By Prof. Bhabani Shankar Nayak
The International Debt Statistics (2022) published by the World Bank has revealed that the external debt of 123 low- and middle-income countries has increased on average by 5.6 percent to $8.7 trillion in 2020.
It shows the devastating impact of the pandemic on the economy of developing countries. The G-20 creditors have designed a policy framework called the Debt Service Suspension Initiative (DSSI) as if the creditors are doing a charity for the poor living in the developing world.
The fact is that poor and developing countries sacrifice their economic independence and political sovereignty in decision-making over their own people, resources, and territories in the process. The creditors force the debt trap countries to follow various policies that facilitate in the realization of the objectives of the developed creditor countries.
It is a systematic strategy of developed countries to exploit developing countries. The international debt crises and traps poverty, underdevelopment, and inequalities are products of colonial politics and neo-colonial policies imposed on developing countries by the developed countries.
There is a long-standing history of developed countries occupying the territory and resources of the debt defaulter countries. For example, the French and Belgian soldiers had occupied the Ruhr; an area in North Rhine-Westphalia, Germany, and access to coal when the country failed to repay Versailles debts.
During the colonial period, countries in Asia, Africa, and the Americas were divided between European colonizers and European colonialism established an international debt trap on these continents. After the First World War, the United States Congress refused to cancel European debt. However, after the Second World War, the European countries canceled each other’s debt and came together during the Bretton Woods Conference to create an international financial system under the leadership of the US. This conference led to the rise of Bretton Woods institutions and institutionalize the international debt trap of the post-colonial developing countries.
During the 1990s, the G-7 developed countries created a regime of the free market economy that led to neo-colonial economic policies under the leadership of the World Bank and IMF. These two institutions imposed structural adjustment, liberalization, privatization, and globalization policies on the countries which failed to repay the debt.
These policies were tools of indirect control over natural resources, domestic consumers, labor, and investment markets of the defaulter countries. The international debt trap is the mother of all economic crises in developing countries which helps to maintain the economic and political hegemony of the developed countries in Western Europe and the US.
The international debt trap is resurfacing from 2020 onwards after the publication of “The Elements of the China Challenge” by the Policy Planning Staff, Office of the Secretary of State, United States.
This unclassified Policy Planning Staff paper focuses on China’s “predatory development program and debt-trap diplomacy.” The paper also claims and highlights “Beijing’s authoritarian goals and hegemonic ambitions”. It also argues that “the Chinese Communist Party (CCP) has undertaken major infrastructure and investment projects, debt-trap diplomacy, and other predatory economic practices in every region of the world, the better to induce or compel sovereign nation-states, particularly their governing and business elites, to aid and abet China in the reshaping of world order.
However, the rise of China and its internationalism based on peace and development threatens the very foundation of the debt-driven international financial system led by Western Europe and the US.
Western countries ask for structural adjustment to diminish the welfare state and its infrastructure whereas China provides debt for infrastructural development for the rise of an economically independent state.
These two tales are central to understanding and overcoming debt-driven capitalism and denounce the western model of the international economic system that destroys democracy for the market, ruins people’s lives and livelihoods for profit, and creates a foundation for environmental disasters. The working poor across the world are victims of such a debt trap created by capitalism under the leadership of western states and governments. It is time to dismantle capitalism and its debt-driven financial architectures for the sake of humanity, peace, prosperity, and the planet.
The writer is a political economist working as a Professor at the University of Glasgow, UK.