Georgieva’s words were supposed to signal that the Fund and its sibling the World Bank have moved beyond their austerity orthodoxy to head off the worst economic downturn since the Great Depression caused by the global pandemic.
A break with the past is, indeed, sorely needed. While many countries have avoided the worst health impacts of the Coronavirus, the Global South is set to be decimated economically. The UN estimates that nearly half of all jobs in Africa could be lost, while Oxfam calculates the virus’ economic impact may push half a billion people into poverty.
If the IMF were serious about the economic and social wellbeing of the world’s majority it would now cancel debt payments for the world’s poorest countries for the next four years, establish new concessional funds, and issue loans to Global South nations without market fundamentalist conditions, allowing their governments to invest in the social, physical and green infrastructure their people need.
Instead, the Fund is forcing devastating cuts in welfare programs, slashing living standards in country after country. Oxfam has documented that 84% of IMF loans initiated since the start of the pandemic encouraged or required cuts to public spending, endangering both public health and economic security.
Government, central bank and IMF policy responses to the pandemic are deepening stark global inequality. Over 90% of pandemic stimulus spending has occurred in wealthy countries, even as 72 of the countries forced to borrow from the IMF have been asked to cut their budgets as early as next year.
Solidarity from wealthy countries has been a cruel public relations exercise. The G20 countries agreed to not to come knocking on debtors’ doors for a mere six more months. Not only does their Debt Service Suspension Initiative (DSSI) exclude private creditors, but the total amount of suspension to date is so trivial as to be laughable — an estimated $5 billion, 0.7% of the total external debt of all DSSI countries in 2019. To put things in perspective, that’s a little under a third of New York City Subway or Metropolitan Transportation Authority 2019 budget. In short, the decision has been made: the lives of people in the Global South come second to international private capital.
The true theme of the meetings was, in effect, something the IMF acknowledged earlier this month: “For advanced economies, it is whatever it takes. Poorer nations strive for whatever is possible.” And what is possible? By the summer, G20 countries had been able to roll out stimulus packages amounting to over US$10 trillion within months, or close to four times the amount experts estimate developing countries require.
“An aborted economic recovery, or worse, another ‘lost decade’, is not inevitable,” argues the United Nations Conference on Trade and Development – “It is a matter of policy choice,” one that our International Financial Institutions are actively making for the most vulnerable peoples of the world.
Solutions exist — G20 finance ministers, the IMF, and the World Bank can and must give the Global South the liquidy it so desperately needs. The IMF can issue new Special Drawing Rights (SDRs), a form of foreign exchange reserve assets, at virtually no cost. Cancellation of all multilateral debt payments by the DSSI countries from now till December 2024 could be paid for “with less than 9% of the funds that rich countries and China would receive from a Special Drawing Rights issuance.” Finally, immediate and unconditional debt cancellation must be on the table – from all lenders, bilateral, private, and multilateral, for at least the next four years.
A renewed commitment to global economic justice must go beyond short term relief: a permanent global debt relief mechanism, the abandonment of any and all loan conditions of austerity, privatization, and deregulation, global governance to combat tax avoidance, evasion, and illicit financial flows, green technology transfers from North to South, a rewriting of global trade rules, a massive program of North-to-South public investment and reparations for a fair, green recovery, and more — in short, a Global Green New Deal.
International institutions have made clear their bottom line: loyalty to austerity, a few emergency loans, and complete dismissal of the idea of debt cancellation. This tells us all we need to know about the world order they intend to sustain.
But the victims of this order, the world’s overwhelming majority are not without power. As Phil Mader reminds us: “When borrowers and citizens become defiant debtors and radical activists who challenge economic inequities, they can shake the moral and economic foundations of the global financial system.” Perhaps, it is time to take up Director Georgieva’s call to “dare to face our most daunting challenge together” — for the debtors of the world to unite, and default.
Michael Galant is the coordinator of the Progressive International's Wire pillar.
Varsha Gandikota-Nellutla is the coordinator of the Blueprint pillar.
Photo: World Bank Photo Collection
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