December 19, 2023
From Socialist Worker (UK)

Protesters in Sri Lanka against the economic crisis in the global south

Sri Lankan protesters outside the Presidential Palace in April 2022 (Picture: AntonO on Wikimedia Commons)

Soaring interest rates that squeezed workers in Britain meant destruction for people in poorer countries. Bankers, governments and financial institutions extracted nearly half a trillion dollars from countries in the Global South in 2022-2023.

The World Bank’s International Debt Report shows the payments siphoned funds from critical health, education and climate needs. They put the poorest countries at increasing risk of “tumbling into a debt crisis”, the bank said.

The bank said the debt service payments rose 5 percent to a record £350 billion amid the biggest surge in global interest rates in four decades. It said the payments could shoot 10 percent higher in 2023-2024.

Under pressure from international financiers, politicians and the rich in the poorer countries make ordinary people pay the price. They reduce or eliminate subsidies on key goods, implement higher charges for health services and education, or slash services.

Governments in Britain, the US and the European Union pushed central banks to raise rates as part of the “war on inflation”. This deliberately raised rents and mortgages, and crashed the economy to frighten workers away from pay strikes. And the process also forced up global rates.

The 75 poorest countries were hardest hit. Their debt payments reached a record £70 billion and are set to surge by 40 percent over 2023-2024. Their interest payments alone had quadrupled since 2012. Said the report.

“This is the decade of reckoning,” World Bank chief economist Indermit Gill told Reuters news agency. “Record debt levels and high interest rates have set many countries on a path to crisis.”

The crisis is already here. Ethiopia is careening toward default after it said it could not pay a £25 million payment due this week. The country has only recently emerged from a two-year war that killed up to 600,000 people.

“Ethiopia is like a canary in the coal mine,” Gill said. “It’s the biggest country that would default. It’s one of the five biggest economies in sub-Saharan Africa.”

African countries faced “another lost decade”, said Gill, noting they had seen no per head income growth since 2014 on average. Debt levels are also high in countries such as Argentina and Pakistan.

Previous plans that claimed to be a solution are now intensifying the pain for ordinary people.

Larry Elliot writes in the Guardian newspaper, “Many of the lowest-income countries face an extra burden—the accumulated principal, interest, and fees they incurred for the privilege of debt-service suspension under the G20’s Debt Service Suspension Initiative, which was announced during the height of the Covid-19 pandemic in 2020.”

Many private banks and hedge funds have withdrawn from developing countries, favouring higher interest rates in richer economies.

The massacres in Gaza are one face of capitalism and imperialism. The “every day” wrecking of people’s lives through the debt system is another.

None of the banks or governments will provide a lasting solution. The way out is revolt, refusal to pay the debt and the removal of the corrupt politicians who administer the system,

The debts are a legacy of colonialism and global inequality. Western multinationals and governments should be paying reparations, not seeking to extract even more.

The great strikes and protests that swept Sri Lanka in 2022-23 gave a glimpse of the fightback that’s needed everywhere.