Developing countries have for decades been caught in a lose-lose situation: stay underfinanced and therefore not in a position to meet the needs of their populations and internationally agreed development goals, or take out loans to fill the financing gap, but consequently fall into severe debt. This dilemma is increasingly also felt in European nations.
Following the international economic and financial crisis, which began in 2008 and saw huge publicly-funded bailouts for failed banks and a vast amount of loans being dispersed at the international level, both developing and industrialised countries have seen debt stocks soar.
Public debt in Europe reached the highest levels ever seen in times of peace. Meanwhile, debt levels surged in developing countries where increased financing needs coincided with declining levels of real aid, volatile commodity prices, and continuous problems in fighting tax evasion. This is both a symptom of a skewed global financial system and a cause of imbalances and poverty.
The debts of several countries are not just unsustainable. A large part of public debt stocks stem from loans with little pro-poor benefits, and which have had adverse impacts on human rights and the environment. They may have been used for the purchase of arms and military equipment for undemocratic or corrupt elites, or used to fund failed projects with negative development outcomes. Creditors should not demand repayment for such debts that did not benefit the population of the debtor country.
Nevertheless, lenders dominate in setting the rules and definitions surrounding debt issues. For instance, International Financial Institutions set the rules which determine whether a poor country can or cannot service its debt: via the Joint IMF-World Bank Debt Sustainability Framework. The framework fails to take human needs into account and bases its analysis principally on a limited set of financial considerations. This flawed international system means debt repayments continue to divert money away from poverty reduction and equitable development and towards the pockets of creditors.
Lenders are also in the driving seat in setting rules for resolving debt crises. Unlike business and individuals, there is no speedy and orderly insolvency procedure for states that do not have the money to repay their debts. There are also no rules or mechanisms to hold lenders to account for reckless lending, resulting in impunity for those involved in the contracting of illegitimate debts. The United Nations has in the past pursued several reform initiatives in these areas, though these currently face political obstacles that need to be overcome. Eurodad works together with members and allies in the global south to promote reforms and highlight country cases for which lenders should provide debt cancellation either because the debts are unsustainable or because they are illegitimate.
Debt Justice Allies and Stakeholders
Debt Justice Video Section