When countries in the global South gained independence from colonial rule in the 1960s there was optimism for their futures. After years of European rulers neglecting social services and the peoples needs, a different future was expected. However, the countries had been left with weak economies therefore required financial assistance and it was those same colonial powers who had the resources to help.
Lending ballooned in the 19070’s: loans to Latin American governments increased more than fourfold, from $8 billion in 1973 to $33 billion by 1979. Similarly, loans to governments in sub-Saharan Africa went from $2 billion in 1973 to $8 billion by 1979.
This lending continued until the global recession in the 1980s. Suddenly, the rich lenders found themselves in financial trouble and the focus shifted from loan extension to debt collection. During the recession, raw materials produced in the poor countries fell significantly in value resulting in a drop in their national incomes. This left them in a difficult situation where they were paying larger and larger amounts to pay off the high debts with decreasing national incomes.
As debts looked increasingly unpayable, International institutions including the International Monetary Fund (IMF) and the World Bank, decided to ‘restructure’ debts and continue lending funds to help countries repay private banks. Saddled with strict conditions, the new loans shaped the developing economies to fit the neoliberal global structure, cutting public spending and lessening so-called ‘red tape’ to encourage investment, largely at the expense of public services and ultimately, the needs of their own populations. The 90’s saw the beginning of effective debt justice campaigning. The Jubilee 2000 campaign rallied 70,000 people around the G7 summit in Birmingham, UK, demanding that the debts of 52 impoverished countries are cancelled by the year 2000.
Creditors began to cancel some debts via schemes such as the Heavily Indebted Poor Countries initiative (HIPC) and the Multilateral Debt Relief Initiative (MDRI). However, these schemes are highly limited with narrow eligibility criteria and demand adherence to strict and often harmful conditions.
Between 2010 and 2020, public debt of developing countries has increased from an average of 40.2% to 62.3% of GDP, and even in 2021, creditors continue to lend irresponsibly and have not had to account for the damage of such lending. Furthermore, a new expense has reared its head in the form of Covid-19, piling yet more financial burden on top of pre-existing debts.
Daniel Munevar of European Debt and Development (Eurodad) noted that the only way forward is for “the international community [to] recognise that the health and lives of people in the developing world is a basic precondition of a successful economic recovery. It will be impossible to achieve one without the other.”