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The biggest debt crisis in history is upon us
In 2020, rich countries spent nearly $12 billion, or more than 31% of their combined GDP, to avoid economic collapse and cushion the effects of the COVID-19 pandemic on their citizens. This “fiscal stimulus” does not include monetary stimulus in the form of lower interest rates and central bank purchases of financial assets.
In contrast, their response to the catastrophic economic effects of COVID on so-called developing countries in Africa, Asia and Latin America – described by World Bank President David Malpass as “worse than the financial crisis of 2008 and for Latin America worse than the debt crisis of the 1980s” – was a kick in the teeth. In November, Ken Ofori-Atta, Ghana’s finance minister, said that “the ability of Western central banks to react [to the pandemic] to an extent unimaginable, and the limits of our ability to react are quite shocking… You really want to scream “I can’t breathe”.
The ability of poor countries to respond to the pandemic is also hampered by woefully underdeveloped health systems. The average per capita health expenditure in high-income countries in 2018 was $5,562, 156 times more than the $35.6 per year per capita spent in low-income countries and 21 times more than the 262 dollars spent per capita in all “developing countries”.
On the eve of November’s G20 summit, chaired by Saudi Arabia, UN Secretary-General Antonio Guterres warned that “the developing world is on the brink of financial ruin and escalating poverty, hunger and untold suffering” and pleaded with G20 leaders for a proportionate response. . The G20 is really the G7 – i.e. the seven major wealthy nations, the US, UK, France, Germany, Japan, Canada, Italy – disguised. They hold the power, while the other 13 nations, including Brazil, South Africa, Saudi Arabia and India, lend legitimacy to their decisions.
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Rich nations’ response to the catastrophe afflicting poor nations is the ‘Debt Service Suspension Initiative’ (DSSI) – an offer to 77 ‘least developed countries’ to suspend interest payments to creditors officials (i.e. wealthy governments, IMF and World Bank). ) until June 2021. Suspended payments will add to their already unbearable debt and every penny will have to be paid within five years.
In Latin America and the Caribbean, only Bolivia, Grenada, Guyana, Haiti, Honduras and Nicaragua qualify for these meager benefits. The others must continue to stuff money into the mouths of their creditors in rich countries without stopping for a day, instead of using this money to meet their medical and economic emergencies.
save the rich
But that’s not all. This debt “relief” applies only to interest owed to governments, not to what they owe to private lenders. Even the World Bank has opted out of this tiny generosity – David Malpass has rejected calls to freeze $7 billion in interest owed to him, saying abstention would hurt the Bank’s ability to make new loans . As a result, only 41% of the $42.7 billion that DSSI countries owed in debt repayment in 2020 is eligible for relief.
The suspension of interest payments to government creditors makes it easier for these desperately poor countries to repay their debts to private creditors – such as Blackrock, JP Morgan, HSBC, UBS and the wealthy individuals they serve. In other words, rich country governments don’t save poor countries, they save rich investors in those poor countries.