Write off record debts, say campaigners

10 Sep 18

The debts of developing countries need to be “written off” as the fallout of the economic crisis hits the world’s poorest the hardest, a civil society network has warned.

Global debt is at an “all time high” 10 years after the beginning of the financial crisis and peaked at a record $164 trillion in 2016 – equivalent to 225% of world GDP – the European Network on Debt and Development said.

It added that the fallout from the financial crisis has hit developing countries the most.

Bodo Ellmers, Eurodad’s head of policy, said it has become “impossible” for developing countries to refinance all the loans that have been taken out over the past decade.

“A large share of developing country debt needs to be written off, this is the only fair and sustainable solution,” he said.

“In the longer run, we need an international debt resolution forum, which can ensure that developing country debt crises get resolved in a fair, timely and sustainable manner, without compromising essential public services and development objectives.”

Countries in the global south are struggling because investors are pulling out of investment opportunities, leaving them with loans and interest that they struggle to pay off, Eurodad said.

Ellmers added: “Several countries such as Argentina and Ghana already had to request bailout loans from the IMF to avoid defaults on debts due to private creditors.

“And the IMF is once again telling countries like Argentina to cut public spending in exchange for the loans, which will just hurt the poor.”

The network added that poor countries did not cause the financial crisis but are now “collateral damage” following the failure of the US and Europe to regulate their financial sectors.

According to the IMF, in emerging and middle-income economies, debt-to-GDP ratios in 2017 reached almost 50% – a level only seen during the 1980s debt crisis – and are expected to continue rising.

For low-income developing countries, average debt-to-GDP ratios exceeded 40% in 2017, climbing more than 10 percentage points since 2012.

Public Finance International reported last month that IMF loan conditions for debt-ridden countries are counterproductive and can make their economies worse.

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