Author: Socialist Party ZambiaThe Socialist Party is a political formation whose primary mandate is to promote and entrench socialist values in the Zambian society. Anchored on the principles of Justice, Equity and Peace (JEP), the Socialist Party shall transform the Zambian society from capitalism to socialism, building socialism in three key sectors: Education, Agriculture and Health.

There’s need for a permanent solution to our debt crisis

There’s need for a permanent solution to our debt crisis Featured

The fifty-four sovereign African states are vastly different from each other, with distinct languages, histories, social and economic challenges, and possibilities. However, they are united by a political project that has been institutionalised through the African Union and its legal and organisational frameworks and by a neocolonial sovereign debt crisis.

Many countries across the Global South, particularly those in Africa, are currently in the throes of fiscal crises – largely the result of a perfect storm of global events. The COVID-19 pandemic triggered a global economic recession, which in turn impacted national economies. The ongoing conflict in Ukraine has disrupted vital global supply chains for food, fertilisers, and energy, thereby increasing many countries’ import bills and straining their budgets. The fiscal crisis is fundamentally a result of an unsustainable build-up of sovereign debt in the last decade, fuelled by cheap credit from Western economies and encouraged by international financial institutions, including the IMF. The COVID-19 pandemic and the conflict in Ukraine made what was already a tenuous situation worse.

Many poor countries are turning to the IMF as a credible source for finance in the present moment, largely egged on by claims that the IMF has reformed from its bad old ways and no longer demands crashing austerity as a conditionality. (‘Factsheet: IMF Conditionality’, International Monetary Fund, 22 February 2021, https://www.imf.org/en/About/Factsheets/Sheets/2016/08/02/21/28/IMF-Conditionality.)
Back in 2016, IMF economists published a mea culpa in which they (sort of) confessed the sins of the past and promised that they had turned over a new leaf. (Ostry, Loungani, and Furceri, ‘Neoliberalism: Oversold?’; Grieve Chelwa, ‘Is it Too Late Now to Say Sorry?’ Africa Is a Country, 29 May 2016, https://africasacountry.com/2016/05/is-it-too-late-to-say-sorry-imf-edition.). The evidence, however, suggests anything but a reformed IMF. A study from the International Labour Organisation that carefully tracked IMF conditionality in 2020, when many countries were grappling with health and financial burdens related to the COVID-19 pandemic, found that in most of the 148 countries examined, the IMF still required austerity as a condition for granting assistance. (Shahra Razavi et al., ‘Social Policy Advice to Countries from the International Monetary Fund during the COVID-19 Crisis: Continuity and Change’ (ILO Working Paper 42, International Labour Organisation, Geneva, 10 December 2021), https://www.ilo.org/global/publications/working-papers/WCMS_831490/lang–en/index.htm.).

The government of Zambia, the first country to default on its debt as a result of the pandemic, recently concluded a financing deal with the IMF with the signature condition of ‘a large, front-loaded, and sustained fiscal consolidation’, as the IMF put it –
in other words, austerity in black and white. (International Monetary Fund, ‘Zambia: Request for an Arrangement Under the Extended Credit Facility-Press Release; Staff Report; Staff Supplement; Staff Statement; and Statement by the Executive Director for Zambia’, IMF Country Report, no. 22/292 (September 2022), https://www.imf.org/en/Publications/CR/Issues/2022/09/06/Zambia-Request-for-an-Arrangement-Under-the-Extended-Credit-Facility-Press-Release-Staff-523196, 10.). The IMF wants the Zambian government to reduce its expenditure by billions of dollars over the next three years, which will be most acutely felt by the poor majority.(Grieve Chelwa, ‘IMF Deal: Cry, My Beloved Zambia’, Grieve Chelwa (blog), 7 September 2022). The government of
Sri Lanka, a country whose debt-fuelled boom came to a spectacular halt earlier this year, is also seeking IMF assistance, with early indications showing that the conditions attached to the deal will be as indefensible as the Zambian deal. (Peter Doyle, ‘The IMF’s Zambian and Sri Lankan Programs are Indefensible’, Peter Doyle (blog), 14 September 2022). The Ghanaian government too is desperately seeking another IMF deal, this after the last one was celebrated as the deal that would ‘restore the lustre to a rising star in Africa’. (‘Ghana to Conclude IMF Deal in March – Akufo-Addo Hopes’, Africanews, 7 February 2023, https://www.africanews.com/2023/02/07/ghana-to-conclude-imf-deal-in-march-akufo-addo-hopes/; ‘Ghana: IMF Program Helps Restore Luster to a Rising Star in Africa’, International Monetary Fund, May 2019, https://www.imf.org/en/Countries/GHA/ghana-lending-case-study.).

All this goes to show that the IMF cannot be the answer to the poorer nations’ economic challenges. Alongside its sister institutions, the IMF has provided ‘assistance’ to poor countries ever since its establishment in 1944, and yet many of these countries have remained poor in spite of this. The reason is that IMF assistance has never confronted the structural factors that have continued to consign many countries to the ranks of the poor. As diagnosed many years ago by scholars such as Walter Rodney and Andre Gunder Frank, development in the North is sustained by underdevelopment in the South. (Andre Gunder Frank, ‘The Development of Underdevelopment’, Monthly Review, 18 April 1966, https://monthlyreviewarchives.org/index.php/mr/article/view/MR-018-04-1966-08_3; Walter Rodney, How Europe Underdeveloped Africa (New York: Verso Books, 2018).). Seen this way, the IMF, as the archetypical Northern institution, is duty bound to maintain and entrench this status quo. How else does one explain the IMF’s solution to Zambia’s financial woes, for example? The IMF prescription ignores the fact that the country’s foreign-owned copper mines continue to generate billions for their overseas shareholders yet pay so little in taxes in a country where the estimated annual income taxes for one mining project alone could have amounted to nearly half the 2020 national water supply and sanitary budget.(Daniel Mulé and Mukupa Nsenduluka, ‘Potential Corporate Tax Avoidance in Zambia’s Mining Sector? Estimating Tax Revenue Gains from Addressing Profit Shifting or Revising Profit Allocation Rules. A Case Study of Glencore Mopani Copper Mines’, Oxfam Research Backgrounder Series, December 2021, https://www.oxfamamerica.org/explore/research-publications/potential-corporate-tax-avoidance-in-zambias-mining-sector/.).

A new kind of institutional apparatus that fosters cooperation, rather than competition, is required for Africa’s economic liberation and that of the Third World more generally. This would mean, for example, establishing currency arrangements that bypass the US dollar, which is a strong lever of IMF conditionality and a weapon of US foreign policy. These kinds of long overdue proposals are already underway in parts of the world, such as in Latin America, where Brazil’s President Luíz Inácio Lula da Silva (known as Lula) and Argentina’s President Alberto Fernández have proposed the establishment of a regional currency, the sur, that could be used to settle cross-border claims and store reserves.(Alberto Fernández and Luiz Inácio Lula da Silva, ‘Escriben Lula y Alberto Fernandez: Relanzamiento de la alianza estratégica entre Argentina y Brasil’ [Lula and Alberto Fernandez Write: Relaunching the Strategic Alliance Between Argentina and Brazil], Perfil, 21 January 2023, https://www.perfil.com/noticias/opinion/relanzamiento-de-la-alianza-estrategica-entre-argentina-y-brasil-por-alberto-fernandez-y-luiz-inacio-lula-da-silva.phtml.).

The hard work of figuring out the technical details related to the implementation of such regional currencies must begin in earnest.(Zinya Salfiti,
‘Nobel Economist Paul Krugman Slams Brazil and Argentina’s Joint Currency Plan, Saying “It’s a Terrible Idea”’,
Markets Insider, 30 January 2023,
https://markets.businessinsider.com/news/currencies/paul-krugman-brazil-argentina-south-american-euro-terrible-idea-2023-1.).
Africa, for example, needs a continental bank that is wholly owned by the people and will serve as a genuine tool to bolster sovereign industrial policies. The highly influential African Development Bank, with its significant Western shareholding, is not fit for purpose. (‘United States of America’, African Development Bank, accessed 13 February 2023, https://www.afdb.org/en/countries/non-regional-member-countries/united-states-of-america.).

Furthermore, there is an urgent need to restore and reinvigorate the capacity and autonomy of the African state to deliver on its development agenda. State capacity and state autonomy depend on the ability to adequately mobilise tax revenues, an area in which the African state has continued to underperform. The tax-to-GDP ratio, a measure of resource mobilisation, has remained incredibly low in Africa largely as a result of illicit financial flows that continue to spirit away billions of dollars from the continent every year.(African Tax Administration Forum (ATAF), African Union Commission (AUC), and Organisation for Economic Co-operation and Development (OECD), Revenue Statistics in Africa 2022 (Paris: OECD Publishing, Npvember 2022), https://www.oecd.org/tax/tax-policy/brochure-revenue-statistics-africa.pdf, 3; United Nations Conference on Trade and Development, Economic Development in Africa Report 2020. Tackling Illicit Financial Flows for Sustainable Development in Africa (Geneva: United Nations, 2022)).

As a consequence, the adequate delivery of the kind of social services that underpin people’s dignity (social security, health, education, etc.) continue to be hamstrung. (Isabel Ortiz et al., Fiscal Space for Social Protection. A Handbook for Assessing Financing Options (Geneva: International Labour Organisation, November 2019), https://www.ilo.org/secsoc/information-resources/publications-and-tools/books-and-reports/WCMS_727261/lang–en/index.htm.).

Further, the low tax-take in the poorer nations forces many governments to seek the easy way out by borrowing on the international capital markets, setting into motion dangerous debt dynamics that ultimately lead governments back into the unloving arms of the IMF. Notably, IMF conditionality rarely confronts the fact that state capacity and autonomy have been eroded in Africa largely as a result of the tax dodging practices of transnational corporations.

Just as problematic is the leading role that the IMF and its allied institutions have taken in the fight to save the planet from climate change. The IMF’s answer to climate change, which is influential given its inordinate role in the world, points to the private capitalist sector as the solution to the planet’s problems.( ‘COP27: IMF Calls for Climate-Smart Investment in Africa’, Africanews, 8 November 2022, https://www.africanews.com/2022/11/08/cop27-imf-calls-for-climate-smart-investment-in-africa/.).

All this is ironic given that the private capitalist sector’s insatiable appetite for profits at all costs has been responsible for the climate crisis.

The Third World must re-imagine a path out of our current crisis that doesn’t depend on the IMF, its allied institutions, and Western capital. The last seventy years or so have demonstrated that a reliance on these institutions only serves to trap the Third World in a perpetual state of underdevelopment. We need an emancipatory set of institutions and frameworks that will lead to the total independence of the Third World.

This is a task that our political leaders have to take on in a serious way with a very strong commitment to the economic, and thus total, emancipation of the African continent and the Third World more broadly.

We need to rebuild a present, and future, that centres the needs and aspirations of the majority.

Over the course of the past two decades, the stranglehold of Western-based bondholders and Western-controlled IFIs has weakened as other countries – mainly China – have emerged as the largest trading partners with African states and as the largest lenders to these states. Importantly, China’s public and private debt forgiveness during the pandemic has put pressure on IFIs to rethink the harshness of their debt repayment-austerity governance model.

The opening provided by Chinese funding is not an opportunity merely to borrow more: it is an opportunity for African states to construct genuine, and sovereign, development projects in this climate. These projects must seize multiple opportunities to raise funds, and the fragility of IMF power must also be utilised to advance fiscal and monetary policies that are built on an agenda committed to solving the problems of the African people, not facilitating the demands of wealthy bondholders and the Western states that back them. A number of mechanisms must be put on the table to avoid the IMF-driven debt-austerity trap.
There’s need to invalidate historical debts and rescue stolen assets:

Renegotiate all odious external debts of the poorer nations. An ‘odious debt’ is a debt incurred by a country without the assent of its people, such as during the phase of a military dictatorship.
Seize assets held in illicit tax havens, which as of 2010 total at least $32 trillion.(United Nations Conference on Trade and Development, Economic Development in Africa Report 2020. Tackling Illicit Financial Flows for Sustainable Development in Africa, 88.).

Build progressive tax codes:
Build the capacity of tax departments in each country, including digital tax infrastructure.
Implement taxes on wealth and inheritance.
Implement higher rates of taxation on income, such as capital gains, that is made through financial speculation by all non-bank corporate entities.
Discourage the base erosion and profit-shifting activities of multinational corporations and adopt a unitary approach to tax the share of global profits generated by subsidiaries of multinational corporations.
Reform domestic banking infrastructure:

Democratise the banking system by expanding the role and size of public banking and by implementing more regulations of and transparency for private banking.
Enforce ceilings as a percentage of liabilities on speculative banking activity by commercial banks.
Regulate the interest rates that banks charge for specific goods, such as housing loans.
Implement tight regulations for pension funds so that the savings of the people are not used recklessly for financial speculation and encourage the creation of public sector pension funds.
Build alternative funding sources to the IMF’s debt-austerity traps:

Set capital controls to prevent both foreign and domestic capital flight, policies that even the IMF argues are important.(International Monetary Fund, ‘Review of The Institutional View on The Liberalization and Management of Capital Flows’, IMF Policy Paper, 30 March 2022).
As highlighted earlier, capital flight is not only deleterious for local financial markets: it also robs the continent of the resources needed to drive an autonomous developmental agenda. With capital controls, governments will be able to devise effective monetary policies in an environment that would not be buffeted by shocks and unexpected fragilities. Capital controls must be implemented alongside a robust wealth tax collection system, pro-labour distribution policies, and the prevention of dollarisation.
Attract investment from institutions that do not enforce structural adjustment conditions, such as the Belt and Road Initiative and the BRICS’s New Development Bank. The absence of SAPs-like conditions on these emerging and alternative sources of capital explains their growing popularity in the South and Africa in particular.
Take advantage of local currency central bank swap arrangements (such as those offered by the People’s Bank of China).
Adopt ceilings on the interest rates that commercial and multilateral lenders charge developing countries.
Enhance regionalism:
Encourage the creation of regional trade and reconciliation mechanisms.

Fred M’membe
President of the Socialist Party

Our sovereign debt crisis

Our sovereign debt crisis Featured

In 2009, the Zambian-born economist Dambisa Moyo published the instant bestseller Dead Aid. (Dambisa Moyo, Dead Aid: Why Aid Is Not Working and How There Is a Better Way for Africa (New York: Farrar, Straus, and Giroux, 2009)). Moyo’s main argument in the book was that there was little to show for the hundreds of billions of dollars in foreign aid that had been given ĺto the African continent since 1970. Rather than spurring development, she said, aid had financed grand-scale corruption and civil wars, which in turn thwarted economic growth on the continent. Moyo’s case against aid was not a new one. Her book’s arguments were inspired by the Hungarian-born British conservative economist Peter Bauer, in whose memory Moyo dedicated her book. Bauer made a career singling out foreign aid – not colonialism or neocolonialism – as the chief architect of Africa’s underdevelopment.(Peter Bauer, ‘The Case Against Foreign Aid, Intereconomics’, Verlag Weltarchiv 8, no. 5 (1973) 154–157).

What was new about Dead Aid was Moyo’s prescription? In a chapter titled ‘A Capital Solution’, Moyo called for the substitution of aid with private market debt. That is, she called on Western countries to significantly reduce their aid to Africa and at the same time called on African governments to make up for the shortfall by borrowing from private creditors and bondholders such as hedge funds, banks, and so on. For Moyo, this was an elegant solution to the problem of corruption, which had historically bedevilled the foreign aid industrial complex. Money sourced from private debt markets was unlikely to fuel corruption in Africa because, Moyo argued, private creditors were sophisticated enough to not invest in countries likely to engage in corruption. After all, corruption acted as a drag on economic growth, which in turn threatened the prospects of debt repayment. On the other hand, to access much-needed private credit, African governments would need to demonstrate to private creditors that they were committed to fighting corruption and to investing the proceeds in growth-enhancing activities. Moyo’s policy solution was, therefore, a supposed win-win for all concerned.

Moyo’s ‘capital solution’ provided the intellectual cover for the financialisation of capital flows to Africa through the issuance of so-called Eurobonds (i.e., the issuance of bonds in US dollars and Euros), whose meteoric rise would engulf the continent in a new debt crisis by 2020. Ghana’s first issuance of a Eurobond in 2007 was a turning point for the continent. The country’s debut bond of $750 million was issued to much fanfare and was highly sought after by financial investors in New York and London. (Reuters, ‘Huge Demand for Ghana’s Debut Eurobond’, Ghana Web, 27 September 2007, https://www.ghanaweb.com/GhanaHomePage/business/artikel.php?ID=131428.). In a quest to satisfy investors’ appetites, Ghana followed up by issuing two additional Eurobonds totalling $2 billion in 2013 and 2014. Other countries in Africa soon followed suit. (Vivian Kai Mensah, ‘Ghana Issues Third Eurobond’, 11 September 2014, Citi 97.3 FM, https://citifmonline.com/2014/09/ghana-issues-third-eurobond/#sthash.Ry1XkD86.dpbs.).

In 2011, Zambia obtained its first sovereign credit rating (a credit score of sorts) from the ratings agency Fitch. Shortly thereafter, the country issued two Eurobonds in quick succession in 2012 and 2014, a scenario that increased Zambia’s external debt by an incredible 300% in three years. (Grieve Chelwa, ‘It’s Time to Treat Commodity-Backed Loans to African Countries the Same Way We Treat Equity’, Quartz, 2 June, 2015, https://qz.com/africa/417167/its-time-to-treat-commodity-backed-loans-to-african-countries-the-same-way-we-treat-equity; Grieve Chelwa, ‘The “Truth” about Zambia’s Debt’, Grieve Chelwa (blog), 15 October 2020, http://gchelwa.blogspot.com/2020/10/the-truth-about-zambias-debt.html.). Kenya likewise jumped on the bandwagon, issuing three Eurobonds between 2014 and 2019 that totalled around $5.5 billion.(Paul Wafula, ‘Kenya: Eurobond Dossier Reveals Kenya’s Deep Economic Ties to China, IMF’, AllAfrica, 17 June 2021, https://allafrica.com/stories/202106170380.html.).

Eurobond issuance on the continent grew at an incredible pace in the second decade of the twenty-first century: by 2020, twenty-one African countries had issued Eurobonds (several, in many cases). According to the World Bank’s International Debt Statistics handbook, the stock of Eurobond debt for sub-Saharan Africa grew from about $32 billon in 2010 to $135 billon in 2020, a 322% rate of increase. (World Bank, International Debt Statistics 2022 (Washington, DC: World Bank, 2022), https://openknowledge.worldbank.org/bitstream/handle/10986/36289/9781464818004.pdf?sequence=4&isAllowed=y)

In other words, the stock of Eurobond debt had more than tripled in just ten years.

The rate of increase in the stock of Eurobond debt between 2010 and 2020 far outstripped other sources of foreign currency debt in Africa. For example, multilateral debt from the World Bank, IMF, African Development Bank, and other institutions increased by about 144% over the same period, a rate that is less than half that of the increase in Eurobond debt. Similarly, bilateral debt from governments in countries such as China, France, the US, and the UK to governments in Africa also increased at a rate of 145%, which was also less than half the rate of increase in Eurobond debt. (World Bank, International Debt Statistics 2022 (Washington, DC: World Bank, 2022), https://openknowledge.worldbank.org/bitstream/handle/10986/36289/9781464818004.pdf?sequence=4isAllowed=y.).

This last point on bilateral debt is worth highlighting given the argument on ‘debt trap diplomacy’ that has become commonplace with respect to debt from China. The argument alleges that China is using debt to trap Africa in a perpetual cycle of indebtedness and servitude. However, the facts present a different picture. Though World Bank’s International Debt Statistics handbook does not provide a country-by-country breakdown of bilateral debt to Africa that would allow us to isolate the Chinese component, it shows that by 2020 Africa’s total external debt owed to bilateral creditors (i.e., countries) stood at $115 billion, compared Eurobond debt of $135 billion. Further, the figure for bilateral debt provided by the World Bank is for all bilateral creditors, implying that Eurobond debt outstripped all debt from bilateral creditors, which includes China. A careful analysis from Debt Justice shows that African debt to China was $83 billion in 2020, a number smaller than the $135 billon owed to private bondholders. (The Growing Debt Crisis in Lower Income Countries and Cuts in Public Spending’, Debt Justice, July 2022, https://debtjustice.org.uk/wp-content/uploads/2022/07/Who-African-governments-debt-is-owed-to_Media-Briefing_07.22.pdf, 2.). Figures on Chinese loans and Africa’s debt produced by researchers working at the China Africa Research Initiative (CARI) at Johns Hopkins University in the United States are often cited in support of the debt trap diplomacy argument (despite their own researchers having published articles debunking the Chinese debt trap narrative). (Deborah Brautigam and Meg Rithmire, ‘The Chinese “Debt Trap” Is a Myth’, The Atlantic, 6 February 2021, https://www.theatlantic.com/international/archive/2021/02/china-debt-trap-diplomacy/617953/.). However, they are not very useful in this particular case because, according to CARI itself, its database ‘does not track [debt] disbursements and repayments’.(‘Loan Data’, China Africa Research Initiative, Johns Hopkins University’s School of Advanced International Studies, accessed 13 February 2023, http://www.sais-cari.org/data.). I36 Edwin Mutai, ‘Ouko Says Eurobond Billions Still a Mystery’, Business Daily Africa, 23 January 2018, https://www.businessdailyafrica.com/bd/economy/ouko-says-eurobond-billions-still-a-mystery–2186608; Steven Mvula and Frank Ching’ambu, ‘Where Did the Eurobond Given to ZR Go?’, Frontlines Zambia, 4 August 2022, https://frontlineszambia.com/archives/26311).
In other words, CARI only reports on newspaper announcements of loan contraction but does not track to see if the contracted loan left China and, if it did, if the recipient government in Africa subsequently paid it off or paid off portions of it. Therefore, CARI figures can be misrepresented in ways that vastly exaggerate the true stock of Chinese debt to Africa.

This goes to show that the current sovereign debt crisis currently engulfing the African continent is largely the creation of private creditors via the Eurobond craze that possessed and took hold of the continent in the second decade of the twenty-first century, helped along by the intellectual justifications of Dambisa Moyo and others. Eurobonds did not fix the problem of corruption that was said to be endemic with foreign aid, as Moyo argued they would. For example, hundreds of millions of dollars of Kenya’s first Eurobond issuance are said to have gone ‘missing’. In Zambia, questions have been raised about where the Eurobond money went.(Edwin Mutai, ‘Ouko Says Eurobond Billions Still a Mystery’, Business Daily Africa, 23 January 2018, https://www.businessdailyafrica.com/bd/economy/ouko-says-eurobond-billions-still-a-mystery–2186608; Steven Mvula and Frank Ching’ambu, ‘Where Did the Eurobond Given to ZR Go?’, Frontlines Zambia, 4 August 2022, https://frontlineszambia.com/archives/26311.).
In Mozambique, loans and bonds were illegally withdrawn and misused by state-owned enterprises (known as the Tuna Bond Scandal). As these cases illustrate, Western private bankers and creditors have facilitated this type of theft (‘Mozambique and the “Tuna Bond” Scandal’, Spotlight on Corruption, 9 February 2021, ; Lily Kuo, ‘Kenya’s Ex-PM Accuses US Banks of Helping the Government Steal $1 Billion from the Country’s First Eurobond’, Quartz, 4 January 2016, https://qz.com/africa/594324/kenyas-ex-pm-accuses-us-banks-of-helping-the-government-steal-1-billion-from-the-countrys-first-eurobond.).

Finally, analysing the sources of debt in Africa casts doubts on current multilateral initiatives aimed at resolving Africa’s sovereign debt crisis. One example is the Debt Service Suspension Initiative (DSSI), launched by the G20 in May 2020, soon after the COVID-19 pandemic began to send shockwaves across the globe, to encourage bilateral and multilateral creditors to suspend interest payments on debt owed by poorer nations, including those in Africa, for a year. The DSSI was hardly successful, as many creditors – with the exception of a few, such as China – refused to suspend interest payments.(Alicia García-Herrero, Suman Bery, and Pauline Weil, ‘How Is the G20 Tackling Debt Problems of the Poorest Countries?’, Bruegel (blog), 25 February 2021,https://www.bruegel.org/blog-post/how-g20-tackling-debt-problems-poorest-countries; ‘China Says Has Given $2.1 Billion of Debt Relief to Poor Countries’, Reuters, 20 November 2020, https://www.reuters.com/article/us-china-debt-g20-idUSKBN28009A.).
In addition, many analysts remarked that the DSSI was not fit for purpose, since it only applied to official debt (multilateral and bilateral), while the sovereign debt crisis was largely fuelled by a private bond crisis as shown above.

As the DSSI expired in June 2021 and the sovereign debt crisis got worse, the G20 launched the Common Framework for Debt Treatments, which would become the guiding mechanism for debt restructuring after the initial years of the pandemic. (‘The Common Framework for Debt Treatment beyond the DSSI’, Ministry of Economy and Finance of the Italian Government, accessed 13 February 2023, https://www.mef.gov.it/en/G20-Italy/common-framework.html). Unfortunately, it is bedevilled by many of the same problems that afflicted the DSSI. First, the Common Framework only has mechanisms for resolving official credit. But, as the above analysis shows, a substantial portion (and by far the largest single source) of Africa’s sovereign debt is owed to private bondholders and creditors. Their absence largely confines debt restructuring discussions to the theoretical sphere, with little practical value. Second, the Common Framework lays the ground for an official creditor committee, which in the case of Zambia is co-chaired by France and China. France is seen to represent the old Paris Club of creditor countries, which together make up a sizeable portion of the official credit given to Zambia. China is a co-chair given its emergence as an important source of credit to Africa, and Zambia in particular. However, the structure and governance of Zambia’s creditor committee with the two co-chairs has opened the country to geopolitical manoeuvrings and, in the process, largely paralysed the prospects for genuine debt restructuring anytime soon.

Fred M’membe
President of the Socialist Party

IMF and our debt crisis

IMF and our debt crisis Featured

In 1919, John Maynard Keynes of the United Kingdom’s Treasury Department published a book that became a sensation. In the book, entitled The Economic Consequences of the Peace, Keynes observed that the Great War had ‘so shaken the system as to endanger the life of Europe itself’. (John Maynard Keynes, The Economic Consequences of the Peace (London: Palgrave Macmillan, [1919] 2019), 58.). The Treaty of Versailles, which ended the war, did not grasp the underlying problems that had led to the war and only cemented the victory of some countries against others. The treaty left structural problems intact, such as the ‘disordered finances’, in Keynes’ words, of many countries (not only Germany, which faced an enormous and unpayable reparations bill). The Wall Street Crash of 1929, the Sterling Crisis of 1931, and the Banking Panics of 1931–1933 revealed the underlying vulnerabilities of capitalism, with the ‘disordered finances’ being the spur towards the potential general collapse of the system. In 1936, Keynes published The General Theory of Employment, Interest, and Money, a manual to save capitalism by a theoretical plea for governments to use state resources to recycle profits and balance an unbalanceable system. Keynes, who dabbled in eugenics theory, did not extend his views on state intervention to protect the system in the British colonies and prevent the decline of their population’s living standards.

When the United States invited its allies to Bretton Woods (New Hampshire) in July 1944 to discuss how to manage the structural crises that contributed to the Second World War, Keynes – who was one of the main figures at this meeting – said that it would be ‘the most monstrous monkey house assembled for many years’, suggesting that ‘twenty one countries [that] have been invited’ – presenting a list of primarily colonised countries, from Guatemala and Liberia to Iraq and the Philippines – ‘clearly have nothing to contribute and will merely encumber the ground’. (John Maynard Keynes, The Collected Writings of John Maynard Keynes: Volume XXVI, Activities
1941–1946. Shaping the Post-War World: Bretton Woods and Reparations, ed. D. E. Moggridge (Cambridge: Cambridge University Press, 2013), 42.)

Instead, Keynes preferred that the two founder states of the Bretton Woods Conference, the United Kingdom and the United States, ‘settle the charter and the main details of the new body without being subjected to the delays and confused counsels of an international conference’, as he explained a few years earlier. (International Monetary Fund, IMF History Volume 3 (1945–1965): Twenty Years of International Monetary Cooperation Volume III: Documents (Washington, DC: International Monetary Fund, [1969] 1996), 15.) In fact, Keynes (on behalf of the United Kingdom) and Harry Dexter White (on behalf of the United States) arrived at the meeting with two plans already drafted, which they put on the table and upon which the final Articles of Agreement for the International Monetary Fund as well as the International Bank for Reconstruction and Development (or the World Bank) were built. The other participants were largely onlookers.

Despite the limited input of most of the world, which was still under colonial rule, the purpose of the IMF as laid out in the Articles of Agreement was straightforward, none of it built to extend the power of the British imperial system. The main thrust of the articles was to assist the ‘expansion and balanced growth of international trade’ and to ‘contribute thereby to the promotion and maintenance of high levels of employment and real income and to the development of the productive resources of all members as primary objectives of economic policy’. (International Monetary Fund, Articles of Agreement of the International Monetary Fund (Washington, DC: International Monetary Fund, 2020), https://www.imf.org/external/pubs/ft/aa/pdf/aa.pdf). To establish these ‘primary objectives’, the IMF was tasked with preventing any short-term problems from becoming long-term crises, such as by maintaining exchange rate stability and facilitating loans to prevent balance-of-payments spirals ‘without resorting to measures destructive to national or international prosperity’. When the former colonial countries won their freedom, most of them became members of the IMF based on the Articles of Agreement, and in 1961, the IMF created its Africa Department. Until the Third World Debt Crisis that began to spiral with Mexico’s default in 1982, the IMF had primarily operated by providing short-term financing in a relatively modest fashion through the Compensatory Financing Facility (1963) and the Buffer Stock Financing Facility (1969). (International Monetary Fund Policy Development and Review Department, ‘Review of the Compensatory and Contingency Financing Facility (CCFF) and Buffer Stock Financing Facility (BSFF) – Preliminary Considerations’, International Monetary Fund, 9 December 1999, https://www.imf.org/external/np/ccffbsff/review/index.htm.).

In the aftermath of Mexico’s default, the IMF conducted what its managing director, Michel Camdessus, called the ‘silent revolution’. (James M. Boughton, The IMF and the Silent Revolution Global Finance and Development in the 1980s (International Monetary Fund, 11 September 2000), https://www.imf.org/external/pubs/ft/silent/index.htm#3.).

Against its manifest purpose, the IMF began to respond to requests for short-term bridge financing by demanding that countries radically change their domestic economic policies as a condition for approval. Through their new programmes, the Structural Adjustment Facility (1986), and then the Enhanced Structural Adjustment Facility (1987), the IMF put a singular recipe on the table: privatise the economy, including the state sector; commodify areas of human life that had up to that point been in the public domain; terminate any government deficit financing; and dissolve any barriers on foreign capital investment and trade (such as subsidies and tariffs). The IMF had experimented with these measures in Bolivia, Chile, and Peru in the 1950s with limited success before turning them into the basis for their policy not towards all countries, but specifically to be used against states in Africa, Asia, and Latin America, which struggled with an international economic system shaped by colonialism and capitalism. These were the countries that had championed the formation of the UN Conference on Trade and Development (UNCTAD) in 1964 to advance their own proposals to exit the neocolonial world order, proposals that were passed by the UN General Assembly in 1974 as the New International Economic Order (NIEO). The new IMF policy emerged in contest against the possibility of an NIEO, since rather than allow for a better deal for raw material prices or for tariff-subsidy arrangements, it demanded the withdrawal of all these anti-colonial schemes. Even Raghuram Rajan, the IMF’s own chief economist from 2003 to 2007, wrote in his book Fault Lines (2010) that the IMF’s policies appeared as a ‘new form of financial colonialism’. (Raghuram Rajan, Fault Lines: How Hidden Fractures Still Threaten the World Economy (New Jersey: Princeton University Press, 2010), 93.).

The IMF’s ‘silent revolution’ intensified the crisis faced by the poorer nations, driving them into a spiral of indebtedness and poverty. The general formula for this spiral is as follows:

Countries go into short-term balance-of-payments debt because of their lack of capital – much of it stolen during the colonial period – and their reliance upon borrowing to conduct (often expensive) capital improvements in their countries (some of which are in the raw material extraction sector, thereby operating as a subsidy for foreign mining companies).
The IMF arrives and informs the finance ministries that government spending for education, healthcare, and other social development projects must be cut in order to prioritise payments to wealthy bondholders (in the London Club) and to governments – mostly the old colonial states – (in the Paris Club) who have lent them money.
To pay the debt servicing on these loans, the poorer nations cut their government spending, thereby impoverishing their people further, and export more of their cheapened raw materials (rather than more profitable finished products). When countries start to export more and more primary commodities, this produces a price war that leads to a steep decline in the revenues gained from the volume of exports.
With weakened revenues from imports, the poorer nations must continue to cut their social spending, ramp up their sales of raw materials and public assets, and borrow more money from external private and governmental sources… just to pay off the interest on their ballooning debt.
The imperative of ‘exchange rate stability’ prevents governments in the poorer nations from exercising any effective monetary policy – including implementing capital controls – while their fiscal policy is already eviscerated by balanced budget demands from the IMF, social spending cuts, and pressure from wealthy bondholders to ‘reform’ (i.e., surrender) their tax policy.
In 2016, senior members of the IMF’s research department published an article called ‘Neoliberalism: Oversold?’, which argued that the ‘adverse feedback loop’ set in motion by austerity, followed by increased inequality and then yet more austerity, had to be broken by a less rigid, less fundamentalist approach to ‘liberalisation’ and neoliberalism. (Jonathan D. Ostry, Prakash Loungani, and Davide Furceri, ‘Neoliberalism: Oversold?’ Finance and Deveopment 53, no. 2 (June 2016), https://www.imf.org/external/pubs/ft/fandd/2016/06/ostry.htm.).

There was even a suggestion of ‘greater acceptance of [capital] controls to deal with the volatility of capital flows’. While there was a decline in the conditions that the IMF required to receive their loans over the course of the decade before this paper was published, there is no evidence of any qualitative change in IMF policy. (Alexander E. Kentikelenis, Thomas H. Stubbs, and Lawrence P. King, ‘IMF Conditionality and Development Policy Space, 1985–2014’, Review of International Political Economy 23, no. 4 (2016): 543-582.).

Guinea, for instance – a country that has at least a third of the world’s bauxite – entered the IMF rollercoaster in 2011 and immediately became trapped in the debt-austerity cycle.(Lounceny Nabé and Kerfalla Yansané, ‘Guinea: Letter of Intent, Memorandum of Economic and Financial Policies, and Technical Memorandum of Understanding’, International Monetary Fund, 20 June 2011, https://www.imf.org/external/np/loi/2011/gin/063011.pdf.). In 2014, the Guinean government of Alpha Condé wrote to the IMF that the ‘tight fiscal and monetary policy’ had led to a ‘reduction in spending, including on domestic investment’, which made it impossible for Guinea ‘to respect the indicative targets for spending in priority sectors’. (Mohamed Diaré and Lounceny Nabé, ‘Guinea: Letter of Intent, Memorandum of Economic and Financial Policies, and Technical Memorandum of Understanding’, International Monetary Fund, 1 February 2014, https://www.imf.org/External/NP/LOI/2014/GIN/020114.pdf). In other words, Guinea borrowed to try and exit a crisis, but the borrowing itself led to cuts in social spending and deepened its crisis. In 2019–2020, the country experienced a cycle of protests sparked both by Condé’s attempt to change the constitution as well as the worsened economic situation. A UNICEF report found that, in 2019, twenty-five very poor countries spent more on debt servicing than on education, health, and social protection combined. Sixteen of those countries are on the African continent.(UNICEF Office of Research – Innocenti, COVID-19 and the Looming Debt Crisis, Innocenti Policy Brief 2021-01, Protecting and Transforming Social Spending for Inclusive Recoveries (Florence: UNICEF, April 2021), https://www.unicef-irc.org/publications/pdf/Social-spending-series_COVID-19-and-the-looming-debt-crisis.pdf, 15.). In the early months of the pandemic in 2020, the IMF offered to open up new windows for borrowing that they said would come without conditionalities. (Kristalina Georgieva, ‘The Next Phase of the Crisis: Further Action Needed for a Resilient Recovery’, IMF (blog), 16 July 2020, https://www.imf.org/en/Blogs/Articles/2020/07/16/blog-g20-md-the-next-phase-of-the-crisis-further-action-needed-for-a-resilient-recovery.).

The G20 Debt Service Suspension Initiative and other such offers to pause debt payments suggested that the poorer nations would receive assistance to prevent total economic collapse and to gain access to vaccines. However, Oxfam found that thirteen of the fifteen IMF loan programmes during the second year of the pandemic (2021) required ‘new austerity measures such as taxes on food and fuel or spending cuts that could put vital public services at risk’. (Oxfam International, ‘IMF Must Abandon Demands for Austerity as Cost-of-Living Crisis Drives up Hunger and Poverty Worldwide’, Oxfam Press Release, 19 April 2022, https://www.oxfam.org/en/press-releases/imf-must-abandon-demands-austerity-cost-living-crisis-drives-hunger-and-poverty.) The Commitment to Reducing Inequality Index reveals that fourteen out of the sixteen countries in West Africa planned to cut their budgets by a total of $26.8 billion in 2021 to contain haemorrhaging national debt crises and that these policies have been encouraged by the IMF’s COVID-19 loans. (Matthew Martin et al., The West Africa Inequality Crisis: Fighting Austerity and the Pandemic, Oxfam and Development Finance International, 14 October 2021, https://oxfamilibrary.openrepository.com/bitstream/handle/10546/621300/rr-west-africa-cri-austerity-pandemic-141021-en.pdf, 4, 19.).

The evidence is clear: the IMF not only engineers austerity-driven debt crises, but its policies are designed to ensure and manage a permanent debt crisis, not to erase debt.

Fred M’membe
President of the Socialist Party

IMF offers us no viable exit from a permanent debt crisis.

IMF offers us no viable exit from a permanent debt crisis. Featured

Before the COVID-19 pandemic was announced by the World Health Organisation in March 2020, our poorer nations already struggled with seriously high – and unpayable – levels of debt. Between 2011 and 2019, the World Bank reported, “public debt in a sample of 65 developing countries increased by 18 per cent of GDP on average – and by much more in several cases. In sub-Saharan Africa, for example, debt increased by 27 per cent of GDP on average” (Marcello Estevão and Sebastian Essl, ‘When the Debt Crises Hit, Don’t Simply Blame the Pandemic’, World Bank (blog), 28 June 2022, (https://blogs.worldbank.org/…/when-debt-crises-hit-dont…).

The debt crisis did not take place because of government spending on long-term infrastructure projects, which could eventually pay for themselves by increasing growth rates and allow these countries to exit from a permanent debt crisis. Rather, these governments borrowed money upon borrowed money to pay off older debts to wealthy bondholders, as well as to pay for their current bills (such as to maintain education, health, and basic civic services). “Among the thirty-three sub-Saharan countries in our sample”, the World Bank noted, “current spending outstripped capital investment by a ratio of nearly three to one” (Estevão and Essl, ‘When the Debt Crises Hit, Don’t Simply Blame the Pandemic’).

When the pandemic struck, countries that had adopted the World Bank-International Monetary Fund policy to grow their way out of the debt crisis floundered. Growth rates shrank, which meant that debt volumes ballooned, and so these governments decided to borrow more and adopt deeper austerity policies, which dramatically increased the debt burden on their populations.

Registering, in their own way, what is universally acknowledged as an intractable debt crisis in the poorer nations, the International Monetary Fund (IMF) warned that a serious banking crisis is likely to emerge (while ignoring the factors driving this scenario). “Our updated global bank stress test shows that, in a severely adverse scenario, up to 29 per cent of emerging market banks would breach capital requirements”, the IMF wrote in October 2022.(International Monetary Fund, Global Financial Stability Report – Navigating the High-Inflation Environment (Washington, DC: IMF, October 2022),https://www.imf.org/…/global-financial-stability-report…).

This means that the context of high debt, high inflation, and low growth rates (with lowered employment expectations) could lead to the collapse of a third of the banks in the poorer nations.

Neither the IMF nor the World Bank nor indeed any of the international financial institutions (IFIs) have any credible pathway out of this crisis. Indeed, the IMF report surrenders to reality as it tells central banks across the globe to “avoid a de-anchoring of inflation expectations” and to ensure that “the tightening of financial conditions needs to be calibrated carefully, to aim at avoiding disorderly market conditions that could put financial stability unduly at risk”. (IMF, Global Financial Stability Report, ix).

The focus here is to keep ‘the market’ happy, while there is remarkably no care for the downward spiral of living conditions for the vast majority of the people on the planet. In its October 2022 Fiscal Monitor Report, subtitled ‘Helping People Bounce Back’, the IMF noted that while governments’ top priorities must be “to ensure everyone has access to affordable food and to protect low-income households from rising inflation”, they must not attempt “to limit price increases through price controls, subsidies, or tax cuts”, which would “be costly to the budget and ultimately ineffective”. (International Monetary Fund, Fiscal Monitor: Helping People Bounce Back (Washington, DC: IMF, October 2022), https://www.imf.org/…/2022/10/09/fiscal-monitor-october-22).

In January 2023, the IMF’s World Economic Outlook predicted a slightly better, albeit ‘subpar’, growth forecast but warned of continued worries of debt distress in the poorer nations, writing that “The combination of high debt levels from the pandemic, lower growth, and higher borrowing costs exacerbates the vulnerability of these economies, especially those with significant near-term dollar financing needs”. (International Monetary Fund, World Economic Outlook Update: Inflation Peaking amid Low Growth (IMF, January 2023), https://www.imf.org/…/world-economic-outlook-update…).

The antidote to debt distress, according to the IMF, is “fiscal consolidation and growth-enhancing supply-side reforms”, namely more of the same old austerity-debt trap. If the governments of the poorer nations are told not to use these basic tools (which are used routinely in the richer nations), their only choice – as far as the IMF is concerned – is to borrow in order to provide even low levels of relief to the very poorest people in their countries. Effectively, the IMF has surrendered to the prevailing reality and offers the poorer nations no viable exit from a permanent debt crisis.

Fred M’membe President of the Socialist Party

Job creation under the Socialist Party government

Job creation under the Socialist Party government Featured

The Socialist Party (SP) will create employment once voted into power with a job-creation strategy centred around the three pillars of its social and political programme; education, health and peasant agriculture.

Under the SP government, schools will not be run the way they currently are. We will provide free education from nursery at the age of three all the way to university, and it will be compulsory up to grade 12.

Education will be a major undertaking in this country and will be allocated not less than 25 per cent of the national budget. Under this programme, teachers will not be left to manage and run schools on their own. In order to have an effective, efficient, and orderly system, the running of schools will include other professionals and a broad spectrum of workers, such as human resources personnel, information technology experts, accountants, marketing personnel, cleaners, drivers, mechanics, gardeners, nurses, clinical officers, and catering staff, among others. Schools, colleges and universities will need to be supplied with all sorts of teaching aids and other goods and services, and these will be produced in factories by our people, meaning that education will directly and indirectly be one of the biggest employers.

The health sector will also be used to create a number of jobs. By expanding Zambia’s health services – both in terms of quantity and quality – we will need to employ more people. This will entail a need for more nurses, clinical officers, doctors, pharmacists, radiographers, and many other health and general workers. In addition, our government will prioritise the manufacture of some of the medicines we use, even under licence. We will also need to create factories producing health equipment of all sorts. This, together with many other functions that will be added to health services, will create many more jobs.

Another sector that we will prioritise to create employment is peasant agriculture. And when we say peasant agriculture, we don’t mean that everyone will be carrying a kambwili, hoe and be tillers of land. There’s an urgent need to transform the way peasant agriculture is carried out.

We cannot increase agricultural production with a hoe, that’s for planting flowers around your house and a few beds of vegetables to feed a small family. Our plans are much bigger than that and will involve many jobs being created in the agricultural sector because of the transformations we will make.

Transformative peasant agriculture under this government will need new equipment, that is; appropriate ploughs, planters, harvesters and other necessities. To produce these, we will need to set up factories all over the country employing engineers and their technicians, human resources experts, accountants, IT experts, marketing and sales staff, drivers, mechanics, nurses and clinical officers to ran staff clinics, catering people to manage the staff cafeterias, and so on. Of course, our reality, as it stands today, is that we may not have all the engineering expertise required to set up and run these factories. We may have to rely on expatriate skills while we train our people in our schools, colleges and universities.

We will also need to set up factories producing agricultural chemicals. These will require us to employ a diverse range of scientists and other staff. In addition, we will need to create factories that produce veterinary medicines for our livestock. This undertaking will employ scientists, technicians, HR people, accountants, ICT experts, marketing and sales experts and many others. The medicines produced will need to be administered by vets, working with lab technicians. In this way we will be creating more and more jobs for our people.

And, of course, peasant agriculture will need to be financed. This will require us to create a myriad of financial institutions, such as agriculture banks and insurance companies. These institutions will employ bankers, lawyers, accountants, IT experts, insurance personnel and many others, again creating more and more jobs.The agricultural output produced by our factories will need to be delivered to our peasant farmers. This will create logistics jobs for drivers, mechanics and other support staff. Furthermore, the cotton we produce in Nyimba, Petauke, Katete, Chipata, Chadiza, Lundazi, Chama and other places, will not leave Eastern Province unprocessed. Textile factories will be established in employing people from all over the country in many, various roles. These factories will be producing reels of all sorts of cloth, but the cloth produced will not be exported as it is.

Clothing factories will be created to design and produce shirts, trousers, dresses, caps, canvas shoes, belts, and many other products. These factories will require sewing machines and needles so small factories will be created to manufacture and service the machines. The clothing factories will further need buttons and zips. The buttons can be produced from the horns of cattle, hard wood and stones, creating even more jobs. And the finished products will need to be packaged. This will require us to create factories producing packaging materials. Drivers will be needed to transport the finished products from the factories to the ports of Dar-es-Salam, Walvis Bay and Durban. Furthermore, delivery trucks will need to be serviced by mechanics. In this way, more jobs will be created.

Our strategies on cotton production and its processing and export will be extended to food crops. Small and large factories will be created all over the country to process agricultural produce. For instance, factories can be built to process tomato into jam, juice, soup, puree or paste. Some of these products can be exported, and some consumed locally, resulting in more jobs. In addition, it is important to also mention that there will be new jobs created in other sectors of our economy, such as mining, construction, forestry, and the provision of the many other services needed in an organised society.

Fred M’membe