian political organizations. In this period, international organizations and foreign governments were quick to proclaim their support for Sudan's democratic transition. However, policy reforms during Sudan's transition went beyond changes to formal political institutions, as the transitional government implemented major programs of economic restructuring. These restructurings were supported by Sudan's international partners, who normalized a discourse that Sudan was “overindebted,” and who held that political and economic reforms ought naturally to accompany each other. As a result, the transitional government implemented a shock program of liberalization and austerity that imposed material hardship on much of Sudanese society, including during a global recession resulting from the COVID-19 pandemic. This contributed to endangering the transition itself and the progressive promises of Sudan's 2019 revolution.

This chapter traces the history of how Sudan was excluded from Western financial and commercial markets through the imposition of sanctions in the 1990s. This caused Sudan to explore non-Western sources of external financing in East Asia and the Arabian Gulf. This history then shapes the contested ways in which Sudan's debts are counted by international institutions to create the misleading impression that the country is overindebted. Finally, the chapter examines how different elites coalesced to impose a program of shock fiscal austerity and economic liberalization during a crucial political moment, which helped to imperil the country's fragile political transition.

This chapter explores why a better alternative to current practises in addressing sovereign debt repayment problems has not emerged. It examines the discussions on financing and debt repayment difficulties from the first United Nations Conference on Trade and Development in 1964 to the eve of the 1980s debt crisis. Drawing from recent work that highlights the ways with which the power of economics and economists operates in the public realm, the chapter examines the role of economic analysis within the political debate on debt. The chapter details the repeated refusals by creditor groups to any suggestion for improvements to the international debt architecture.

With the debt crisis that has been impacting many countries in the Global South since 2015, its spectacular acceleration following the collateral effects of the COVID-19 pandemic, and the ever-increasing weight of “new” creditors (China, Gulf countries, and private creditors), the old debate for the creation of an international sovereign debt restructuring mechanism under the aegis of the United Nations has resurfaced. Although such a mechanism could constitute a real advance compared to the current situation, it remains very hypothetical, both because of its limits and because of the complexity of the process to be undertaken in view of the adoption of an international treaty endorsing its creation. Above all, it ignores the sovereignty of states and the right to self-determination of peoples. Other solutions exist, which are less complicated, less expensive, and not at all less legitimate, among which the establishment of a moratorium with interest freeze and the creation of an audit committee with citizen participation aiming at canceling or repudiating the illegitimate debts with regard to international law and national legal provisions.

This chapter starts from the issue of debt in the context of a national economy by contrasting two opposed views: policy prescriptions based on the Washington Consensus prioritize low public debt and a limited role of the government in the development process whereas a more heterodox view considers debt as logical, necessary, and helpful in order to allow the government to pursue an ambitious growth and development strategy. However, things change when the economy is considered in its international context: foreign debt is different from domestic debt and while the same heterodox analysis still rejects the Washington Consensus' demand for trade and financial liberalization, its own ambitious development strategies for the domestic economy get constrained by trade deficits, the threat of capital flight, and exchange rate instability. The question arises how the government can still significantly contribute to economic development beyond the limits of a purely private sector–driven approach. This is why this chapter reviews proposals to relax or overcome the balance-of-payments constraint. Finally, it considers a reform of international payments, which can be implemented by a single country unilaterally, and which enables it to stabilize its current account, avoid foreign debt accumulation, and support domestic development strategies.

This chapter addresses the issue of the Global South external debt by mobilizing insights from Modern Monetary Theory, Ecological Economics, and Dependency Theory. It argues that the external debt problem of Southern governments is a reflection of their subordinate economic and monetary status. It shows why the argument of foreign currency shortage often used to explain the need for Southern governments to issue foreign currency debts remains superficial. In contrast to the usual focus on creditors, the chapter highlights the role played by foreign direct investment in the genesis of the chronic external indebtedness of most Southern countries. It argues then that the external debt of the South must be understood holistically not only as a manifestation of the unequal ecological exchange between the North and the South but also as an instrument that has contributed to reproducing and amplifying this pattern. Under these conditions, the cancellation or restructuring of the South's external debt stock and a few other unlikely concessions by the Northern countries will not be enough to abolish the “debt system.” This is an important lesson from the antiimperialist critique of the mid-1970s New International Economic Order (NIEO) agenda that current movements for Southern debt cancellation and Climate Justice would do well to remember.

The People's Republic of China (PRC) is the world's largest official creditor nation with its outstanding debt claims on the rest of the world totaling an estimated US$5.5 trillion in 2019 or more than 6% of global GDP. However, given Beijing’s very limited transparency in its disclosures when it comes to its external lending (and now its alleged culpability in the spread of the coronavirus) the accusation that the PRC has for years engaged in “debt-trap diplomacy” has come under renewed scrutiny. Specifically, the charge is that the Chinese government, which is the world's leading creditor lending via its multibillion dollar “Belt and Road Initiative” as well as various state-owned and controlled entities, lures developing countries, in particular, low-income countries, with easy money to fund often economically unviable projects. This is because China's ultimate goal is to get access to the borrowers' local markets and natural resources and indirectly controlling or outright seizing assets and resources, including extracting economic and political concessions when these countries fail to service their loans – which is often given at market or above-market interest rates and carry shorter maturities, thereby requiring regular refinancing. This paper reviews this claim and concludes that it seems exaggerated.