Twenty-five years ago today, as a wide-eyed 16 year old, I went on my first ever protest. Travelling to Birmingham with a group from my church, we joined 70,000 others to surround the G8 summit, demanding debt cancellation for 52 impoverished countries by the year 2000.
Many countries had been trapped in debt for the previous two decades, with reckless lenders being bailed out by new loans from the IMF and World Bank, while economies stagnated and debt increased.
The ‘Hands Around the G8’ protest was a pivotal moment in the global “Jubilee” campaign, the movement that came together to tackle the debt crisis, inspired by the Jewish scriptures’ concept of ‘jubilees’, times when debts were cancelled and slaves freed. Eventually, after hard fought campaigning by people around the world, the G8 leaders returned to the UK in 2005 and committed to a significant amount of debt cancellation.
Thirty-six countries have now had $130 billion of debt cancelled through the initiatives created by the G8 in response to campaigning.
However, there were three main things the campaign did not achieve. One was that in order to receive debt relief, countries had to bring in contentious free market economic policies, including water privatisation in Tanzania and selling off grain reserves in Malawi. Secondly, many countries were excluded from the debt relief scheme because, despite facing big poverty challenges, they were considered to be too rich. Some of these, such as Jamaica and Pakistan, have continued to suffer an ongoing debt crisis for the last twenty-five years, with interest payments being extracted at a cost to poverty reduction and economic development.
Thirdly, the Jubilee campaign’s proposals to prevent debt crises from occurring again were largely ignored. Ten years after the 1998 protest, this failure was brought home with the financial crisis in North America and Europe in 2008, and subsequent Eurozone debt crisis which replicated many of the features of the ‘Third World Debt Crisis’ in the 1980s and 1990s.
Fifteen more years on, we are now witnessing another debt crisis emerging across many impoverished countries. Average government external debt payments have increased 150% in the last decade, and are at the highest level since 1998.
One key reason for this vulnerability is dependence on commodities – fossil fuels, metals and cash crops – for income earned from the rest of the world. Commodities vary wildly in price and often provide few jobs. When prices are high speculators are keen to give loans. But when they fall, economic collapse can be the result. Dependence on commodities is a legacy of colonialism, where European countries used colonies as a source of raw materials, and sold back higher valued manufactured goods.
Another factor behind the current debt crisis is global interest rates. Following the 2008 financial crisis, interest rates were kept low in order to try and stimulate growth in the US and Europe. This led to lenders looking to increase lending to lower income countries where they could still charge high interest rates, seeking large profits. In some of the most extreme cases, such as Mozambique, lenders and government officials have hidden loans from parliaments and the public, preventing the loans from being held to account.
Rising global interest rates are now increasing debt payments, at a time when governments are even more stretched due to the Covid pandemic, rising food and energy prices and the impacts of the climate emergency.
Debt cancellation is a necessary response when debts are too high. But one-off debt cancellations will just lead to cycles of crisis being repeated unless the underlying causes of debt dependence are tackled.
Governments and lenders need to be made more accountable, through regulations to strengthen transparency around lending. And global action is needed to tackle tax avoidance and evasion, as well as renewed attention on policies which will enable countries to become less dependent on commodities.
The response to the new round of debt crises has been very similar to that in the 1980s and 1990s, and in the Eurozone in the 2010s. More loans are being given by the likes of the IMF and World Bank, enabling interest to be paid, while debts increase. This actively incentivises reckless lending, by ensuring lenders are paid off. Instead, lenders should be made to pay the price for reckless lending.
The UK has a key role in doing so. 90% of debts owed to private lenders by lower income countries are governed by English law. This means the UK could pass legislation to ensure private lenders take part in debt relief. Doing so would both help tackle the current debt crisis, and incentivise lenders to act more responsibly in the future. You can join the campaign here.
This time we cannot wait another twenty-five years for a one-off sticking plaster solution – a debt relief scheme which provides limited breathing space but does nothing to address the underlying causes of the boom bust cycle of debt crisis. New rules for responsible lending alongside ending the system of bailouts for lenders can bring an end to this crisis, and greatly reduce the chances of debt crises in the future.