ACFM - ACFM Microdose: Making Sense of Sovereign Debt w/ Heidi Chow

Episode Date: February 2, 2025

After last week’s ACFM on the meaning and morality of personal debt, Keir and Nadia zoom out to the macroeconomics of debt. Joining them to make sense of concepts like sovereign debt, structural adjustment and international ratings agencies is Heidi Chow, executive director of Debt Justice. She explains how and why countries borrow money, why […]

This is Acid Man. Hello and welcome to ACFM, the Home with the Weird Left. I'm Nadia Idol and I'm joined by Keir Milburn. Hello. for this special microdose with Heidi Chow on Sovereign Debt. Hello, Heidi, and welcome to ACFM. Hi, Nadia. Thank you so much for having me. Hi, Kia. Hi.

We're really, really happy to have you to talk about this really complex subject, and we hope that we can make it slightly easier for our listeners to understand what this is all about. So welcome to ACFM. Heidi, if you don't mind, we'd love to hear a little bit about yourself and a little bit about your background and how you got into this work. Yeah, thank you so much for that, Nadia. Yeah, so I'm the executive director at a campaigning organization called Debt Justice. We campaign in solidarity with activists and campaigners from the global South

in order to amplify their demands and their campaigns against unjust debt. So we used to be called a Jubilee debt campaign, and that we were set up in the 1990s to coordinate the UK branch of a global debt cancellation campaign called Jubilee 2000 but we're still around now and we are in addition to doing work on global south we also now work on household debt in the UK as well so we use a community organizing approach for that to build collective power with people with lived experience of debt in order to lead and win campaigns on the debt issues that affect them for me personally I've been a economic justice campaigner for around two decades I've worked on a range of issues such as global

health and access to medicines. I've worked on food and agriculture, trade, financial markets regulation, and now I'm working on sovereign debt. So I guess for me, the main theme that kind of runs across all these different areas is around challenging the rules of the global economy that have been written in the interests of corporations and the global north. And I've been working on these issues by running campaigns and also building movements of solidarity. Fantastic. I can't think of anyone better to lead us through this subject. Just to explain to you, Heidi, and perhaps to listeners, we did an episode on debt, but we focused on personal debt and sort of like the effect that personal debt has on people, etc. I did a little bit

about, well, what is debt then? You know, what's the history of debt? But the history of debt, as in going back 5,000 years. And we've deliberately left the sort of the related but slightly different subject of like sovereign debt, global debt, international debt, etc. And so one one place to start with that might be to do a little definitional work and ask, you know, what is sovereign debt? How is it best conceptualised? Or perhaps another way to enter that is when countries borrow, who do they borrow from and how do they, how does this borrowing happen? Perhaps we can start with that. Yeah, so sovereign debt is basically the debt that's owed by government. So the debt can be owed to either people or institutions inside your own country. So that would be

domestic debt or it can be owed to people or institutions or governments in other countries and we call that external debt. And the reason why it's good to kind of think about domestic debt and external debt and separating it out like that is because it helps us to understand the differences between UK debt and global south sovereign debt because a lot of times in the news we hear a lot about, you know, the chancellor leading to reduce borrowing and we talk we hear a lot about deficit and so on. But there are key differences. I think they're really useful for us to bear that in mind as we go through this conversation about why global south debt is different from the UK sovereign debt. So UK debt, a lot of it is actually domestic debt.

So that's owed to people within and institutions within the UK. And it's also mostly owed in sterling in the UK pound. Whereas global self-debt tends to be owed in US dollars or other foreign currencies. So that means that they are subject to exchange risk. So if their own currency is falling value, then the relative size of their debt repayments will go up significantly. So basically, there's a significant risk there that actually your debt could suddenly balloon through nothing that you have done yourself. Another distinction is that UK debt is also, like I said, largely owed to people in the UK or institutions in the UK, about 75% of it.

So that means that the money effectively just stays in the UK economy, whereas global South governments tend to have significant amounts of external debts. So that's money that's leaving the country. go to external creditors elsewhere. So the UK spends about sort of 4% of its revenue on external debt compared to something like 15% an average of 15% in the global south and sometimes as high as something like over 20% from a handful of countries, about 32 countries. And then the third big distinction is the interest rates. So in general, the UK government can borrow a lot lower interest rates on the global south. So historically, so since the 2010s, the, the

to about 2021, the UK and another sort of global north governments like the US could borrow at sort of 0 to 1% while the global South were paying interest rates around 6 to 10%. So global South countries are in a much more precarious situation with their debt because they're subject to the exchange risk, which can lead to sudden jumps in the amount that they owe for no fault of their own. They're subject to higher interest rates. So there's a risk that they're of the debt not be very sustainable, but they can't pay back because they're paying because the interest rates are so high. And then, thirdly, the debt repayments are leaving the country.

And in terms of who they're borrowing it from, there's basically broadly three categories of lenders. So the first one is bilateral debt. So this is debt owed to other governments. So between two governments, basically. One government's borrowing from another government. And in that space, you have the Paris Club, which is like an elite club of 22 rich governments

who basically clued together to... They're already very powerful in the global economy, but they come together to have even more collective power to negotiate with their debtors. But there are other non-Paris club lenders emerging, like China, Saudi Arabia, India. And then we have multilateral lenders, which are IMF International Manitory Fund

and the World Bank and other sort of regional development banks. And these tend to give loans at a very low interest rates, but they attach a lot of strings, about conditions, these loans, and I'm sure we'll sort of touch on that a bit later, when we start talking about the role of the IMF and the World Bank. And the multilateral lenders account for about a third of all global south debt. And then the last category are private lenders. So these are essentially debts that are owed to the private sector,

like banks and hedge funds and the speculators. And of these three categories of lenders, it's the private lenders that charge the highest interest rates, which is probably not surprising because they are in it to make. the highest returns they possibly can. But they account for about 46% of all global South debt. So they're a really big sort of creditor category. And not surprisingly, they represent the biggest problem in the global debt system because they account for almost half of all global South debt and also because they charge the highest interest rates. Am I right in thinking that the large amount of private debt or debt to private interest is a relatively recent thing.

it's exploded this sort of this century in the last 20 years? Yeah, so it's actually been a lot of the debt crisis, and I think when we go through the sort of the history of the timeline of debt crises over the last 70, 80 years or so, is that a lot of the debt crisis that we'd be talking about actually started off as private sector debt, private lenders, and what happened in the 1970s, a lot of the debt was pushed out by banks, Western banks. And then when countries hit a debt crisis in the 1980s, instead of allowing

the global South countries to default on those loans, like in other words, not pay up because they can't because it was literally no money to pay it back, then instead the IMF and the World Bank lent more money. And so what happened in that process was that the banks got paid off, essentially that they got bailed out. They had their profits and ran away. And then the debt was transferred into the public sector to the World Bank, to IMF and so on. And we see that happening again and again and again. Will we see that happening in 1980s, 1990s? And we see it in the Greek debt crisis. We see it in the Argentinian debt crisis. And we'll see it again in the pandemic and coming up to the debt crisis we have in the world today. I've got a very preliminary question,

which I'm not sure if this is a very easy question to answer or actually a really complicated one, but I thought it might be like just an interesting thing to touch on, and I'm aware this might require a big answer. So maybe you'll have a small one that will be helpful to our listeners. I'm not sure if this is a philosophical or a structural question, but have governments always borrowed money? Like getting into debt, like maybe we'll get into this when you go into the history. But like conceptually, like, is this always the way things have been?

done in a sense, how governance has been done. I guess I'm interested in that kind of like very basic question, if you don't mind. Of course. And I think you have asked a very big question. And I'm happy to answer either fully rightfully now or very fully later. But essentially, I guess the short answer is a lot of the roots of today's global South debt crisis comes from colonialism and what happened upon during decolonisation period and what's happened since then so that actually what's happened is we've structurally created a world where global self countries have not had the ability to develop diversified resilient economies and to therefore have had to rely on debt to meet their basic needs.

But in general, countries do borrow because they either are trying to fining the financing gap responding to an external or responding to an external shock or to borrow. So there is a role for debt, sovereign debt in that sense. But what we've seen in the global economy and certainly for the global South, actually debt has been used as a vehicle for control, exploitation and extraction. And it's only, and, you know, when I started this conversation about talking about difference between the UK debt and global South debt. You can see how in the UK actually debt has been used to invest

and debt has been used to do things like quant of easing and support people during the pandemic, whereas a lot of that is not open to the global South. And instead, there's a lot more control in the system in terms of what happens when countries get into trouble, what happens when countries receive loans and how the whole system is set up. So I hope, I give you a little bit of taster, but hopefully, I think, to be honest,

I feel like that question you've just asked is almost like the underlying question behind this whole conversation they're about to have. So I'm hoping it becomes clearer as we talk. Thank you. No, that's really helpful. Just before, we should start on that history because you sort of already started on, like the whole post-World War II decolonization moment, mainly post-World War II decolonization moment is like the key. It's a nice starting point for this story.

Not particularly nice story, but it's a starting point. Before we get to that, it's just one of the things that might be interesting just to think about is, is like these international rating agencies that such as standards and poor, like, what are they? Where do they come from? Their private companies, right? And they have this huge amount of power to alter the debt rating and therefore the amount of money that countries, like, can you give us a little bit of history of like, where does that come from? It's such a strange thing. Yeah, who are they?

Who are these people? So essentially, debt ratings agencies are just private companies like. said, they're just, they're profit-making companies and they're there to assess the risk of what they presume is their risk. And you've got to remember that they are coming at it from a very skewed point of view. And often risk in the global, and often debt in the global system is often seen as, so that sustainability is often seen as how, as long as countries can continue to repay their debts and their debts are sustainable, whereas actually in us as debt campaigners, we would say that debt sustainability is about actually how much countries can

pay their debts without undermining their ability to invest in essential public services like healthcare and education and fighting a climate crisis and basically meeting the human rights and the human needs of its population. So that's a really fundamental difference in terms of how we see risk and how we see debt sustainability. But essentially, they are not mechanisms of enforcement for debt repayment in the world. Actually, we have probably even more powerful mechanism for debt enforcement in the world. And that is actually the moral argument. You mentioned that the last broader conversation you had on some of the broader aspects

of debt, actually there's a real dominant narrative. You might have covered this in your other podcast, but there's a real dominant narrative in society that if you owe money, then you have to pay. And if you don't pay, then you are inherently a bad person, that you're not just If you haven't just failed, you are a failure, and you see this play out in a global context. And so it's very convenient for powerful lenders like rich governments and banks and so on to lay into this narrative, to lean into this narrative. And so what we see is that actually that in itself is quite a strong discipline on global self-governance.

So when global south governments are in a debt crisis, in other words, when their debt repayments are so high that they cannot support the needs of their population, they cannot invest in the things that their people need, then actually we would argue that they need to default. They need to just stop paying. But they hardly ever do that because they are so worried that if they go down that route of default, then they will be ostracized as a failure.

They'll be ostracized as a pariah in the international community. And so that kind of sense of morality is really strong and dominant in the minds of global South leaders. And actually one of the things that we are trying to do is trying to rethink that morality, that actually in this sense, in the way it works in the global economy, is that all the shame and all the burden is put on the borrower, and there's very little responsibility or spotlight on the role of the lender

and being a responsible lender. And actually, we need to recognize that sometimes not paying a debt actually is the right thing to do. So, for example, if paying a debt means there are no resources for your schools and your hospitals to pay the salaries of your teachers and your nurses and your nurses and your doctors in community health care and so on, then surely paying the debt and at the expense of all of these things,

that is the immoral thing to do. So, yeah, so that is a very strong mechanism for enforcement. And then, of course, we've also got, there is a legal route of enforcement as well. Almost all debt contracts in the world are written either in New York law or English law, and that's a bit of a legacy of colonialism, because lenders wanted to use stable jurisdictions, stable legal jurisdictions, to ensure that their debts could be enforced. So this means that if countries don't pay, they default,

then countries can be taken to the courts in New York or in the UK in England. It doesn't happen loads, partly because it takes a long time and it's expensive, and also it draws attention to kind of how pernicious the system really is. But there have been really high-profile cases, and we'll come on to Argentina later. There's a current example right now with Sri Lanka. Sri Lanka went into default in 2022. And there's a hedge fund that's taking Sri Lanka to court in the New York courts to try and make them repay in full, even though they are in the process of negotiating

debt restructuring, deal with some of their creditors. Just a quick comment on that. I think it's fascinating what you shared about where morality plays in. I think it's super interesting. And as you were speaking, I was thinking about the kind of psychological aspect on a kind of state level of feeling like, I don't have the money, somebody else has given me the money, so I must, I can't be indebted, I must give them back and give this money back, sorry, sort of outside the frame of like the colonial legacy. And I think that is super

interesting, the idea that, you know, all these post-colonial states, like so many countries and leaders are unable, for whatever reason, to kind of internalize the fact that, no, no, no, this originally was our money in a sense, and you've taken it from us. And I think that has such a big impact on a global scale, but I've not thought about it quite like that before. So thank you for kind of explaining it in that way, really helpful. We should start the history of, and I was going to say, let's start with decolonisation. But then when you mentioned like the morality of debt, it reminded me of this, of the story of Haiti, basically. So Haiti was a French colony and they had a revolution in 1791, something like that.

it's actually the only successful slave revolt we know of they basically defeated the colonizers and then they took on Britain, France who were all at war of each other but came together and said we better defeat this anyway in the end when they become a country a sovereign country France says well you need to pay us for all the property you stole

the property they're talking about is themselves the slaves they have to recompense the slave owners for freeing themselves basically huge debt, and Haiti actually paid that debt off until the 1970s. And if you look at the difficulties Haiti's hard to develop itself, you know, you can really relate it, related to that. That is odious debt, isn't it? You've got to say. Sorry, there was an academic who called that the greatest heist in history. So I thought it was a really great way to sum up what happened with Haiti.

I mean, but it's not exactly the same story of the post-war decolonisation, but I think there is some, there's an element of that, isn't there, basically? So perhaps you could pick up that story and give a little bit more about like, why did decolonising countries, why did they end up with so much debt? It's a really good place to start, actually, because, you know, when we talk about global South debt, sovereign debt, often people respond in two ways. Either they think it's too technical and they can't understand it so you kind of switch off or you think that it's something to do, it's a very racist trope, something to do with kind of governments that can't manage their own money or are corrupt. and actually both of those narratives are hugely harmful and hugely inaccurate. So the decolonisation period is a really good place to start because the history of colonialism and the neo-colonialism is so intertwined

with the history of debt in this period, that they're almost inseparable. So the way that the impact kind of flowed through the decolonisation period was a number of ways. So firstly, many countries started their journey into independence, and saddled with the debts of their former colonial rulers. So we see that with the Democratic Republic of Congo, who had to inherit the debts of the Belgian government that had run the Congo at what was called Congo at the time.

And they racked up huge amounts of debt for, and these debts were racked up for, you know, oppressing the population and slaving the population, harming them. So essentially, a country like Democratic Republic, Congo started its life as a new republic carrying this debt. And then, like you said, Haiti is the other example where, again, it started life as a independent country, but already saddled with debt at its very inception, that it's very birth.

But then there's also the economic legacies of colonialism, which forced countries to get into debt almost immediately after they became independent. So, you know, colonial economies were set up precisely for extraction and export of war materials to fuel the industrialisation in Europe. So that's, you know, so if you've looked on a map of South Africa, for example, you can see all the train lines, which are sort of going from the cities to the ports. It's all about extraction and about kind of keeping that kind of trade into, into the global north to fuel its industrialisation.

And so, so yes, they were set up in this way. And the problem of being set up in this way is that you are completely vulnerable to the volatility in the international commodity markets. So if the commodity price is slump, then that's a massive slump in your income. So that was already a factor in terms of why countries got into debt quite quickly soon after they become independent. And then the other factor in there as well is that countries also found it very difficult to move away from this export. oriented economy because they emerged into the global economy to find that the rules were written in the interests of corporations and rich governments from the global north. And so areas like tax and trade and illicit financial flows and finance, they were all rigged

against global South countries. And so it made it very difficult to build an economy that was more diversified and therefore more resilient to the global economy. So that's why countries in the global south were left dependent on this export-style economy and unable to diversify into other industries because they were prevented from, for example, through trade deals or for the trade agreements that would allow them to support infant industries. The UN says today that there are still about 100 countries in the global south

that are still dependent on export income to this day. So that shows you how the strength of that sort of legacy from colonialism had from day one when it came to independence. And so we had these countries that became independent, but they were very weakened from colonial rule. And then they had the rules of the global company stacked against them. And so for a lot of these countries,

there was no option but to turn to debt in order to meet their basic needs, in order to make their public finances work. And so we see in this very early stages how debt already starts becoming a vehicle through which the power of colonialism is maintained. So we see this kind of transformation of the relationship between the colonized and the coloniser

to becoming expressed in the language of the lender and the borrower. And I just want to share this quote from Thomas Sankara, who was the president of Burkina Faso in the 1980s before he was assassinated. So I think it really sums up that kind of how the relationship, how to describe me that relationship. He says debt's origins comes from colonialism's origins. Those who lend us money are those who colonized us. They are the same ones who used to manage our states and economies.

They are the colonizers who indebted Africa. And I just think that really sums up the state of play, that kind of decolonizing, the decolonization period. It's fantastic, isn't it? Because in that shift from colonizer and colonized to lender and debtor, you have the moral inversion. The colonizers would now be seen as like the bad guys. Not in all parts of the UK, we'd have to say that.

And yeah, so all of a sudden it's like the lenders are the good guys and the debtors are the bad guys. It's quite a trick to pull. The way we'd sort of move the story on is to sort of talk about the like the debt crisis of the 1980s and then the sort of structural adjustment programs got attached to those, etc. another way in which countries lose their control over their economic activities.

Could give us some of the background to that or, you know, to carry on the story, perhaps? Yeah, actually, I was just thinking how the structural adjustment programs, it's a real kind of significant point, I was going to say, in this timeline, because here is where the plot really thickens, you know, and this is where the evil people really kind of become really evil. But, yeah, so I'll just backtrack a little bit to the background behind the 1980s sort of deck vise. So in an early 1970s, the oil cartel, OPEC, pushed up oil prices by restricted supplies, and then this led to a massive influx of foreign currency ending up in the banks of the UK, US, Japan, Europe.

So there was a big onus on the banks to kind of push out more loans to the global south. So they were essentially sent out to push as many loans to the global south as possible. The context is also the Cold War. And so loans were also being used to prop up allies. of the West and to sort of sweeten them to sort of side with them in the Cold War. So you have this big, so you basically have all the debts building up during the 1970s. And then in the early 1980s, commodity prices collapsed. And, you know, I talked about how that was a big source of income for global South

country. So their income collapsed because of commodity prices crashed. And then interest rates went up in the US. So then their debts, the value of their debts went up. And so this basically was a recipe for debt crisis. So there's a number of countries across the global South went into debt crisis. And at this point, as I was saying earlier, this is where the countries should have defaulted and stayed in default. Because what happens when you do that is that you then force your creditors to come and negotiate with you.

Because at that point, if you're a bank and a country's defaulted on you, it's better to negotiate something rather than have nothing, because at a point of default, you have nothing. But instead of that happening, which is what should have happened, the IMF and the World Bank stepped in. And the IMF and the World Bank were originally set up to cover gaps in liquidity, to kind of smooth in the global economy, to provide investment for development. And at this point, the IMF and World Bank were powerfully repurposed to actually bail out the banks. So instead of letting the country's default and letting the banks fold or letting the banks take the hit, take the responsibility for their reckless lending. The IMF and one bank instead lent more money to the countries in debt

crisis. So this means that they were given the resources to then pay back their loans to the banks and hedge funds. And the banks and hedge funds basically got off scot-free for their reckless lending and the global South countries became even more indebted. These banks originally lent to the Global South at high interest rates. And their justification for their is to say, we need to lend at high interest rate because it reflects the risk that we're taking on. Like, you know, it's really risky lending to the global South. And if we don't get paid, then that's where we've already, you know, a high interest rate reflects that. But what happened in this scenario is that they were remunerated for their high risk, a high risk that

were taking. The risk then materializes. And then caters them should dictate. You then take the hit. You'd then make a loss. It's like with any bet or gamble that you take. If you're If your gamble doesn't pay off, then it doesn't come through, then you take the hit. So in this scenario, the banks let not high your chest awaits, the risks that they were inciting themselves against, dematerialized, they should have made a loss, but they didn't. Instead, they got rewarded, and they got bailed out, they got bailed out, and instead, global south populations became even more indebted. Debt became a really effective tool to basically control these economies.

It also became a really effective tool to actually crush the rising movement in the global South for economic sovereignty. So the movement for the new international economic order that got to their UN Declaration in 1974, which was calling for a different type of global economy where they were challenging the sort of corporate interest-based global economy that we had in the 1970s, 60s. They were challenging all of that and articulated a different vision where all kind of. countries could benefit, and especially global south countries, could have the right to actually have economic sovereignty, have the right to nationalize their industries, have the right to use tariffs to protect infant industries, to subsidize their industries and so on. And all of that was crushed by this debt crisis because the debt crisis eventually drowned out that whole

movement. But so in addition to piling on debt at this point, the new innovation was this structural adjustment programs, which were just a posh way of saying they added conditions to these loans. But these conditions were basically to receive these loans, you'd have to introduce really harsh economic reforms into your country. And this is how these institutions used it as a vehicle to push neoliberalism across the global South. So these structural adjustment policies included four main areas. One was around liberalisation, so that's removing restrictions to your economic activity in particular things like removing tariffs

of taking down trade barriers. Deregulation, so that's taken away rules around environmental protections, taking away regulations around labour rights. Austerity, so that's slashing public spending essentially to release more money to pay the Western lenders and privatisation, essentially liquidizing, liquidating your assets in order to generate the money to pay back the loans.

So these economies were all basically reorientated to service the debt and to ensure that the global South countries could earn the foreign exchange in order to pay back their debts. And so, yeah, like I said, debt becomes a powerful mechanism to push through this neoliberal agenda. And debt is a much cleaner way to control economies than even their colonialism was, you know, in terms of, you know, It's actually quite messy having soldiers on the ground and funding coups. And actually, debt became a very neat option to take control of global South economies and also seeing the shift of power away from democratically elected governments and parliaments and the power of over-economic policy moved to the boardrooms of the banks and to Washington.

And so even though these countries had gained their political independence, they gained their, you know, through the decolonisation process. Actually, their political and economic sovereignty was massively eroded through the structural adjustment programs. I mean, I just want to take a minute to, like, acknowledge how absolutely outrageous this was, like, and is on a global level. Like, it's not just triggering for me because I studied political economy 20 years ago and what was, you know, all of the specifics around, you know, development in various different countries.

And what happened and how so. many countries and their populations were like ruined and starved of any sort of ability to, you know, build up their own industries or have any kind of sovereignty whatsoever. But also, you know, I experienced this firsthand growing up in in Egypt and seeing, you know, this idea of like liberalizing an economy. What it means is opening up your economy to, you know, effectively foreign private companies to come in and do what they want. And that's why, you know, this, the threat of not just debt, but things like foreign aid, of, you know, US aid or whatever. Like, this is money to go in to, like, fund, like, a, you know, a Western project and to take

the money back out. So, like, all of these different instruments, I think are, like, really interesting, because, like, you're saying, you know, we're talking about debt in this kind of really, like, emotionless way. It's like, I love the fact that you talked about it being, you know, it's, like, a clean kind of mechanism. But what this is, is, like, it's just the next stage of colonialism, like using different words, like, how do you extract value from, in this case, not an individual, but from like an entire country and basically allow your own private companies from, you know, the West or whatever to be stimulated by that fresh economy, which is, it's just absolutely outrageous. So sorry, I had to like put some emotion into that because it's

just, you know, it's just phenomenal. Yeah, no, definitely. It's, it's blood-boiling stuff, isn't it, when you think the scale of the impact of this because these structural adjustment programs were a massive failure in terms of development and they led to, you know, it's been really well documented and really well evidence that countries lost decades of development because of these policies. They were a complete disaster. And like you said, Nadia, at the end of the day, this is people's lives we're talking about, you know, because we often, I know, certainly my way, we often talk about policy level, but I often, you know, know, have to ground myself back and actually saying, you know, these are people's lives,

people who can't get access to decent schools, decent health care, all because of this kind of desire to control and extract and exploit using debt. I mean, what's the next part of the story after the sort of the 1980s debt, that sort of sets the new sort of debt regime, really, doesn't it, I think, which sort of continues into the 1990s. But I suppose in the 1990s, you have the fall of, of the Berlin Wall and all that signifies and, you know, the era of globalisation, etc. These sorts of things. And there are a whole series of like of financial crises, some of them linked to sort of like debt through the 1990s.

Yeah, I mean, just to say that actually in the 1990s, you know, there was a massive movement, which is kind of where my organisation comes from, this massive move, because the debt crisis had become so huge and because it wasn't dealt with, or dealt with really badly. The debts had been transferred to the IMF and World Bank by this stage. Like I said, the bank's got off scotry. The debts have been transferred to the IMF and World Bank. And so there's massive grassroots campaigns grew up across the global south

and then eventually picked up here in the UK and then eventually became a global, what it was called a Jubilee campaign. So Jubilee comes from an ancient concept of debt cancellation and liberation where economies need a reset because of the recognition of how wealth accumulates and inequality accumulates. So there was a global jubilee campaign. But that campaign was fighting for debt cancellation from IMF and World Bank. So wind back to the early 1980s when the debt was transferred from the private sector

to the public sector, actually in the end, by not letting these countries default back then, actually, it's the public sector that takes the hit because actually this big debt cancellation campaign, One, they'd actually win its campaign and actually got $130 billion worth of debt cancelled eventually. But that was written off by the IMF and World Bank, which essentially is like public money. But yeah, I just want to sort of make that comment about the 1990s, because that's kind of what happens in 1990s. This campaign was started around, sort of, I think, 1994, 95, 96 and then going through to the year 2000. I remember going to a big demonstration in Birmingham, probably in 1998, I think, actually.

Yeah, the G7, the G8, so G8 in Birmingham. And that was, yeah, that was quite a pivotal moment actually in that campaign because it really frost the campaign to the top of the G8 agenda that day. And I suppose, actually, that is almost like, you know, the year after that you have, like, Seattle and the anti-globalization movement, which, you know, it wasn't just about debt, but, like, it certainly had debt and, like, the new trade agreements, you know, at the center of it.

So, yeah, it's good to actually bring in the fact that there have been some fight back here and there's actually been some victories of them. The next thing on my sort of list of debt would take us just into the 2000s and so, you know, the really huge crisis in Argentina in 2001, which basically, yeah, it was a huge, huge crisis and it actually lots of big struggle around it at the same sort of time. Yeah, and Argentina comes across with all of these different images as well. Like I think many of those of us who are old enough can remember kind of like the visuals and the kind of the new stories around Argentina. And I think to me and to many people it made kind of like debt seen, as you said, Keir, within this space of struggle rather than this kind of abstract thing because of what happens.

It would be like Keir said, great to hear a bit about, you know, where Argentina comes into the story. Yeah, so Argentina was part of that kind of early 1980. 80s, you know, debt crisis that kind of was across the global south. And so they, so yeah, in 1980s they had their debt crisis and then eventually they had their debts restructured by something called Brady Bonds where basically the US government swapped out the old debt that the US banks were holding. It's just sounding the video again. So to allow the US banks to potentially get rid of their debt and they swapped it for what was called bonds and bonds are essentially debt that you can sell on the financial markets. So by swapping their old debt for bonds, it basically

enabled the US banks to sell their bonds, recover their money and then get out the crisis. Meanwhile, Argentina was still holding on to the debt. They still owed the money just to different bondholders. Yeah. And so also Argentina was also, I had an IMS structural adjustment program as well. So they also had to privatise their state industries. They also had to privatise their of state pension funds and essentially their own agricultural exports just couldn't earn enough money to earn the dollars to repay, especially because the commodity prices remained low. So together, all of these factors led to the 1990s in Argentina, being a lost decade of development, there was a massive recession, massive levels of poverty.

This ultimately led to that moment in December 2001 of, you know, completely. economic and political chaos. That Christmas in particular was quite monumental. And this is probably where some of the images, Nadi, that you talked about being broadcast around the world and people would have sort of seen what was going on. But when the economic ministered their restricted cash withdrawals, and so that triggered off mass writing, mass protests. And the president had to call a state of emergency and eventually resigned and famously

had to sort of escape in a helicopter. But then at that point, that's when Argentina defaulted. the Christmas 2001, they actually defaulted, which means that they didn't pay on their, they didn't make their debt repayments, which is really significant because, you know, of what I was saying earlier about how countries instinctively don't want to default because of that strong kind of moral obligation. But so Argentina did default, it'd run out, completely run out of money. And actually, what was really interesting from about 2002, because it was defaulting on its, on its debts, and it stopped paying, it's making its

payments, the economy actually started to improve, and there were huge reductions in poverty. And then by about 2005, Argentina's creditors, its lenders, decided to agree a large amount of debt relief, and Argentina only had to pay about a third of its debts over 10 years. So essentially, two-thirds of it got cancelled. But then these voucher funds came out of the woodwork. So Vulture funds are basically like speculators, and they buy up debt. of countries that are in a debt crisis, and because the countries in a debt crisis, their debt is cheap, like, rock-bottom prices, because you can buy the debt up,

but you're not going to expect the government to pay, so that's why it's so cheap. So they brought up lots of cheap debt while Argentina was in default, and then they used the courts in New York, because these bonds were written in New York law, went to the New York courts to sue Argentina for full repayment of these debts. So, you know, like it's like buying up, it's like buying up one dollar of debt, but you buy it up for 10 cents and then you'd then go and get your full $1 back and that's 90 cents profit. So that's the sort of thing that they did, basically just to make a massive profit. This is their business model. This court case, this litigation, talk about 10 years actually

and eventually the New York court did rule and say that Argentina had to pay up their voucher funds or they couldn't pay their other creditors. So Argentina went into default again because they couldn't pay their creditors. They couldn't pay, sorry, they couldn't pay the Vulture Funds. But then a couple of years later, the new right-wing government came in and they agreed to pay the Fulture Funds in full. And the Vulture Funds made a profit of 1,500% which is completely, yeah, a staggering amount of profit, which is not surprising because they bought that,

sorry, they bought that debt when it was sort of rock bottom, yeah. I just want to understand, like, who is the international? arbitrator legally around these kind of mechanisms. So, or maybe I should be asking, like, in our ideal world, like, who, what kind of institution would say, like, this is absolutely ridiculous? Like, how are these, like, buying up cheap debt, like, even as an infrastructure, and then for it to come back for full repayment, like, how is that even, like, legal or enforceable? I think this is a space where I find really interesting.

Or maybe I'm getting ahead of myself in terms of thinking, like, how would we like these things to be structured like in the future. But it's just mind-boggling that these things that even happen on that level, you know? No, completely. It's crazy that it's even legal, like you said. But yet, the way to address that is actually through the new legislation in New York and in England. So I say England because it's actually, these debts are written in English law, not UK law, because it kind of predates the United Kingdom, I think. But so, so, so when I say England, I'm not, I'm not just being kind of, you know, exclusionary to the other parts. to the UK. So yeah, you would need changes in English law and in New York law to try and address

these. And actually, this is one of our current campaigns. So we are trying to get new legislation in the UK Parliament to basically bind up all creditors to a debt restructuring deal that's been negotiated. So for example, if two-thirds of your lenders agree this, agree a debt cancellation of, say, I don't know, they cancel the debt 30%, 40%, then all the credit. All the credit all the creditors are bound by that agreement, even if you didn't sign up. So even if you were like a vulture fund and you're just holding out and you're thinking, I'm going to go through the courts. Actually, a new kind of a new law like that would prevent that from happening.

And actually, that's what happened in 2010. We campaigned for a law like this in 2010, but it was a law that was connected to the previous debt cancellation scheme from the early 2000s. So we are currently campaigning to get this law updated to relate to today's debt crisis, because that previous law only was retrospective and looked back. So we're trying to bring a new law in place here. We've been working with campaigns in the New York Assembly as well to try and do something similar there.

And because I mentioned earlier how all debt contracts are written, either in English law or New York law, actually, if we could win these two campaigns in these two jurisdictions, we would pretty much, you know, we'd have a massive impact because then you could affect almost all debt contracts in the world. But it's tough, like all campaigns for economic justice. But yeah, but that's something we're working on right now. And that is the legal trick that we kind of need to get in place.

Such shocking amounts of profit. I remember a story of these vulture funds seizing a ship and Argentinian ship somewhere. They might seize a couple of them. Like total gangsters, basically. International gangsters. They've probably got better profitability than actual gangsters or drug traders, I should imagine. But that's probably quite true, yeah.

I mean, perhaps that like the next sort of major point in the story might be, you know, the 2007-2008 financial crisis, which was originally called the credit crunch, wasn't it? Although that was more, I think, just basically liquidity broke down because banks didn't know which banks were going to be solvent in the morning sort of thing, that sort of thing. But then quickly, actually, fairly quickly turned into, in fact, you know, if you think about what happens in the 2010s, this financial. crisis disappears after a couple of years and all the pressure to try to reform the

international financial structure and and you know the laws around financial institutions gets disappeared behind a story of sovereign debt basically and you have a debt sovereign debt crisis in the EU and like Greece etc in probably like 2011 isn't it that I think by the time that comes in so that's slightly different to sort of like global south debt but like the way Greece was treated it's in some way sort of similar I think you you know to a degree. So the similarity between the Greek sovereign debt crisis and the global South debt crisis is how they were treated by the IMF, but also the fact that this debt crisis stashed off with the banks. So by now you probably know what I'm going to say next, right?

It's a very repetitious story, isn't it? I know. It's a, yeah, scarily, Groundhog Day. Yeah. So, yeah, so it was a, it was lending by banks and speculators and hedge funds. And eventually Greece could no longer pay and so rather than defaulting which again should have been the thing that Greece should have been allowed to do the EU and IMF would not allow that they would not allow there to be problems

to be created for their banks and so instead they gave out what was called bailout loans so I often think this word bailout, it's not really bailing out, it wasn't really bailing out Greece, it was bailing out the banks they cannot bank bailout loans rather than just bailout loans And so again, the banks get off scot-free, and then Greece is left out of living more debt. And again, the story of austerity comes in, right, just like it does with the Global South and what we were talking about, structural adjustment programmes.

But here, in the condition for taking these bailout loans, was austerity, which had a massive impact, didn't it, on the people of Greece. I remember we would see on our news every day, seeing about unemployment going through the roof, but also people struggling to access basic things that they needed. And in 2015, the Saratia government tried to renegotiate its debt to the EU and IMF, and they were completely rebuffed. And instead, Greece had to, you know, Greece also actually threatened by being kicked out of the Eurozone. And even though there had been a referendum to say no more austerity, actually the Greek government had to give in and eventually took on more austerity.

In the case of Greece, like you would have seen in the global south, is that the interests of the banks were put above the interests of the people, above the rights and needs and livelihoods of ordinary people. And actually at the end of that period, by the end of 2017, the proportion of Greek people living in severe deprivation had doubled and the economy had shrunk by a quarter. And debt repayments were the only thing that mattered to the EU, to the IMF, to the creditors, at the expense of suffering.

But yeah, so the other similarity between the Greece to the Greek debt crisis and the global south was also, this is all about external debt. So do you remember at the very beginning we were defining external debt and domestic debt? This was external debt. And that's what made it so tricky for Greece to manage because of the, and also Greece, they were also in the Eurozone as well. So that was the other factor, which is probably different to the global south. But yeah, again, I'm guessing you can hear the themes coming out of what's happening. that's how the global debt system operates based on these themes of bailing out the private sector, laying on debt upon debt upon debt. So you can see actually by doing that,

debt crises never really go away. They just get pushed into the future. So that's why we keep having these debt crisis reoccur again and again and again. Before we move on from this example, I'd love to hear, I mean, is there any, are there any examples that we know of like similar situations where banks are not bailed out. So I guess I'm trying to think about this as like an infrastructural piece. Is it to do with like hegemony and, you know, late capitalism and kind of where power and interests lie? And so therefore, banks will always be bailed out, regardless of what the political argument is that's made or are there specific examples where actually banks are not going to be bailed out. I mean, I'm trying to think about, you know,

jumping back very quickly to like the so-called credit crunch, you know, 2008, 9, 10 and then kind of Lehman Brothers, etc., which might be a slightly different example, but this idea that banks could potentially not be bailed out. I'm just wondering, like, is there a situation where that is actually probable or possible, or will it always happen? Yeah, I think, I mean, the Argentina example that we talked about just now, where they were able to default for a period and actually that had a massive positive impact. on their economy. It's the collusion of the elites, isn't it? It's the combination of corporate interest and capitalist interest of Western governments colliding together, converging together

to ensure that, yeah, the financial sector never fails. I think in history, there are more examples of default, but certainly in this kind of modern part of history, there are less examples to draw from. I suppose I'm the one who's sort of like trying to push us along the chronology. It seems that I've fallen into this role somehow. And then I just wanted to sort of like think of a little bit about the COVID-19 pandemic and that the impact of that on global debt. You know, there are horrendous stories there around intellectual property, etc.

And, you know, refusal to allow generics of the vaccines and all of this sort of stuff, which we could talk about that's actually fine but i'm wondering you know how it relates to the to this international debt that we've been talking about yeah so what we're saying just a minute ago about the financial crisis of 2008 so after the financial crisis of 2008 um interest rates plummeted in the west um down to sort of 0 to 1%. So then the banks had to look for elsewhere for their profits so they looked to the global south and again during the um 2010's debt was building up in the global economy again and then in 2014

there was a global commodity price crash so prices slumped for commodity prices so therefore income dropped to a global south countries so at that point global south countries lent borrowed more money so by the time the pandemic came a lot of countries were on the verge of debt crisis already

and then the pandemic basically was a massive external shock to the global south to all countries but specifically the global stuff because of the of the vulnerability that they were in in terms of the precariousness of their debt. So income dropped as a collapse, as a commodity crisis collapsed, remittances fell away, export income dropped, tourism revenues dropped, and then there was a need for increased spending. So again, if you have that, incomes coming down, spending's going up.

So at that point, in 2020, 54 countries were plunged into a debt crisis. And the G20's response was to set up a debt suspension scheme, So there was a recognition that they couldn't just stand by and watch all these countries in a debt crisis. So they did respond relatively quickly, actually, instead of a debt suspension scheme to suspend the debts of the lowest income countries. But this scheme basically didn't really work because they didn't have a way to bring in the private creditors. So actually, in the end, only about 23% of the external debt repayments were suspended between 2020 and 2021. the rest of the debt was debts were continued to continue to be paid and actually the private creditors only suspended something like 0.2% of the debt so they really didn't play ball

country like China which had suspended quite a lot of debts through this program actually just felt like why should we do any more because actually we did our share from the debt suspension scheme but the west didn't do anything to compel their banks to play ball as well then after the suspension scheme essentially failed, the G20 set up its another debt relief scheme with the common framework. And again, then the main problem way it hasn't worked is because of private creditors, the banks and hedge funds not complying. And also the G20 not having the guts to kind of find a way to bring them in and bring them, bring them into the debt restructuring process. So only a handful of countries have applied to this G20 scheme. But ultimately,

it's been really slow and the amount of debt that's been cancelled just hasn't been enough. If you don't bring in your banks and hedge funds into a process around giving debt relief, then what happens is that almost half of the debt repayments that are going to two private creditors, they're not being dealt with, but also they're making other creditor classes, like other countries feel like they don't want to take part either. because if, for example, China does counsel some debt for a global South country, that's just going to be released to pay back private creditors. Again, it's just another form of bailout, another form of subsidy, right?

So, yeah, so that's been, that's meant that this scheme, which was set up to try and address the debt crisis that erupted during the pandemic has largely failed. and then so the other problem of it as well was that it's only open to the lowest income countries and there are a lot of countries that are middle income countries that are in debt crisis are Pakistan, Sri Lanka, Surinam, these countries weren't eligible to apply. So there are a lot of problems with that scheme, but essentially it didn't have a way to bring private creditors to take part and without them there isn't much debt relief going on.

We're almost up to date and we're almost up to the current. time in our timeline but like there's there's also there's something else going on through all of this period um which is not necessarily debt related but basically now this the the huge amounts of debt um and the constriction on economic activity that that's that sort of implies has been sort of even more pressurized by by climate change the problem of climate change has been going on being failed to be dealt with and i'm growing to the point now where we can just you know the the the extreme weather events and the impacts are climate change is just really obvious. And so one of the things that countries have to do is to

they have to fund huge infrastructure spending because we need to change from a fossil fuel-based energy structure to a non-fossil-fuel-based energy structure. And I'm imagining that like the huge amounts of debt countries have, I really, you know, that this is really stopping countries being able to act in a way that they probably like to. Yeah, you're right. I think the, you know, so many countries are facing both the debt crisis. and the climate crisis. And both crises are kind of exacerbating each other. So the 50 countries most at risk from climate change

have debt repayments that are at the highest levels for 30 years. But yeah, the debt crisis has two big impacts on the climate crisis. The debt crisis firstly prevents climate action because countries are diverting all their payments to flowing out with resources flowing out of the country and there's nothing there to commit to adaptation and mitigation. But secondly, the debt crisis is also exacerbating the impacts of the climate emergency. So global South countries are paying about five times more in debt repayments

than they are spending on climate action. And so when a climate disaster is hit, whether there's storms and hurricanes, floods, countries are forced into even more debt just to pay for the rebuilding and construction. In other words, highly indebted countries are paying for a crisis that they had no hand in creating with even more debt. And wealthy countries have promised to kind of offer recognising that they have this historic responsibility in generating carbon emissions over centuries. There's a recognition of responsibility and this idea of climate

finance. But wealthy governments have failed to deliver the climate finance that actually is needed to meet the scale of the challenge. So there was this target that was set for $100 billion a year in climate finance from the global north to the global south. But it's been criticized for being way too little. It was a figure that was sort of plucked out of thin air that had no connection to the scale of the need. And actually, studies have shown that actually the amount that's needed is not in billions, but in the trillions. And then what makes matters worse is that this target was, you know, wasn't met for several years. And actually, what amount of climate finance that they did deliver was actually in the form of loans rather than grants.

And so, you know, like I said, climate finance is supposed to be a recognition of the responsibility for historic emissions from polluted countries. And so climate finance is kind of seen as a form of compensation or a form of reparations. But lending to countries that are really highly indebted is a complete dereliction of that responsibility. It's a bit of an insult, really, to that idea of responsibility. So I often use this analogy. It's like me burning down your house and I'll come to you and say,

oops, sorry, I've burnt down your house, but I will give you some compensation. And here it is. I'm going to lend you some money. But remember to get back to me and with interest. So that's what we're seeing on a global scale when it comes to climate finance. So that's why we have been also working on this intersection between climate and debt, because we can see that the two crises are dragging countries down this sort of vicious cycle. So that's one of the elements of where the sort of global debt issues are today.

You know, what's the other picture? I'm not expecting to give me a happy picture now. What are the sort of global debt issues at the present, most pressing, but global debt issues at the moment, perhaps it's one way to put that. Yeah, so the big one right now is the debt crisis, the one I mentioned that erupted since 2020 from the pandemic, but has been perpetuated because there's been no effective debt relief. initiative or scheme globally, the one that they set up has largely failed. And so we've

got, like I said, dozens of countries that are paying more in debt repayments than they can spend on supporting their own public services, supporting healthcare education, being able to invest in climate action. But again, I think maybe the wider point to draw out in terms of the big global debt issues is this recurrence of how we are having, we are reliving history over and over again or reliving the same mistakes over and over again. The mistakes of the 1980s and 1990s bailing out private lenders who've lent recklessly, seeing the debt transfer from private lenders to public lenders, and then essentially global South communities left with even more debt and people facing punishing austerity.

And the thing to note here is that there's nothing in the global system to stop the banks behaving the same way again and again. And that's why they keep doing it again and again. And in a sense, like they're having their cake and eating it, they can push out loans at really high interest rate, knowing that no matter what happens, they'll always be insulated from all repercussions. So this is where we really need to kind of break that cycle. We really need to change the system itself to take away those incentives because otherwise we are stuck in like a broken record. where we are going through these same situations again and again, whether it's Argentina, or whether it's the Greek debt crisis, wherever it's the pandemic. So I think that is the key issue that we really need to address in the global system today. Thank you, Heidi. And it would be great if you could tell us how our listeners can get involved, but also in general, like how can we best act in solidarity effectively? Like what are the things that people can do with such a kind of complex issue like debt?

today? What could people do? Tell us? I'm really glad you asked that question, Nadia, because just on Monday, we launched a brand new campaign called Council Debt Choose Hope, and it's the UK branch of a new global debt cancellation campaign. And it was kind of prompted by the Pope announcing that 2025 is going to be another Jubilee year in the Catholic Church. this is an opportunity that the Pope is mobilising Catholic congregations around the world. The network of the international network of Catholic development agencies are coming together to mobilize on debt and to really bring debt to a political agenda. So together with debt campaigners and debt activists across the global South,

we want to use this moment to really bring attention to debt, the way that kind of happened in the 1990s when that original Jubilee movement came together and we want to bring together, you know, all faiths and none to come, to bring this issue back in the spotlight because, you know, I think we've all like felt, you know, but our blood boiling during this conversation. So we really want to turn some of that and trying to address some of the systemic issues that I've mentioned. The first Jubilee campaign, like I said earlier, won $130 billion worth of debt cancellation, which made a really massive difference in terms of human development. And, you know, one of the examples I want

to give you is the Mozambique was one of the first countries that qualified for debt cancellation under that previous scheme. And its debt repayments fell from 12% of government revenue in 1998 to just 2% in 2007. And it massively increased its expenditure on health and education. And they had amazing results around reducing, seeing maternal mortality drastically for primary education, jumping to over 90% of all children in the country. So it had a massive impact on people's lives. But what happened with that first duty campaign is that it was co-opted by the likes of Bono and Geldof.

And they very unhelpfully declared that the campaign had won, that debt was no longer an issue, when actually all the global South campaigners and activists and everyone in the movement knew that we hadn't won the campaign, knew that we still had this systemic changes to fight for because we know how the system works and we know that unless we break that cycle, we're going to be back here and guess what we are back here at the same point.

And the other unhelpful thing that Bono and Godoth do as well was to kind of cope the whole campaign with charity narrative and white saviour messaging, again, which was hugely damaging and hugely harmful. So as we come back again to come back under this sort of banner of Jubilee again this year, you know, we want to win changes to the system so that we don't get back into the same spot again. And so this campaign is going to be calling for debt cancellation that needs to happen right now for countries that are in a debt crisis. So that's sort of immediate relief. But we also want to call for new

legislation, so like the UK legislation I mentioned earlier, about trying to force private creditors to come to table to negotiate debt cancellation. And thirdly, we also want to see a new UN framework on debt. There's going to be this big, what's called a financing for development conference in June of this year, which is convened by the UN, and it hasn't been convened for 10 years. But it's a UN space, which means that the global South countries should have more of a voice in that space compared to the IMF and World Bank, which is dominated by the rich countries. So we're hoping that that might be a space to bring forward a new UN framework on debt, which we think could set in motion a new, what's called a global debt workout mechanism,

essentially like a bankruptcy process. So if you are a, if you are a company and you get into trouble of your debts, there's loads of legislation in the UK that enables you, to have rights to actually restructure your debt, to have your debts re-counseled. So we want to see a similar kind of framework for countries that get into a debt crisis, that they need to be able to apply to a mechanism that is independent, that is responsive,

that is based on human rights, to enable debts to be restructured in that kind of space rather than having the IMF in the driving seat and we've heard what the IMF does when they're in the driving seat, So, yeah, I really encourage people if you've, if you've helped your blood boiling during this conversation. Yeah, do kind of come onto our website. We are on debtjustice.org.com, forward slash 2025. The forward slash 2025 will take you to our new campaign, this new global campaign that we're a part of.

But also I feel like in terms of building solidarity, I think we need to, the reason why I mentioned kind of some of the history with Bono and Geldof and sort of unhelpful racial slurs that. they put on the campaign is that we do need to build broader connections and talk about debt in that context of colonialism, neo-colonians, and talk about it in the language of extraction, exploitation and control. And we've been doing a bit of political education work in the last few years around this and doing outreach so that we can talk more in these terms. Because I think once we start talking more about these terms, we talk about how debt plays a role in progressing the neoliberal agenda, then I think this builds solidarity and helps people join the dots so that we can

build broader movements for change. That's great, Heidi. It sounds like 2025 is the year to get involved on these issues and it sounds like on your website there will be specific actions that people can do or from the UK or the West to get involved in solidarity. So that's great. I'm happy I asked you that. Fantastic. So, Heidi Chow, thank you so much for bringing your incredible knowledge and expertise on sovereign debt to ACFM. It's been a pleasure and a privilege to have you on this episode. We will put

those links that you mentioned into the show notes and listeners, be sure to check those out and find out how you can act in solidarity on these issues this year. And everyone who's listening, if you haven't yet listened to our complimentary full ACFM trip with Jeremy Keir and I, on all things debt. That is all available now. So thanks for joining us, everyone. Until next time. Thank you. Thank you.