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Current Affairs

A Magazine of Politics and Culture

The U.S. Has a Moral Obligation to Forgive the World’s Debts

It’s time for the banks to be the ones tightening their belts for once.

Americans are caught between the ravages of COVID-19 and its economic devastation, even as vaccines become more readily available (to some). With mounting job losses, pervasive wage cuts, and diminishing unemployment benefits compounded by the rising cost of education and medical expenses, there’s newfound urgency around the politics of debt.

Students are launching tuition strikes, tenants are organizing and pushing back against landlords, medical industry insiders are offering loopholes to get out of medical bills on TikTok, and leftist politicians are calling for total student debt cancellation while moderates like Chuck Schumer and President Joe Biden offer meager, means-tested debt relief programs. 

At the same time, poor and less powerful nations have also gone into record levels of sovereign debt (i.e. debt that a national government takes on) in an attempt to keep their economies and people alive. Countries like India, Zambia, Ethiopia, Costa Rica, Egypt, Argentina, and Ecuador among dozens of others are struggling with mountainous debts to public and private lenders.  The suffering—on both a personal and societal level—caused by those debts is causing waves of social upheavals. 

As consumer debt pressures individuals to twist their lives around repaying it, sovereign debt contorts nations in a similar way. Just as indebted Americans often forgo medical treatment for fear it will only rack up monthly bills, poor nations slash their own public health spending in the name of repaying debt. Sovereign debt pushes governments to drastically cut public services of all kinds and open their country up to predatory investors, leading to mass unrest. 

The end result is the same for both: a rise in preventable illnesses, general deprivation, impoverishment, instability and death.

And while international campaigns for sovereign debt cancellation exist, this issue has received relatively little attention inside the U.S. compared to our own consumer debt woes. These two conversations around debt are taking place in relative isolation from one another.

But consumer debt in the U.S. and the sovereign debt of nations around the world are morally and politically linked.

Sovereign debt is a moral atrocity pushing nations slowly into death spirals. It is indefensible for the same reasons student and medical debt in America is indefensible, and struggling to abolish one implicitly relies on the same broad liberatory vision which includes the other. 

At its core, to be hopelessly indebted, whether as a person or as a nation, is to be shackled. Those shackles must be broken, and the U.S. is in a unique position to do it.

Dying of COVID, Buried in Debt

The COVID-19 pandemic has thrown poorer and less powerful countries to a ravenous global finance system, one that is indifferent to human welfare and dignity. In 2020, global South nations dramatically ramped up public spending to try and offset the losses in the private sector due to COVID, taking on so much debt that some are already on the verge of defaulting, or failing to repay. 

The International Monetary Fund (IMF) projects debt-to-GDP ratios to rise by 7-10 percent in low and middle-income countries, a rapid acceleration of rising debt triggered by the 2007-09 recession. Despite this increased spending, the fallout from COVID has pushed 130-500 million people into extreme poverty, meaning more public spending will be needed to provide basic services for them. Instead of helping governments bolster these services, powerful lenders like the IMF insist that countries should be cutting down on them. Because there’s only a handful of governments and organizations wealthy enough to lend governments money, debtor countries are forced to abide by the loan conditions laid out for them—or risk being blacklisted from  international financing entirely. This is a recipe for a human disaster in the coming years, when the mounting sovereign debts will begin tearing apart state budgets, eviscerating countries’ social fabrics in the process.

Ethiopia’s ongoing debt crisis is a helpful case to understand how this dangerous dynamic is playing out in global South nations generally. 

Though much of its growth in the past decade occurred thanks to state-led programs which helped to reduce poverty, Ethiopia accepted a $2.9 billion loan from the IMF in 2019 with the express purpose of undercutting public investment and redirecting power to the private sector. At this time, Ethiopia’s unequally developing economy had been forcing rural villagers into urban slums for years, where they were forced to work informal or wage-labor jobs. Harsh and unhealthy living conditions in the slums of Addis Ababa and other cities were contributing to a rise in non-communicable ailments like cardiovascular disease, cancer, and diabetes. Scientists advocated for robust universal health care. But Ethiopia, with few options but austerity, made good on its agreement with the IMF and cut spending while keeping health care expenditures stagnant. Overall now, Ethiopia is spending about twice the money to pay its outside debts than to its own public health sector. Poor Ethiopians are dying so that the IMF can have a tidier spreadsheet (and greater leverage for extracting resources from the country). 

This is the norm in the global South, where most countries are entrapped into spending more in a futile attempt to repay external debts than to support their own public health institutions, even as their people are pushed into toxic slums. A predictable result has been that over-stretched, under-funded health care centers leave out those suffering with preventable diseases like measles and polio, leading to yet more death. For COVID specifically, global South countries are so paralyzed by debt and austerity that a vaccine apartheid is beginning to form, which could kill hundreds of thousands in the next year.

The Ethiopian government began openly criticizing sovereign creditors when the pandemic hit in early 2020. As the death toll mounted and its economy plummeted, Prime Minister Abiy Ahmed pleaded for debt relief. “The dilemma Ethiopia faces is stark,” Ahmed wrote in a New York Times op-ed in April 2020, around the same time the G20 announced temporary debt relief for the world’s poorest countries, including Ethiopia. “Do we continue to pay toward debt or redirect resources to save lives and livelihoods? Lives lost during the pandemic cannot be recovered; imperiled livelihoods cost more and take longer to recover.”

Canceling Ethiopia’s debts would mean it could use a huge chunk of its revenues to re-invest domestically in order to shore up its flailing health care system, instead of sending billions of dollars each year to already-rich creditors. “Increasing health care spending is essential, irrespective of debt levels, but we have less money on hand, and much of it is due to creditors,” Ahmed writes.

Seven days after his op-ed was released, Moody’s downgraded Ethiopia’s sovereign credit rating for “its stated intention to seek official sector debt service relief,” as if to punish the poor country for ever asking for help. This means Ethiopia is likely going to pay more in interest rates and bond yields, edging it toward a debt spiral—and thus closer to a social crisis that could kill even more people than the country has already lost to COVID-19. Moody’s has also downgraded the credit rating of El Salvador, as well as the banking systems of South Africa, Nigeria, and Morocco. India’s credit rating is now beginning to hover around “junk” status thanks to its respective downgrade. These downgrades are ticking time bombs that could explode in the next three to four years, slowly suffocating a nation’s economy until it hits a breaking point.

As Ethiopia sinks deeper into debt, more people are leaving the country seeking work opportunities abroad. Many travel to the Middle East. In 2018 alone, about 150,000 Ethiopians smuggled themselves into Yemen in the hopes of eventually finding work in Saudi Arabia and the U.A.E. With a similar rate of emigration in 2019, this has made the maritime route between the Horn of Africa and Yemen one of the busiest and most dangerous in the world. To make this life-threatening voyage, Ethiopians are often forced to give away all their possessions to human traffickers who demand exorbitant fees for services. They must then navigate the war in Yemen, which itself is the largest humanitarian catastrophe on Earth, braving warring parties who torture them and throw them into inhumane detention centers. If they survive this and make it into richer neighboring countries, their best-case scenario involves them being treated as indentured servants by employers, which includes a barrage of exploitation and threats from governments. 

At each step in this perilous journey, Ethiopians accrue debt they are unable to pay, either by the human trafficking middlemen or by tyrannical bosses who demand fees to process “paperwork.” The national indebtedness of Ethiopia and the resultant suppression of its economy cascades into worlds of personal debt and yet more powerlessness for the Ethiopian people.

It’s a vicious cycle that leads to mass death and immiseration, and it’s found all over the globe. Global South nations drowning in debt see their economies slowly collapse under the pressure, which drives their populations to seek work opportunities abroad. In effect, the loans made to finance the government become ways for powerful firms to exploit that global South as a workforce and keep them ever-vulnerable, sacrificing more and more of themselves to paying endless debts.

One anonymous Ethiopian reported the brutal treatment the traffickers went to extract money from him while he was in Yemen: 

They demanded money, but I said I don’t have any. They told me to make a call, but I said I don’t have relatives. They beat me and hung me on the wall by one hand while standing on a chair, then they kicked the chair away and I was swinging by my arm. They beat me on my head with a stick and it was swollen and bled.

This is a painful example of the kinds of treatment people suffer through in the name of repaying their debts. But there is a chilling parallel between this man’s experience and the national experience of being hopelessly in debt. This man’s debtors physically beat him to get as much money out of him as possible, while international investors knowingly impose such drastic cuts to public services that people die as a direct result. The direct violence to the man’s body flows from the larger structural violence inflicted upon countries in the global South. 

Historically, international creditors throw less powerful countries into debt traps knowing the human cost of this decision. For decades, the IMF has pushed countries to cut subsidies to key goods such as bread, fuel, and electricity with the expectation that it impoverishes a portion of the indebted country’s population. The people’s collective pushback can sometimes culminate in full-blown revolutions. 

The resistance efforts play a large role in the Middle East and North Africa, where every few years waves of anti-austerity protests shut down capital cities like Cairo, Amman, Khartoum, and Tunis after their government accepts a conditional IMF loan. In the case of Sudan, its inspiring 2019 revolution was catalyzed by a tripling of the price of bread at the behest of Sudan’s creditors including the IMF. No matter to the IMF, which recommended more cuts to subsidies in 2020. When poor countries come to them again in the near future with no other option for finance, whatever residual remains of its public services will be on the chopping block.

For public health spending, the IMF is no better. In the 1980s, it infamously pushed Madagascar into an austerity regime, ending its monitoring program of malaria while increasing the price of life-saving antimalarial drugs, killing ten thousand people. More recently, IMF economists have argued that the best way a country can support its health care system is by cutting subsidies to food and fertilizers, ignoring the reality that these actions would immediately raise the price of food and thus expose many to starvation, malnutrition, and famine, which would inundate any health care system. In India’s case, the IMF has advocated for ending subsidies of its farming sector and raising taxes under the veil that these cuts would help bolster India’s public health sector. Suspiciously, their study neglects to mention how indebted countries like India would likely take the extra spending money from ending their subsidies programs to funnel it towards their external debts rather than re-invest it domestically. This twisted logic is not only absurd, it is murderous. It is partially to blame for an ongoing epidemic of suicides by farmers who are forced to bury themselves in debt to operate, and also the recent mass revolt, where over 250 million farmers and peasants have taken to India’s streets in an attempt to block further agricultural market reforms.

Allowing this global indebtedness to continue is a moral abomination. But it’s also in the U.S.’ selfish interest to abolish the world’s debts as well. 

As climate change accelerates, massive global investment is needed to ensure countries can prevent the worst of its effects while responding effectively to its acute events like droughts and floods. Global South nations currently buried in debt lack the emergency resources to mobilize for these scenarios, relying instead on humanitarian aid given after the fact. Years of being pummeled by debt and ecological devastation will eventually drive populations out toward neighboring countries. This will likely spark yet more economic instability, secondary conflicts, and consequent refugee crises which will eventually spill into the U.S. and its allies. We don’t even have to wait for this to occur in an abstracted future—it’s already happening. Even a conservative, national security-oriented view of this would see the value of cancelling global debts now as a way to free up future public revenue to prevent this. 

Not Debt Relief, Debt Abolition 

There is a long history of debt cancellation, sometimes called a debt jubilee, in order to pre-empt unrest and the uneven concentration of power in one class above another.

The Old Testament declared that all debts should be written off on the tenth day of the seventh month every 50 years. In his authoritative book on the history of debt—aptly titled Debt: The First 5,000 Years—David Graeber finds a rich tradition of ritualistic debt forgiveness. In one instance in 1761 BCE, Hammurabi, the ruler of the ancient kingdom of Babylon, cancelled all of his realm’s debts in the name of “justice and equity,” so “that the strong might not oppress the weak.” Cancelling the debts marked the New Year in Babylon. In a relevant aside, Graeber notes that the world’s first documented use of the word “freedom” in a political document is found in Sumeria, where King Entemena issued a debt cancellation in 2402 BCE, which was called amargi, or freedom. In the more recent past, partial debt cancelations are more common. Germany received partial debt forgiveness in 1953. In 2010, the World Bank canceled $36 million of debt owed by Haiti. 

But the current sovereign debt system has not institutionalized debt jubilees as an integral part of its function. Instead, we have a highly commodified and oligarchical system for debt, one driven by the edicts of capitalism in the service of private creditors like BlackRock, Ashmore, T Rowe Price and Fidelity. It functions similarly to consumer debt in the U.S., sometimes with the same corporations profiting off of both types of debt. For hedge funds, lending to governments is a for-profit enterprise and canceling loans is bad for business. Because profit is paramount in global finance, hedge funds can actually capitalize off the mass pain from debt by betting governments will falter in their debt repayments (a move known as a “short,” in the financial world). Just a few years ago, Goldman Sachs shorted Greek debt while hiding parts of it from public view—which meant that as the country fell apart in an enormous economic depression caused by Wall Street’s greed, Goldman made out with millions

The tiniest hint of volatility in a country is grounds for its interest rates to increase, meaning its government will be forced to give away more of its quickly disappearing resources to international players. Creditors’ racial prejudice also makes its way into sovereign debts the same way it influences consumer debts. Researchers found that Sub-Saharan African nations have shockingly high borrowing costs, even accounting for so-called “market fundamentals,” like their volatility. This “Africa Premium” happens with African Americans who have disproportionate debt burdens than their white counterparts, a phenomenon some have called “borrowing while black.” Debt in all forms, then, is a powerful tool to impose global white supremacy.

Countries struggling with debt payments are currently left with piecemeal restructuring programs through the G20 or IMF, which demand strict adherence to neoliberal market principles before ever qualifying for relief. Even for the poorest countries, “relief” often means little more than temporarily suspending debt payments, which merely delays the crisis. Talks can drag on for months, as reluctant private lenders refuse to budge. In the meantime, the process can damage a country’s reputation on the global credit market for years. 

This entire system must be thrown out and remade from the basic moral foundations of solidarity, democracy, and equality.  

In the short term, global debt—including consumer and sovereign debt—should be immediately forgiven. And to prevent this kind of fatal debt buildup from happening ever again, the IMF, the World Bank, and similar international lending institutions should be dissolved and replaced by grant-giving bodies that prioritize the most vulnerable and operate democratically. Essential goods and services like health care, education, transportation, housing, and food should be publicly administered and free to everyone. Loans with interest rates should be outlawed entirely, since the only redistributive effect they have is siphoning money from the poor to the rich. By extension, this means hedge funds and other for-profit firms that exert power over the poor through wielding finance capital as a weapon should be broken up.

A democratic system of international aid would give a nation’s people a voice to set the agenda of what their country needs. It would be responsive to countries’ needs in a way the obstinate neoliberal dogma of our current global finance system cannot be. It would realize the redistributive vision organizers, activists, intellectuals, and revolutionaries from the global South have dedicated their lives to enacting.

Much of the political legwork for this must be done in the United States, the current seat of global finance. The IMF’s headquarters is in Washington D.C., as is the World Bank’s. BlackRock is in New York City.

The first and most obvious obstacle then, is that many Americans simply don’t know the extent to which American-led institutions are disempowering and impoverishing the world through debt. While the IMF is a notorious and reviled institution in the global South, who many understand to be nearly as powerful if not more powerful than their country’s own leaders, the IMF is far less known in the U.S. 

The second obstacle is the unwillingness of global finance to democratize. For-profit enterprises making money off impoverishing the global South are not going to voluntarily dismantle themselves, nor will multilateral institutions that further Western imperial power through finance. And so far, individual outcries from scattered indebted nations have only incentivized international lenders to use plushy language, veiling their austerity recommendations in the language of humanitarianism. But a clear-headed grassroots movement in the U.S. that links its own indebtedness to the sovereign debts of the global South and coordinates with debtor nations can push for more meaningful changes through electoral pressure and direct actions. From there, global connections can be made to exert pressure on European and Chinese banks that make up the rest of sovereign creditors.

Let Freedom Ring with a Debt Jubilee

In the mid to late 20th century, a wave of revolutionary struggles crashed over much of the global South.

Dozens of colonized nations from Chile and Burkina Faso to Lebanon, Algeria, and Indonesia rose up and declared their political independence from European colonizers like France and the U.K, as well as neocolonial dictators who allied with the West. This opened up a profoundly new space in global affairs, one that fostered national self-determination and enabled internationally-minded organizations like the Non-Aligned Movement (NAM) to imagine novel ways of organizing civilization. Hundreds of millions of people, who had before only known of rule by elites half the world away, were beginning to realize a post-imperial world.

Sixty years since the first NAM summit in 1961, and there is little to show for their historic struggles. The political independence these nations have on paper means little since they remain leashed to those same imperial powers of the past through instruments of finance capital. And because much of their debt is owed to private lenders, global South nations are caught under the boot not only of the West, but specifically the profiteering vultures of Wall Street. This is a tragic step backwards from the progress made by their revolutions.

Total debt forgiveness is part of an emancipatory vision for the world. To this end, Americans pushing to forgive debts worldwide would help nations to secure the independence they’ve been struggling toward for over 100 years. It will take considerable organizing power to confront those who are crushing the world into indentured servitude. But the moral case is crystal clear: the global debts must be canceled. 

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