Monday, July 18, 2005

G8: The rich renege

Less than two weeks ago, the G8 agreed to forgive the debts of 18 poor nations. And now, before the ink is even dry on the agreement, they are trying to renege on the deal. The "problem" is that debt provides leverage over countries which can be used to force them to open their markets, privatise their public services, or otherwise pursue policies which profit the west rather than their own citizens. Some countries are reluctant to surrender this leverage, and are proposing to replace debt-forgiveness with more conditionality-laden "grants" - which could then be withdrawn if the recipient countries failed to toe the desired political line.

This is not what the millions of people around the world who campaigned to Make Poverty History fought for. But then again, should we really have expected any different? The rich nations have promised again and again and again to reduce trade barriers and open their markets to the poor through the WTO - and again and again and again they have failed to do so (and then, to add insult to injury, turned around and demanded more concessions from the poor in exchange for the same promises that they had failed to keep in the first place). This is not an abberation; it is just business as usual - the business of screwing the poor for fun and profit.

How should the poor world respond to this display of bad faith? They should repay it in kind. In The Age of Consent, George Monbiot pointed out that effectively, the poor world owned the rich world's banks. The scale of the debt is so huge that a collective default would be absolutely ruinous to the debt-holders. The poor should start using this as what it is: a weapon. They should make a collective and credible threat to default unless the rich world moves to equalise trade rules and free the poor from their burdens:

the poor world should do as the IMF and the World Bank have done, and attach 'conditionalities' to the handling of its debt. Just as the IMF has threatened to ruin the economies of the poor nations if they do not implement the reforms it demands, the poor world should threaten to ruin the economies of the rich nations if they do not agree to its terms. The point of possessing a terrifying weapon is that you do not have to use it; the fear of the weapon is sufficient to ensure that other people do as you demand. Nowhere does fear do its work with more celerity and less constraint than in the financial markets, which often flee even from their own shadows.

The financial system is built on a fantasy: that the debts on which it has constructed its wealth will one day be redeemed. The possibility that it could be awoken from its dream, that the nations which owen the banks might dump the debt on which the system is built, would induce a panic that no financial market could resist. The enemies of the poor will be forced to turn upon each other. The banks and financial speculators of the rich world, who have, through the liberalization of financial markets, been granted power over their own governments, will, when they realize that the developing nations are serious, demand that the rich world's governments must do as the poor world requests, to prevent the entire structure's collapse. Thus all the means which have been deployed by the rich against the poor are neatly turned around and deployed by the poor against the rich.

Putting together a coalition of debtor nations to do this would require a colossal collective effort - but we're already seeing the first steps towards it. The west's continued bad faith in trade talks resulted in the birth of the G22, a collection of poor nations who successfully stuck together to stymie WTO negotiations until they saw more progress on agriculture. Bad faith on debt reduction will further push the poor towards taking concerted action.

No doubt the right will decry the idea of threatening to ignore contracts and such, but bluntly, the poor world is being kept in debt-slavery. And they deserve their freedom every bit as much as the debt slaves of ancient Athens who were freed by the seisachtheia.


Haha - George Monbiot is my useful idiot.
They should default but why wait to do it collectively? Just go ahead and do it now one at a time.

Defaulting isn't one of those things where there is such a massive gain by all doing it at the same time. (except in as far as an economic bubble bursting is better than a soft landing). The only people who would gain significantly from it happening all at the same time are poeple interested in examining the experiment like George Monbiot. But better all together than not at all.

The only down side is people wont lend you money anymore so next time you want to build an ice palace in the middle of a desert you wont be able to get any foreigners to help you!

Posted by Anonymous : 7/18/2005 07:54:00 PM

There are two reasons for a collective default. The first is the obvious one of strength in numbers; a single defaulter can be successfully punished by the international community, while sticking together makes it harder (this is the same logic underpinning trade unions, BTW). The second is that an individual country is unlikely to represent a sufficient threat to the solvency of the banks. Leveraging serious change requires collective action, just as it does in the average workplace.

As for no longer being able to borrow money, there's an old saying that if you owe the bank a hundred dollars, you have a problem, but if you owe the bank a million dollars, the bank has a problem. While it clearly needs to be adjusted for inflation, the underlying point remains: for a large enough debtor, the bank has an incentive to help them stay in business in the hope of getting something, rather than see them default and be taken down with them. Collectively, the poor world is more than large enough - according to Monbiot, they owe US$2.5 trillion, against bank assets of barely half that. That's a powerful incentive for the banks to lobby on behalf of their "clients" if a default is threatened...

Posted by Idiot/Savant : 7/18/2005 11:43:00 PM

> a single defaulter can be successfully punished by the international community

the people lending money are not "the international community" they are any human or organization willing to lend a buck. Zimbabwae lets say could default on its debts and then sell zimbabwae bonds to you and me and create a second lot of debt, I welcome them to try anyone who bought their bonds in the first place deserves to get burnt. It could even set up the debt so that it owed it mainly to jewish organizations and then cancel only debt to those organizations if it wanted in order to avoid anoying anti-jewish sources of income. Or slap a massive lump sum tax on a bank exactly equaling what they owe them.

> an individual country is unlikely to represent a sufficient threat to the solvency of the banks.

Why do you want to make the banks insolvent? in order to cause economic colapse around the world?

> Leveraging serious change requires collective action, just as it does in the average workplace.

Still I dont think shooting yourself in the head requires collective action it still sounds a lot like that is what you are suggesting here.

> As for no longer being able to borrow money...

you talk as if they just want a donation as opposed to canceling of debt and a total default. they have that available through the IMF and all the other organizations anyway but even if htey jsut want the more limited goal of a better deal they will probably get better thorugh good will than agressive negitiation since the rational position from the rich countries point of view is to not lend to them - lending is a long term error and just continues because of short term thinking rather like how people keep on buying US bonds. Best if you dont make them look at it in a confrontational way.

> Collectively, the poor world is more than large enough - according to Monbiot, they owe US$2.5 trillion

Is this the poor world that has isues with the capitalist system or has he added in china india and all the other fast growing countries that benefit from it just to pump the numbers up? If so he might as well add the USA to his list, If the third world can default on debt and it works then everyone else should give it a go.

Posted by Anonymous : 7/19/2005 08:10:00 PM