A graffiti artist in Accra creates an image of the leader of Ghana’s struggle for independence, Dr. Kwame Nkrumah. Credit: Kwaku Botwe/IPS

By Kwaku Botwe
ACCRA, Mar 9 2017 (IPS)

Ghana turned 60 years old this week. The West African country gained independence from Britain on Mar. 6, 1957, and remains a study in contradictions.

At 60, Ghana is viewed by many as a beacon of democracy and stability. But its current growth rate is just 3.6 percent — the lowest in 20 years — and its tax revenue to GDP ratio is 18 percent, which is one of the lowest among middle income economies.

At 60, it has a debt to GDP ratio of over 73 percent, one of the highest in the sub-region; the country is bedeviled with an erratic power supply, which has caused many businesses to collapse; and its informal sector is still not formalized enough to be able to widen the tax net.

At 60, Ghana still has schoolchildren who study under trees. 

Some of these economic indicators have sparked a national debate about whether it was prudent for the country to set aside 4.3 million dollars to celebrate the day. Many are of the view that such an amount could be better spent on projects that would bring some economic dividend than, as they describe it, to waste it on pomp and pageantry, parade and fanfare.

These criticisms may have informed President Nana Akufo-Addo when he announced that the budget for the commemoration would not be borne by the taxpayer but by corporate Ghana. The chairman of the 30-member committee planning the anniversary was quick to add that committee members would be doing their work on voluntary basis.

But there are some who take all this with a pinch of salt, perhaps taking a cue from what many perceive to be misappropriation of funds and plain corruption during the organization of the event ten years ago (the Ghana at 50 commemoration committee spent over 60 million dollars).

The head of the Centre for Economic Governance and Political Affairs at the policy think tank Imani-Ghana wants government to make public the names of all companies who committed and how much they committed, to ensure accountability and transparency. Patrick Stephenson believes this is “the only way we can ensure that a corporate body is not getting some undue advantage in the award of contracts just because of their affiliation to this event”.

The independence event is always commemorated with marching parades performed by security personnel, workers unions, traders and school children among others. The event, which typically starts with the lighting of a flame, also sees the president inspecting a guard mounted in his honour.

Stephenson wants organisers to think outside the box and use innovative means to project and develop certain aspects of the country’s economy and culture. “For instance, cocoa, one of our biggest cash crops, could be the year-long theme of one of the commemorations in which we will look at the history, the challenges, the current situation and set targets be achieved as to how to improve on its production,” he said.

It is a view shared by communications academic Dr Ete Skanku. He writes: “The parades are exciting but you don’t need to stand and take a salute. Spare the kids the unnecessary dehydration. Engage them in another way. They can be out there promoting a major nationals initiative practically or give a meaning/breathing life to a national project.”

The day is observed as a national holiday but most people within the informal sector, especially traders, couldn’t afford to stay at home. At the central business district in the capital, Accra traders were busily going about their business. But the traders believe that the day is worth celebrating as the budget statement given by the finance minister some four days ago seems to give some hope.

The Government has already abolished nine taxes, including a duty on importation of spare parts and the excise duty on petroleum, saying these are nuisance taxes that have “low revenue yielding potential and at the same time impose significant burden on the private sector and on the average Ghanaian”.

“These measures introduced by the government will help businesses a lot and the one-district-one-factory policy by the new administration, if implemented, will enable some of us to go back home for jobs because in Accra here we use a good part of our incomes on rent. If I were in my hometown I wouldn’t have to pay rent. I can use that rent money for something else,” says Francis Agyei, a 32-year-old second-hand clothing seller at Accra.

But a lecturer at the economics department of the University of Ghana, Owusu Adu Sarkodie, says Francis’s hopes and aspirations can only be achieved if managers of the economy and resources do things differently. He believes politicians should increase the revenue tax net to cover majority of people and move away from the borrowing mindset.

“We don’t have to keep borrowing for borrowing sake. Even if we have to borrow we need to use the money prudently. If you look at the public debt right now, the greater part of it was for consumption. For example, last year we borrowed 17 billion cedis, we only invested 7 billion, where did the rest go? Consumption,” he added.

If words were action then these words uttered by the President Nana Akufo-Addo in his maiden State of Nation address to parliament some two weeks ago should offer some hope to Ghanaians:

“We will put in place policies that will deliver sustainable growth and cut out corruption. We will set upon the path to build a Ghana that is not dependent on charity; a Ghana that is able to look after its people through intelligent management of the resources with which it has been endowed.

“This Ghana will be defined by integrity, sovereignty, a common ethos, discipline, and shared values. It is one where we aim to be masters of our own destiny, where we mobilise our own resources for the future, breaking the shackles of the “Guggisberg” colonial economy and a mind-set of dependency, bailouts and extraction.

“It is an economy where we look past commodities to position ourselves in a global marketplace. It is a country where we focus on trade, not aid, a hand-up, not a hand-out. It is a country with a strong private sector.

It is a Ghana beyond aid.”

“Over our dead bodies.” Villagers in Beragama, Sri Lanka protest to prevent government surveyors from carrying out mapping due to fears of losing their land. Credit: Sanjana Hattotuwa/IPS

By Amantha Perera
BERAGAMA, Jan 9 2017 (IPS)

Beragama is a typical Sri Lankan rural village, with lush green paddy fields interspersed by small houses and the village temple standing at the highest location. Despite being close to the island’s second international harbour and its second international airport, Beragama appears untouched by modernity.

All that is about to change. There is angst in this hamlet located in the Hambantota District about 250 km south of the capital Colombo. The fear is that a new Chinese investment topping 1.5 billion dollars could gobble up the village, along with an adjacent stretch of 15,000 acres.“We are not against investments, but we don’t want to lose our lands and homes.” -- Beragama resident Nandana Wijesinghe

The Sri Lankan government of President Maithripala Sirisena and Prime Minister Ranil Wickremasinghe wants to sign a deal with a Chinese company by which the investors would gain controlling shares of the new Magampura Port and a proposed investment zone. The investment is expected to ease some of the burden of a whopping national debt of around 64 billion dollars, 8 billion of which the country owes China. Between 2016 and 2017 its debt payments are expected to in the region of 8 billion.

This is money the government desperately needs to revive a flagging economy. It was so desperate that within two years of taking power, it has turned to the very lenders that it shunned in 2015. Former President Mahinda Rajapaksa had followed a pro-Beijing policy even at the risk of annoying regional power India by its actions.

The new government that replaced it first tried to follow a pro-Western investment policy, even suspending Sri Lanka’s single largest investment project, the 1.5-billion-dollar Colombo Port City. However, without new investments coming in at anticipated rates, Colombo has had to seek China’s help.

“We are not against investments, but we don’t want to lose our lands and homes,” Beragama resident Nandana Wijesinghe told IPS.

The villagers charge that the Chinese want the most fertile land, and the areas close to the port. “Why don’t they take land that is shrub? There is plenty of that,” Wijesinghe said.

When word trickled down that the village was being eyed by the investors and the government was moving to close the deal, the villagers began gathering at the temple. There they decided that they would not part with their land. This was in mid-November.

When surveyors arrived at the village to begin mapping, the villagers stopped them. “We have asked for top government officials from Colombo to come and explain the situation to us. Till then we will not allow any of this,” S. Chandima, another villager, told IPS while others crowded around survey department officials.

Top government officials in the district say that as of the end of last year, there was still no decision on which land would be handed over in a 99-year lease. “Right now we have instruction to do surveys, nothing else. We have no information on what land will be handed over,” said S H Karunarathne, the District Secretary for Hambantota.

Still, protests have been held in Hambantota against the handover, and the tempo is slowly building. A worrying factor for the government is that Hambantota is Rajapaksa’s home turf. He channeled multi-billion-dollar investments here, including the port, the airport (which now serves one flight a day at its peak performance), an international cricket stadium now used for wedding receptions and an international convention center that remains shut.

The multi-million-dollar Mattala International Airport, inaugurated in 2013, now serves just one flight per day at best. The Sri Lankan government has been searching for ways to make it a profitable venture. Credit: Amantha Perera/IPS

Rajapaksa, who was the bulwark in getting Chinese investments into Sri Lanka between 2009 and 2014, has said he is opposed to the land handover.

“These are people’s agricultural lands. We are not against Chinese or Indians or Americans coming here for investment. But we are against the land being given to them and the privatisation they are doing,” he recently told Colombo-based foreign correspondents. He added that he had in fact discussed the issue with Chinese authorities during his recent visit to the country.

During the same meeting Rajapaksa said that he planed to topple the current administration in 2017. Once the undisputed strongman in Sri Lanka, Rajapaksa enjoyed unparallel popularity, especially among the majority Sinhala community, after he led the military effort to end three decades of civil war. Despite his defeat two years ago, he has, however, remained a relevant leader to his core support group in the last two years and in the last six months has become more politically active.

He has so far not taken part in any of the anti-Chinese protests in Hambantota, but his eldest son and heir apparent Parliamentarian Namal Rajapaksa has participated in one public protest in Hambantota. Any groundswell of anti-government protests in this southern region could potentially be helmed by Rajapaksa at any time.

The government has already postponed the handover ceremony once, till late January. But Malik Samarawickrama, Minister of Development Strategies and International Trade, has confirmed that deal will go through by the end of the month.

The postponement did not dowse the embers in Hambantota. The opposite happened when the prime minister and the Chinese ambassador came there to inaugurate the industrial zone, and clashes broke out between police and a group of protestors including Buddhist monks opposing the project. The inauguration did take place despite the water canons and the teargas that was flying around — not a good omen for what is to come in the future.

Puerto Rico’s religious leaders have called for debt relief of the Caribbean U.S. territory in the face of the 72 billion dollar liability that represents 20,000 dollars of debt for every man, woman and child.

In a statement issued Aug. 31, the clergy called on the U.S. Federal Reserve to intervene if Congress fails to pass bankruptcy protection to the financially-strapped island.

“This debt crisis threatens to push more of our people into poverty and put people out of work,” said San Juan Archbishop Roberto González Nieves, leader of Puerto Rico’s mostly Catholic population.

“The religious community stands with vulnerable people and we call for the crisis to be resolved in a way that protects the poor and grows our economy,” he added.

At a press conference in San Juan, leaders of the major religious groups laid out six principles to resolve the crisis.

“Puerto Rico’s religious leaders are fighting for the lives of their people,” stated Eric LeCompte, executive director of the faith-based development coalition Jubilee USA Network.

Jubilee USA Network is an alliance of more than 75 U.S. organisations and 400 faith communities working with 50 Jubilee global partners. Jubilee’s mission is to build an economy that serves, protects and promotes the participation of the most vulnerable.

LeCompte visited Puerto Rico in mid-August to advise religious and political leaders on solutions to the crisis.  “We need to get Puerto Rico’s debt back to sustainable levels and ensure that the island has a path for economic growth,” he said

Some of the hedge funds, arguing for cuts in Puerto Rico’s economic growth, were or are currently involved in debt disputes in Greece, Argentina and Detroit, Michigan.

Two recent reports, one commissioned by a group of hedge funds which purchased the island’s distressed debt and the other authorised by Puerto Rico’s own government, suggest new austerity plans to pay off portions of the debt.

The reports note a range of “fiscal adjustments”, including reducing the minimum wage, education resources and healthcare costs. One of the principles promoted by the coalition of religious leaders is that any resolution to the financial crisis prevents further austerity plans.

The religious leaders raised concern over predatory hedge fund activity in their statement. Beyond the Catholic Church, other religious groups signing the statement include Methodists, Lutherans, Evangelicals, Pentecostals and the Disciples.

“As religious leaders, we see how desperate the situation is for Puerto Rico’s people,” said Reverend Heriberto Martínez Rivera, secretary-general of Puerto Rico’s Biblical Society and the leader of the religious coalition confronting the debt crisis.

“Too many of our people are already suffering from austerity policies and many brothers and sisters have left for the United States hungry for work and a better quality of life,” he added.

Beyond calling for debt relief and criticising austerity policies, the religious leaders’ statement asserts the need for greater Puerto Rican budget transparency and participation in future debt negotiations by people negatively affected by the crisis.

Edited by Phil Harris   

By Roberto Savio
SAN SALVADOR, Aug 20 2015 (IPS)

The long saga on Greece is apparently over – European institutions have given Athens a third bailout of 86 billion euros which, combined with the previous two, makes a grand total of 240 billion euros.

Roberto Savio

There is no doubt that the large majority of European citizens are convinced that this is a great example of solidarity, and that if Greece is not now able to walk on its own feet, the responsibility will lie solely with Greek citizens and their government.

But this is only due to the fact that the media system has, by and large, ceased to provide alternative views … and some people even ignore that the bailout is a loan, and therefore increases the country’s debt.

In fact, the productive economy of Greece saw very little of that money because the bailouts were merely financial operations and Greek citizens, not only did not see anything, they have even had to pay a brutal price.

The truth behind the operation has been aptly described by Mujtaba Rahman, the respected chief Eurozone analyst for the London-based Eurasia Group, who said: “The bailout is not really about a growth plan for Greece, but a plan to make sure the European Central Bank (ECB) and the International Monetary Fund (IMF) get paid, and the euro area does not break up.”

And the purpose of this third bailout is clear. Of the famous 86 billion, 36 billion will go to pay the debt with the other European governments (and first of all Germany). Another 25 billion will go to recapitalize the Greek banks, because much capital left the country, heading for safer European banks. Another 18 billion will go to pay interest on the debt which Greece has been piling up. And, finally, seven billion will go to pay the debt of the state with Greek enterprises.“How could any economist, even in the first year of studies, fail to understand that, by cutting consumption and raising taxes you are bound to depress an already depressed economy?”

So, seven will go to the real economy and nothing to the citizens, who will have now to go through several new drastic measures of austerity, which will further depress their standards of living and their ability to spend.

Financially, the bailouts have been a success. All the losses and bad exposure of European institutions have been passed on to Greece. Before the first bailout, French banks were exposed with bad bonds for 63 billion euros, now only for 1.6 billion with no losses. German banks have gone from 45 to five billion.

What is intriguing is that a number of studies show that until the very last moment, when it was widely known that Greece was in deep crisis, European banks and investors continued to buy Greek bonds.

Were they certain that Greece would pay? No, but they were confident that the Greek government would be rescued, and that they would therefore recover their investments, which is exactly what happened.

The financial system has now a life of its own and has nothing to do with real economy, which it dwarfs by being 40 times larger (if we judge by the volumes of daily financial transactions against the production of goods and services). Capital is untouchable and circulates freely in Europe, unlike its citizens. And now there is a great wave of legislation to introduce lower taxation for the richest one percent!

During the negotiations, one frequent accusation levelled against the Greeks was that they were unable to have their rich ship-owners pay their share of taxes. Of course, ship-owners place their money where it cannot be reached.

But is this not hypocritical when we know that there are at least two trillion euros stashed in fiscal paradises, and that, just to give one example, nobody has got Ryanair to really pay taxes? Not to mention the fact that when he was prime minister of Luxembourg, European Commission President Jean-Claude Juncker granted secret tax rebates to over a hundred international companies?

Now Agence France Press has circulated a new astonishing study from the German Leibnitz Institute of Economic Research, which says that Germany has profited from the Greek crisis to the tune of 100 billion euros, saving money through lower interest payments on funds the government borrowed amid investor “flights to safety” and “these savings exceed the cost of the crisis – even if Greece were to default on its entire debt.”

Meanwhile, a large number of studies point out how, by having a positive balance of trade with its European partners, Germany is in fact sucking capital from Europe.

Interpreting the third bailout and its conditions of austerity as a mere economic operation would be to commit a great error.

No economist can believe that Greece will be able to pay back and not only because it has always had a fragile economy, with little industry and with tourism as its main source of income (aggravated by decades of mismanagement and the corruption of its traditional parties, the very parties that European leaders would like to see come back).

Greece is already in recession and now the doubling of VAT is going to compress consumption further, also because there will now be further reductions in pensions and public salaries (which have been already cut by 20 percent).  It is widely believed that the Greek debt will now reach 200 percent of its GDP, up from 170 percent prior to the bailout.

How could any economist, even in the first year of studies, fail to understand that, by cutting consumption and raising taxes you are bound to depress an already depressed economy?

Well, it is no coincidence that the IMF, which is the Rotary Club of conservative economists, has refused to join this bailout. The IMF has said it will not put in any money unless European creditors (which is a diplomatic way of saying Germany) accept a restructuring of the Greek debt.

It is clear that the bailout has not been a technical but a political operation. Many European leaders, starting with Juncker himself, intervened in last month’s internal Greek referendum, asking Greeks to vote against Prime Minister Alexis Tsipras. They indicated clearly and openly, in a campaign that the Wall Street Journal repeated in the United States, that the revolt against austerity and the neoliberal economy should be stopped dead in its tracks to avoid political contagion.

For her part, German Chancellor Angela Merkel has declared on German television that she has come to the conclusion that °Tsipras has changed°. This has an air of dejà vu … was it not then British Prime Margaret Thatcher who, intent on destroying the trade unions, launched her famous TINA slogan – There Is No Alternative?

And is there no alternative to this kind of Europe? (END/COLUMNIST SERVICE)

Edited by Phil Harris   

The views expressed in this article are those of the author and do not necessarily represent the views of, and should not be attributed to, IPS – Inter Press Service. 

Excerpt:

By Emma Bonino
ROME, Jul 24 2015 (IPS)

“A serious political and social crisis will sweep through the euro countries if they do not decide to strengthen the integration of their economies. The euro zone crisis did not begin with the Greek crisis, but was manifested much earlier, when a monetary union was created without economic and fiscal union in the context of a financial sector drugged on debt and speculation.”

Emma Bonino

These words, which are completely relevant today, were written by a group of federalists, including Romano Prodi, Giuliano Amato, Jacques Attali, Daniel Cohn-Bendit and this author, in May 2012.

Those with a federalist vision are not surprised that the crisis in Greece has dragged on for so many years, because they know that a really integrated Europe with a truly central bank would have been able to solve it in a relatively short time and at much lower cost.

In this region of 500 million people, another example of the inability to solve European problems was the recent great challenge of distributing 60,000 refugees among the 28 member countries of the European Union. Leaders spent all night exchanging insults without reaching a solution.

Unless the federalist programme – namely, the gradual conversion of the present European Union into the United States of Europe – is adopted, the region will not really be able to solve crises like those of Greece and migration.

It can be stated that European federalism – which would complete Europe’s unity and integration – is now more necessary than ever because it is the appropriate vehicle for overcoming regional crises and starting a new phase of growth, without which Europe will be left behind and subordinated not only to the United States but also to the major emerging powers.“Unless the federalist programme – namely, the gradual conversion of the present European Union into the United States of Europe – is adopted, the region will not really be able to solve crises like those of Greece and migration”

Furthermore, its serious and growing social problems – such as poverty, inequality and high unemployment especially among young people – will not be solved.

Within the federalist framework there is, at present, only the euro, while all the other institutions or sectoral policies (like defence, foreign policy, and so on) are lacking.

Excluding such large items of public spending as health care and social security, there are however other government functions which, according to the theory of fiscal federalism (the principle of subsidiarity and common sense), should be allocated to a higher level, that of the European central government.

Among them are, in particular: defence and security, diplomacy and foreign policy (including development and humanitarian aid), border control, large research and development projects, and social and regional redistribution.

Defence and foreign policy are perhaps considered the ultimate bastions of state sovereignty and so are still taboo. However, the progressive loss of influence in international affairs among even the most important European countries is increasingly evident.

To take, for instance, the defence sector: as Nick Witney, former chief executive of the European Defence Agency, has noted: “most European armies are still geared towards all-out warfare on the inner-German border rather than keeping the peace in Chad or supporting security and development in Afghanistan.

“This failure to modernise means that much of the 200 billion euros that Europe spends on defence each year is simply wasted,” and “the EU’s individual Member States, even France and Britain, have lost and will never regain the ability to finance all the necessary new capabilities by themselves.”

It should be noted that precisely because the mission of European military forces has changed so radically, it is nowadays much easier, in principle, to create new armed forces from scratch (personnel, armaments, doctrines and all) instead of persisting in the futile attempt to reconvert existing forces to new missions, while at the same time seeking to improve cooperation between them.

Why should it be possible to create a new currency and a new central bank from scratch, and not a new army?

Common defence spending by the 28 European Union countries amounts to 1.55 percent of European GDP. Hence, a hypothetical E.U. defence budget of one percent of GDP appears relatively modest.

However, it translates into nearly 130 billion euros, which would automatically make the E.U. armed forces an effective military organisation, surpassed only by that of the United States, and with resources three to five times greater than those available to powers like Russia, China or Japan.

It would also mean saving an estimated 60 to 70 billion euros, or more than half a percentage point of European GDP, compared with the present situation.

Transferring certain government functions from national to European level should not give rise to a net increase in public spending in the whole of the European Union, and could well lead to a net decrease because of economies of scale.

Taking the example of defence, for the same outlay a single organisation is certainly more efficient than 28 separate ones. Moreover, as demonstrated by experiences with the North Atlantic Treaty Organization (NATO) during the Cold War, efforts to coordinate independent military forces always produced disappointing results and parasitic reliance on the wealthier providers of this common good. (END/COLUMNIST SERVICE)

Translated by Valerie Dee/Edited by Phil Harris    

The views expressed in this article are those of the author and do not necessarily represent the views of, and should not be attributed to, IPS – Inter Press Service. 

Excerpt:

By Joaquín Roy
BARCELONA, Jul 7 2015 (IPS)

The decisive result of the Greek referendum held Jul. 5, in which voters overwhelmingly rejected (61.3 to 38.7 percent) the terms of an international bailout, has opened a new chapter not only for the future of Greece, but also in terms of the essence of the European Union itself.

Paradoxically, the future of the euro may become a secondary issue.

Joaquín Roy

In the coming week, the pages will be turned on some chapters of European history that had been regarded as a fixed part of the script.

The fact that, in their time, previous Greek governments blatantly misrepresented the country’s financial situation in order to secure entry into the euro zone will have to be put aside.

The authorities in Brussels will have to be forgiven for turning a blind eye so that the country using the world’s oldest existing currency, and that had founded a mythical democracy, should not be excluded from the inaugural party of Europe’s spectacular expansion.

The eternal European habit of brinkmanship and coming to last-minute arrangements – so that summits produce neither winners nor losers, but everyone can go home feeling vindicated – will have to be given up for practical reasons.

This battle may still cause significant damage and a high number of casualties.

In the first place, although the voting reflects clear overall rejection of E.U. impositions, Greek society remains dangerously divided on the choice presented to it by Prime Minister Alexis Tsipras. The problems the Greek people face in their daily lives will not disappear after the referendum.“If there is no new bailout or a massive debt write-off, the [Greek] government may be forced by its inability to satisfy the citizenry’s demands to choose between two evils … the humiliation of urgent humanitarian aid from the European Union … [or] the dangerous path of seeking protection from external interests”

Those who voted in favour of accepting the conditions of the European institutions and the International Monetary Fund (IMF) will blame those who backed Tsipras for the costs they will all have to bear. Those who voted No and “won” the contest may well feel disappointed when they see the economic situation worsening, or not noticeably improving.

The referendum results indicate that conservatives and the middle classes decided to support the bailout conditions because they at least had some assets. On the other hand, the majority of people who have nothing, or who have lost nearly everything, preferred to carry on the struggle and reject E.U. pressures.

It is worth noting that the proportion of No votes in the referendum was higher than the proportion of ballots cast for the left-wing Tsipras in the recent elections that propelled his party to power.

If there is no new bailout or a massive debt write-off, the government may be forced by its inability to satisfy the citizenry’s demands to choose between two evils. On the one hand it may have to accept the humiliation of urgent humanitarian aid from the European Union, as has been suggested at the eleventh hour. On the other hand, it might take the dangerous path of seeking protection from external interests, as recent overtures towards Moscow appear to indicate.

E.U. leaders may pursue the threats they made in the final hours of the referendum campaign. The president of the European Parliament, Martin Schulz, might have found himself in the uncomfortable position of having to take action to back up his last-minute arguments about the dire consequences of exiting the euro. Now, however, he has backed down and appears to be leaning toward negotiation.

Other E.U. leaders are also in awkward positions. Where will European Council President Donald Tusk and Commission President Jean-Claude Juncker be if Berlin’s hard line prevails?

Or conversely, where will everyone be if traditional negotiation and classic compromise are now being reconsidered?

A traditional forecast is that the European leaders in Brussels, backed by the IMF, will opt for negotiation, because they do not want to go down in history as participants in a conflict with unpredictable consequences. It does not suit the Greek prime minister to overstep the mark, either, and he could therefore make the European Union an offer it cannot refuse. For their part, German Chancellor Angela Merkel and other holders of the enormous debt know that if Greece exits the euro, repayment will be impossible.

In the distance, the United States has expressed concern over the development of this process. Economic convulsion in Europe is not in the interests of Washington; moreover, from its standpoint, two issues are crucial for preventing damage from spilling over into other vital dimensions.

The first is the threat that Greece may be tempted to drift into the sphere of Russia’s protection.

The second is the disturbing sight of the European Union under a divided leadership and with damaged financial underpinnings at the height of negotiations for the proposed Transatlantic Trade and Investment Partnership (TTIP), a free trade agreement between the European Union and the United States.

Indecisive leaders in Europe will make it very difficult for U.S. President Barack Obama to exercise his negotiation mandate granted by Congress, increasing the likelihood that the project will be delayed until a new U.S. president takes office.

In conclusion, the decisions taken now in Brussels and other European capitals will determine whether or not there will be further harm to the essence of the European Union – and to the euro, the jewel in the crown and the cause of the whole drama. (END/COLUMNIST SERVICE)

Edited by Pablo Piacentini/Phil Harris   

Translated by Valerie Dee

The views expressed in this article are those of the author and do not necessarily represent the views of, and should not be attributed to, IPS – Inter Press Service. 

Excerpt:

By Roberto Savio
ROME, Jun 9 2015 (IPS)

Only 50 years of Cold War (and the fact that German Chancellor Angela Merkel grew up in East Germany) can possibly explain the strange political power of the United States over Europe.

After a bilateral meeting between Merkel and U.S. President Barack Obama (so much for transparency and participation), the Jun. 7-8 G7 summit opened in Germany and we found out that there had been a trade-off.

Roberto Savio

Merkel agreed that Europe should continue the sanctions against Russia – and so the other members of the G7 duly agreed – and Obama toned down the U.S. position on Greece.

That position had been forcefully expressed by U.S. Treasury Secretary Jacob Lew a few days earlier to European leaders: solve the Greek problem, or this will have a global impact that we cannot afford. This had suddenly accelerated negotiations, with the hope then that everything would be solved before the G7 summit.

But Greece did not accept the plan of the President of the European Commission, Jean-Claude Juncker, which was suspiciously close to International Monetary Fund (IMF) positions.

At the G7 summit, Obama softened the U.S. position on Greece, and even said that “Athens must implement the necessary reforms.”

Obstinacy on sanctions against Russia ignores the fact that, in a very delicate economic moment, Europe has lost a considerable part of its exports because of Russia’s retaliatory block on European imports. It is also difficult to see what advantage there is for Europe in pushing Russia into the arms of China. We will soon be seeing joint naval exercise between the two countries, which will only escalate tensions.

But let us look at Greece given that its tug of war with Europe has now been going on for five years.

Let us recall briefly. Greece had been spending much more than it could by distributing public jobs under any government, by giving easy pensions to everyone, and so on. Then, in 2009, the centre-left Panhellenic Socialist Movement (PASOK) won the elections and we found out that the figures Athens had been giving Brussels were false.

The real deficit stood at almost 12.5 percent of gross domestic product (GDP), confirmation of what the European Union and its bodies had long suspected but which it had done nothing about.“Europe is now led by Germany and the Germans are convinced that what they did at home is valid everywhere. Together with the countries of northern Europe, they look on the people of southern Europe as unethical, people who want to enjoy life beyond their means”

To avoid going into the agonising details of the continuous negotiations between Greece and the European Union, I jump to the January elections this year which the left-wing Syriza party won and its leader Alexis Tsipras was named Prime Minister on a clear programme: stop the austerity programme imposed by the “Troika” – IMF, EU and the European Central Bank (ECB) – on behalf of the European countries, led by Germany, Netherlands, Austria and Finland.

Greece is on its knees. Officially, unemployment has gone from 11.9 percent in 2010 to 25.5 percent today, but it is widely considered to be around 30 percent. Among young people, it is close to 60 percent. GDP has gone into a 25 percent decline, Greek citizens have lost about 30 percent of their revenues and public spending has been slashed to the point that hospitals have great difficulty in functioning.

Yet, the request (order) of the “Troika” is simple – cut everything the deficit has been eliminated.

So, for example, cut pensions, which have been already been cut twice. In any case, this would reap a paltry 100 million euros but would cripple people who are living on less than 685 euro a month. Or, raise VAT on tourism, from the present 6.5 percent to 13.6 percent, which would be a deadly blow to Greece’s only important source of income.

This is the plan presented by Juncker, whose arrival as head of the European Commission was accompanied by a grandiose Marshall Plan for Europe, a plan which has since disappeared totally from the scene.

In an article a few days ago titled ‘Europe’s Last Act?”, Joseph E. Stiglitz, Nobel laureate in economics, argues that the idea of austerity as a uniform recipe for Europe is missing reality.

“The troika badly misjudged the macroeconomic effects of the program that they imposed. According to their published forecasts, they believed that, by cutting wages and accepting other austerity measures, Greek exports would increase and the economy would quickly return to growth. They also believed that the first debt restructuring would lead to debt sustainability.

“The troika’s forecasts have been wrong, and repeatedly so. And not by a little, but by an enormous amount. Greece’s voters were right to demand a change in course, and their government is right to refuse to sign on to a deeply flawed program.”

It is on austerity that the paths of the United States and the European Union divide.

The United States has embarked on investing for growth, despite pressure from the Republican party for austerity, and the U.S. economy is picking up again.

But Europe is now led by Germany and the Germans are convinced that what they did at home is valid everywhere. Together with the countries of northern Europe, they look on the people of southern Europe as unethical, people who want to enjoy life beyond their means. As The Economist put it in an article on the Greek crisis: “In German eyes this crisis is all about profligacy”.

It did not help that another very minor crisis – that of Cyprus between 2012 and 2013 – confirmed Germany’s view about the profligacy of the south of Europe. In the case of Cyprus, the “Troika” settled the crisis at a cost of 10 billion euros.

There is widespread agreement that the crisis of Greece, which represents just two percent of the total European budget, could have been settled at the beginning with a 50-60 billion euro loan. But only since Tsipras became prime minister, and with popular support started to refuse to accept the creditors’ plan, has Greece has become a very important issue.

There is now talk of a “Grexit”, or Greece’s exit from the European Union. This would have a cascade effect, and it would mean the end of Europe as a common dream, of a Europe based on solidarity and communality.

In the G7, Obama has insisted on investments and demand as a way out of the crisis. Merkel has again repeated that Europe does not need stimulus financed by debt, but stimulus coming from the reform of inefficient economies. At this point, perhaps “everything is always about something else”, as the late award-winning Sri Lankan journalist Tarzie Vittachi once told me.

An enlightening comment on the Greek situation has come from Hugo Dixon writing in The New York Times of Jun. 7. The Greek prime minister “will have to choose between saving his country and sticking to a bankrupt far-left ideology. If he is smart, he can secure a few more concessions from creditors and a goodish deal for Greece. If not, he will drag the country into the abyss.”

And then, it is interesting to note that one of the main reasons for being so hard with Syriza is that the citizens of Spain, Portugal and Ireland, who were the first to swallow the bitter pill of austerity, would revolt if they saw a different path for Greece, and it just happens that those countries have conservative governments.

The entire European political system reeled with shock at the victory of Syriza, and again a few days ago at the victories of the left-wing anti-establishment Podemos party in municipal elections in Spain.

For some reason, the very authoritarian and conservative government of Viktor Orbán in Hungary, the victory of the very conservative Andrzej Duda as president in Poland, as well as the rise of Matteo Salvini’s anti-European and anti-immigration Lega Nord party in Italy create no panic, not even if Salvini looks to Russian President Vladimir Putin and Marine Le Pen, leader of France’s right-wing Front National, as figures of reference.

So, the real issue now in the case of Greece is to punish an anti-establishment figure like Tsipras and show that the radical left cannot run a country.

Who really believes that there will masses of citizens in Madrid, Lisbon or Dublin taking to the streets to protest if Europe does a somersault of solidarity and idealism, and lowers its requests or dilutes them over more time? (END/COLUMNIST SERVICE)

Edited by Phil Harris   

The views expressed in this article are those of the author and do not necessarily represent the views of, and should not be attributed to, IPS – Inter Press Service. 

Excerpt:

By Kinda Mohamadieh
GENEVA, Apr 6 2015 (IPS)

The world’s attention turned to the practices of vulture funds after the U.S. Supreme Court affirmed a lower court opinion in the NML Capital vs Argentina case, which forbids the country from making payments on its restructured debt.

Argentina had defaulted in 2001 and went through two rounds of negotiations to restructure its debt, both in 2005 and 2010. In June 2014, the court ordered Argentina to pay the ‘vulture funds’ that held out and did not accept the terms of the debt swaps.

Kinda Mohamadieh

The vulture funds had held out with the aim of achieving what amounts to a 1,600 percent return on their original investment. The funds concerned had purchased the Argentinian bonds in 2008 at 48 million dollars and the court ruling ordered Argentina to pay them 832 million dollars.

Nobel laureate Joseph Stiglitz noted that this was “the first time in history that a country was willing and able to pay its creditors, but was blocked by a judge from doing so”.

While this case brought the term ‘vulture funds’ into the public sphere, the predatory practices of these entities did not start with Argentina.

According to a former U.N. independent expert on the effects of foreign debt and other related financial obligations of states on the full enjoyment of all human rights, the term ‘vulture funds’ describes “private commercial entities that acquire, either by purchase, assignments or some other form of transaction, defaulted or distressed debts, and sometimes actual court judgments, with the aim of achieving higher returns.”

Basically, vulture funds are hedge funds whose modus operandi focuses on three main steps including: (1) purchasing distressed debt on the secondary market at deep discounts far less than its face value; (2) refusing to participate in restructuring agreements with the indebted state; and (3) pursuing full value of the debt often at face value plus interest, arrears and penalties, including through litigation, seizure of assets or penalties.“The African Development Bank has reported that at least twenty heavily indebted poor countries have been threatened with or have been subjected to legal actions by commercial creditors and vulture funds since 1999”

Many developing countries have been exposed to the predatory practices of vulture funds, especially African and Latin American countries.

The African Development Bank has reported that at least twenty heavily indebted poor countries have been threatened with or have been subjected to legal actions by commercial creditors and vulture funds since 1999. These countries include Sierra Leone, Cote d’Ivoire, Burkina Faso, as well as Angola, Cameroon, Congo, Democratic Republic of the Congo, Ethiopia, Liberia, Madagascar, Mozambique, Niger, Sao Tome and Principe, Tanzania, and Uganda.

Peru was targeted by NML Capital in the year 2000. According to media reports, the fund spent almost four years in the courts to win a ruling that forced Peru to settle for almost 56 million dollars on distressed debt, which the fund had initially bought for 11.8 million dollars.

The African Development Bank has documented that up until the year 2007, 25 judgments in favour of vulture funds had yielded nearly one billion dollars. Out of this amount, 72 percent of the judgments have been against African countries. The reported number of outstanding cases against debtor countries has doubled since 2004.

According to the World Bank and the International Monetary Fund (IMF), 54 court cases were instituted against 12 heavily indebted poor countries between 1998 and 2008. The IMF estimates that in some cases claims by vulture funds constitute as much as 12 to 13 percent of a country’s gross domestic product.  The World Bank estimates that nearly one-third of countries that are eligible for debt relief and other poverty alleviation programmes are the targets of nearly 26 vulture funds.

Concerned about the extent of the threat posed by such predatory practices and their systemic implications, several international authorities and multilateral institutions have voiced their concern about the matter.

The African Development Bank has warned that by precluding debt relief and costing millions in legal expenses, these vulture funds undermine the development of the most vulnerable African countries.

In June 2014, the heads of state and government of the Group of 77 and China, in their declaration issued on the occasion of the ‘For a New World Order for Living Well’ summit held in Santa Cruz de la Sierra, Bolivia, reiterated the importance of “not allowing vulture funds to paralyse the debt restructuring efforts of developing countries” and stressed that “these funds should not supersede the state’s right to protect its people under international law.”

The IMF had cautioned that upholding the decision against Argentina would harm future sovereign debt restructuring attempts. In 2013, the IMF stated that “if upheld, [the Court of Appeals decision] would likely give hold-out creditors greater leverage and make the debt restructuring process more complicated”.

In 2007, G8 finance ministers had expressed concern about actions of some litigating creditors against heavily indebted poor countries, and agreed to work together to identify measures to tackle this problem based on the work of the Paris Club.

In September 2014, a resolution on the activities of vulture funds and the effects of foreign debt and other related international financial obligations of states on the full enjoyment of all human rights, particularly economic, social and cultural rights, was presented by Argentina and adopted at the 27^th session of the U.N. Human Rights Council which took place in Geneva.

It is also worth noting that the 26^th session of the Human Rights Council in June 2014 had adopted a resolution titled ‘Elaboration of an international legally binding instrument on Transnational Corporations and Other Business Enterprises with Respect to Human Rights’.

This resolution sets in place a process of negotiations towards an international legally binding instrument on transnational corporations and their liability in the area of human rights. (END/IPS COLUMNIST SERVICE)

Edited by Phil Harris   

The views expressed in this article are those of the author and do not necessarily represent the views of, and should not be attributed to, IPS – Inter Press Service. 

* This column is based on a longer version published in published in the South Centre’s South Bulletin 83 of 12 February 2015.

Excerpt:

By Yilmaz Akyüz
GENEVA, Mar 30 2015 (IPS)

Debt restructuring is a component of crisis management and resolution, and needs to be treated in the context of the current economic conjuncture and vulnerabilities.

International debt workout mechanisms are not just about debt reduction, but include interim arrangements to provide relief to debtors, including temporary hold on debt payments and financing.

They should address liquidity as well as solvency crises but the difference is not always clear. Most start as liquidity crises and can lead to insolvency if not resolved quickly.

Yilmaz Akyuz

Liquidity crises also inflict serious social and economic damages as seen in the past two decades even when they do not entail sovereign defaults.

International mechanisms should apply to crises caused by external private debt as well as sovereign debt. Private external borrowing is often the reason for liquidity crises. Governments end up socialising private debt. They need mechanisms that facilitate resolution of crises caused by private borrowing.

Only one of the last eight major crises in emerging and developing economies was due to internationally-issued sovereign debt (Argentina). Mexican and Russian crises were due to locally-issued public debt; in Asia (Thailand, Korea and Indonesia) external debt was private; in Brazilian and Turkish crises too, private (bank) debt played a key role alongside some problems in the domestic public debt market.

We have had no major new crisis in the South with systemic implications for over a decade thanks to highly favourable global liquidity conditions and risk appetite, both before and after the Lehman Brothers bank collapse in 2008, due to policies in major advanced economies, notably the United States.

But this period, notably the past six years, has also seen considerable build-up of fragility and vulnerability to liquidity and solvency crises in many developing countries."There are problems with standard crisis intervention: austerity can make debt even less payable; creditor bailouts create moral hazard and promote imprudent lending, and transform commercial debt into official debt, thereby making it more difficult to restructure”

Sovereign international debt problems may emerge in the so-called ‘frontier economies’ usually dependent on official lending. Many of them have gone into bond markets in recent years, taking advantage of exceptional global liquidity conditions and risk appetite. There are several first-time Eurobond issuers in sub-Saharan Africa and elsewhere.

In emerging economies, internationally-issued public debt as percentage of gross domestic product has declined significantly since the early 2000s. Much of the external debt of these economies is now under local law and in local currency.

However, there are numerous cases of build-up of private external debt in the foreign exchange markets issued under foreign law since 2008. Many of them may face contingent liabilities and are vulnerable to liquidity crises.

An external financial crisis often involves interruption of a country’s access to international financial markets, a sudden stop in capital inflows, exit of foreign investors from deposit, bond and equity markets and capital flight by residents. Reserves become depleted and currency and asset markets come under stress. Governments are often too late in recognising the gravity of the situation.

International Monetary Fund (IMF) lending is typically designed to bail out creditors to keep debtors current on their obligations to creditors, and to avoid exchange restrictions and maintain the capital account open.

The IMF imposes austerity on the debtor, expecting that it would make debt payable and sustainable and bring back private creditors. It has little leverage on creditors.

There are problems with standard crisis intervention: austerity can make debt even less payable; creditor bailouts create moral hazard and promote imprudent lending, and transform commercial debt into official debt, thereby making it more difficult to restructure; and risks are created for the financial integrity of the IMF.

Many of these problems were recognised after the Asian crisis of the 1990s, giving rise to the sovereign debt restructuring mechanism, originally designed very much along the lines advocated by the U.N. Conference on Trade and development (UNCTAD) throughout the 1980s and 1990s (though without due acknowledgement).

However, it was opposed by the United States and international financial markets and could not elicit strong support from debtor developing countries, notably in Latin America. It was first diluted and then abandoned.

The matter has come back to the attention of the international community with the Eurozone crisis and then with vulture-fund holdouts in Argentinian debt restructuring.

After pouring money into Argentina and Greece, whose debt turned out to be unpayable, the IMF has proposed a new framework to “limit the risk that Fund resources will simply be used to bail out private creditors” and to involve private creditors in crisis resolution. If debt sustainability looks uncertain, the IMF would require re-profiling (rollovers and maturity extension) before lending. This is left to negotiations between the debtor and the creditors.

However, there is no guarantee that this can bring a timely and orderly re-profiling. If no agreement is reached and the IMF does not lend without re-profiling, then it would effectively be telling the debtor to default. But it makes no proposal to protect the debtor against litigation and asset grab by creditors.

There is thus a need for statutory re-profiling involving temporary debt standstills and exchange controls. The decision should be taken by the country concerned and sanctioned by an internationally recognised independent body to impose stay on litigation.

Sanctioning standstills should automatically grant seniority to new loans, to be used for current account financing, not to pay creditors or finance capital outflows.

If financial meltdown is prevented through standstills and exchange controls, stay is imposed on litigation, adequate financing is provided and contractual provisions are improved, the likelihood of reaching a negotiated debt workout would be very high.

The role of the IMF in crisis management and resolution is incontrovertible. However, the IMF cannot be placed at the centre of international debt workout mechanisms. Even after a fundamental reform, the IMF board cannot act as a sanctioning body and arbitrator because of conflict of interest; its members represent debtors and creditors.

The United Nations successfully played an important role in crisis resolution in several instances in the past.

The Compensatory Financing Facility – introduced in the early 1960s to enable developing countries facing liquidity problems due to temporary shortfalls in primary export earnings to draw on the Fund beyond their normal drawing rights at concessional terms – resulted from a U.N. initiative.

A recent example concerns Iraq’s debt. After the occupation of Iraq and collapse of the Saddam Hussein regime, the U.N. Security Council adopted a resolution to implement stay on the enforcement of creditor rights to use litigation to collect unpaid sovereign debt.

This was engineered by the very same country, the United States, which now denies a role to the United Nations in debt and finance on the grounds that it lacks competence on such matters, which mainly belong to the IMF and the World Bank.

Edited by Phil Harris   

The views expressed in this article are those of the author and do not necessarily represent the views of, and should not be attributed to, IPS – Inter Press Service. 

* This article is partly based on South Centre Research Paper 60 by Yilmaz Akyüz titled Internationalisation of Finance and Changing Vulnerabilities in Emerging and Developing Economies.

Excerpt:

The steady nation of Ghana could be heading for a painful train wreck as government borrowing raises the level of foreign debt to sky-high levels.

Last month it was announced that President John Mahama had signed on to a nearly one-billion-dollar loan from the International Monetary Fund. To service the loan, the government will be forced to impose austerity measures very likely to hurt Ghanaian citizens. These include increases in fuel prices, a freeze on hiring public sector workers and an end to energy subsidies.

The plan will be presented to the IMF’s board for approval in April, with the first payment of about $100 million to be made shortly after.

According to Akwasi Sarpong, analyst for BBC Africa, the bailout was considered necessary for the restoration of investor confidence in a struggling economy beset by crippling electricity black-outs.

Then, on the heels of the IMF bailout, more borrowing was announced. State-owned Ghana National Petroleum Corporation (GNPC) is close to signing a 700-million-dollar loan from private commercial lenders led by commodity trader Trafigura as part of plans to recapitalize for expansion, its chief executive said.

It’s the largest loan by the GNPC since the start of oil production in 2010 which many had cheered as a harbinger of prosperity for all.

Unfortunately for Ghana, the world is awash with oil at some of the lowest prices per barrel seen in years. In fact, the world is running out of storage for the oil that has already been pumped.

The mountainous borrowing was defended by Vice President Kwesi Amissah-Arthur who pooh-poohed the figure of one billion as insignificant. “940 million dollars over a three year period is not a lot of money, it is just about 300 million dollars a year,” he told regional ministers at a conference in Cape-Coast.

“Now our infrastructure requirements are in the region of about five billion a year, so infrastructure alone in overwhelmingly bigger than the resources we are receiving from the IMF.”

But critics of the mounting loans are worried.

At a press conference in early January, Minority Leader Osei Kyei Mensah-Bonsu attacked the ballooning of the public debt stock going from 2.6 billion in 2008 to 19.7 billion today.

“Last year at this time the burden for every Ghanaian was 582 dollars. One year on, the debt per capita has increased by 40 percent. No thanks to “yentie obi ara” (we are not listening to anyone) government.

What is the most important issue in Ghana today? asked Stephen Nyarko in Ghanaweb. “It is four letters long. Yes it is DEBT, and it is the unsustainable type.”

Nyarko went on: “Not long ago Ghana had a positive economic future according to the World Bank and IMF. The narrative of Ghana Rising was all over the international financial press. Ghana’s once mighty Ghana new Cedi has now achieved infamy as the worse performing currency in the world. The slumping currency is fuelling inflation. The impact on citizens economic wellbeing has become so that well-meaning citizens who invested in the new Ghana Cedi in 2007, have seen their wealth and savings totally wiped out.

“If we are to get over our current unsustainable debt burden we need to restart the debate about the break neck speed at which Ghana has been borrowing money and using its natural resources, oil, gold, Cocoa, as collateral The old models of just borrowing yourself out of poverty and inefficiencies do not fit.”

By Guillermo Medina
MADRID, Mar 4 2015 (IPS)

At last, on Tuesday Feb. 24, the Eurogroup (of eurozone finance ministers) approved the Greek government’s commitment to a programme of reforms in return for extending the country’s bailout deal.

The agreement marks the end of tense and protracted negotiations. It consists of a four-month extension for the second bailout programme worth 130 billion euros (over 145 billion dollars), in force since 2012 and which was due to expire on Feb. 28. The first bailout was for 110 billion euros, equivalent to 123 billion dollars.

Guillermo Medina

During this period, the European Central Bank (ECB) will provide Greece with liquidity and the terms of a new bailout will be hammered out.

The eleventh-hour agreement was no doubt motivated partly by fears that a “Grexit” – Greek withdrawal from the eurozone monetary union – would have triggered a financial earthquake with unforeseeable consequences. The result is a very European-style compromise that averts catastrophe and gains time while avoiding facing the underlying problems.

In exchange for an extension of financial support from Greece’s partners and creditors, Prime Minister Alexis Tsipras will have to submit all his government’s measures during this period to Eurogroup inspection.

But the deal promises Greece more than just restrictions. The country will have to pay its debts to the last euro, but if, as seems probable, deadlines for primary surplus targets are extended, the country will have greater ability to pay (France has just secured this for itself).

In the final document, Greece promised to adopt a tax reform that would make the system fairer and more progressive, as well as reinforce the fight against corruption and tax evasion and reduce administrative spending.“Germany has undeniably secured its basic goal: the enshrining of austerity as the fundamental dogma of the new European economic order, although political prudence and even self-interest have softened the application of the dogma, and may continue to do so in future”

If the government pursues these goals, together with the fight against contraband, efficiently and with determination (as indeed it should, because they are part of its programme and target its domestic enemies), the income will be helpful for the application of its social and economic programmes.

In view of the successive positions that Greece has had to relinquish in the course of the negotiations, it appears that the country has achieved the little that could be achieved.

The negotiations between Greece and its European partners mark a milestone in the political tussle in the European Union since the reunification of Germany in 1990, between moving towards a Europeanised Germany or a Germanised Europe.

Germany has undeniably secured its basic goal: the enshrining of austerity as the fundamental dogma of the new European economic order, although political prudence and even self-interest have softened the application of the dogma, and may continue to do so in future.

Germany has openly tried to impose its convictions and its hegemony on Europe. Greece was only the immediate battlefield. Brussels and Berlin have been divided from the outset about how to solve the Greek crisis, but Germany prevailed.

However, the masters of Europe do not have any interest in “destroying” Greece, and so cutting off their nose to spite their face. They are satisfied with a demonstration of the asymmetry of power between the two sides, and the public contemplation of assured failure for whoever defies the status quo and supports any policy that deviates from the one true official line.

The problem with a Germanised Europe is not the preponderant role that Germany would play, but that it would impose a “Made in Germany” model of Europe that conforms to its own interests. That is how it would differ from a Europeanised Germany.

The Greek crisis has highlighted the ever-widening contrast between the values and ideals that we consider to be central to the European project, such as solidarity, mutual aid and social justice, and the new values that set aside basic aims like full employment, social welfare and equal opportunities.

It is paradoxical that Europe, which is apparently absent from or baffled by threats from the opposite shore of the Mediterranean, should take a harsh, tough attitude with a small partner overwhelmed by debt. It is also paradoxical that structural reforms are demanded of Greece, without admitting Europe’s own urgent need to redesign the eurozone and reframe the policies that have led to the poor performance of its monetary union.

The Greek crisis and the difficulties in overcoming it have a great deal to do with a design of the euro that benefits financial interests, particularly Germany’s.

The project neglected the harmonisation of tax policies and created a European Central Bank that lacked the powers that permit the U.S. Federal Reserve and the Bank of England to issue money and buy state debt.

As is well known, the ECB has made loans to European banks at very low interest rates, and they in turn have made loans to states, including Greece, at much higher interest. Government debts thus mounted up, and in order to pay they were forced to cut public spending.

Why does Europe persist in following failed policies while refusing to follow those that have lifted the United States out of recession? The only explanation is stubborn attachment to an ideological vision of economic policy that is devoid of pragmatism.

How can insistence on the path of error be explained at such a time? There may well be a quota of incompetence, but the basic reason is, as Nobel prize-winners Joseph Stiglitz and Paul Krugman affirm, that the goal of the policies imposed by the “Troika” (European Commission, ECB and International Monetary Fund) is to protect the interests of financial capital. And this is because the powers of political institutions, the media and academia, are dominated by financial capital, with German financial capital at the core.

Financial interests are essentially capable of shaping the decisions of European governance institutions. In the United States this subservience is less clear-cut, allowing hefty penalties to be imposed on certain banks, as well as the development of other economic strategies.

This is because independent mechanisms of control and oversight exist, the Federal Reserve has well-defined goals (whereas the ECB has spent years fighting the insistent threat of inflation), and there is democratic administration with the political will to resist.

In conclusion: the issue is to clarify what sort of Europe the citizens of Europe want, and what institutional changes are needed to achieve it.

And even more importantly, having seen the consecration of German hegemony over the Old World, what sort of German leadership would be compatible with a united Europe based on solidarity? Is this even possible? (END/IPS COLUMNIST SERVICE)

Translated by Valerie Dee/Edited by Phil Harris    

The views expressed in this article are those of the author and do not necessarily represent the views of, and should not be attributed to, IPS – Inter Press Service. 

Excerpt:

By Yilmaz Akyüz
GENEVA, Feb 16 2015 (IPS)

After a series of crises with severe economic and social consequences in the 1990s and early 2000s, emerging and developing economies have become even more closely integrated into what is widely recognised as an inherently unstable international financial system. 

Both policies in these countries and a highly accommodating global financial environment have played a role. Not only have their traditional cross-border linkages been deepened and external balance sheets expanded rapidly, but also foreign presence in their domestic credit, bond, equity and property markets has reached unprecedented levels.

Yilmaz Akyuz

New channels have thus emerged for the transmission of financial shocks from global boom-bust cycles.

Almost all developing countries are now vulnerable, irrespective of their balance-of-payments, external debt, net foreign assets and international reserve positions, although these play an important role in the way such shocks could affect them.

Stability of domestic banking and asset markets is susceptible even in countries with strong external positions.

Those heavily dependent on foreign capital are prone to liquidity and solvency crises as well as domestic financial turmoil.

The new practices adopted in recent years – including more flexible exchange rate regimes, accumulation of large stocks of international reserves or borrowing in local currency – would not provide much of a buffer against severe external shocks such as those that may result from the normalisation of monetary policy in the United States. “The surge in capital inflows that started in the early years of the new millennium, and continued with full force after a temporary blip due to the collapse in 2008 of the Lehman Brothers financial services firm, holds the key to the growing internationalisation of finance in developing countries”

And the multilateral system is still lacking adequate mechanisms for an orderly and equitable resolution of external financial instability and crises in developing economies.

This process of closer integration was greatly helped by highly favourable global financial conditions before 2008, thanks to the very same credit and spending bubbles that culminated in a severe crisis in the United States and Europe. The crisis did not slow this process despite initial fears that it could lead to a retreat from globalisation.  Integration has even accelerated since then because of ultra-easy monetary policies pursued in advanced economies, notably in the United States, in response to the crisis.

The surge in capital inflows that started in the early years of the new millennium, and continued with full force after a temporary blip due to the collapse in 2008 of the Lehman Brothers financial services firm, holds the key to the growing internationalisation of finance in developing countries.

It has resulted in a rapid expansion of gross external assets and liabilities of developing economies. More importantly, the structure of their external balance sheets has undergone important changes, particularly on the liabilities side, bringing new vulnerabilities.

The share of direct and portfolio equity in external liabilities has been increasing. An important part of the increase in equity liabilities is due to capital gains by foreign holders. In many developing countries presence in equity markets is greater than that in the United States and Japan.

While still remaining below the levels seen a decade ago as a percentage of gross domestic product (GDP), external debt build-up has accelerated since the crisis in 2008. This is mainly due to borrowing by the private sector, which now accounts for a higher proportion of external debt than the public sector in both international bank loans and security issues. A very large proportion of private external debt is in foreign currency. There is also a renewed tendency for dollarisation in domestic loan markets.

As a result of a shift of governments from international to domestic bond markets and opening them to foreigners, the participation of non-residents in these markets has been growing. The proportion of local-currency sovereign debt held abroad is greater in many developing countries than in reserve-issuers such as the United States, the United Kingdom and Japan. It is held by fickle investors rather than by foreign central banks as international reserves.

International banks have been shifting from cross-border lending to local lending by establishing commercial presence in developing countries. Their market share in these countries has reached 50 percent compared with 20 percent in developed countries.

These banks tend to act as conduits of expansionary and contractionary impulses from global financial cycles and increase the exposure of developing economies to financial shocks from advanced economies.

One of the key lessons of history of economic development is that successful policies are associated not with autarky or full integration into the global economy, but strategic integration seeking to use the opportunities that a broader economic space may offer while minimising the potential risks it may entail. This is more so in finance than in trade, investment and technology.

For one thing, the international financial system is inherently unstable in large part because multilateral arrangements fail to impose adequate discipline over financial markets and policies in systemically important countries which exert a disproportionately large impact on global conditions.

For another, the multilateral system also lacks effective mechanisms for orderly resolution of financial crises with international dimensions.

Thus, closer integration of several into the international financial system in the past ten years, after a series of crises with severe economic and social consequences, is a cause for concern.

In all likelihood, these countries will be facing strong destabilising pressures in the years ahead as monetary policy in the United States returns to normalcy after six years of flooding the world with dollars at exceptionally low interest rates.

In weathering a possible renewed instability, they cannot count on the more flexible currency regimes they came to adopt after the last bouts of crises or the reserves they have built from capital inflows or the reduced currency exposure of the sovereign.

It is important that they, as well as the international community, avoid going back to business-as-usual in responding to a new round of financial shocks, bailing out investors and creditors and maintaining an open capital account at the expense of incomes and jobs.

They need to include many unconventional policy instruments in their arsenals to help lower the price that may have to be paid for the financial excesses of the past several years

They should also take the occasion to rebalance the pendulum and to bring about genuine changes in the international financial architecture. (END/IPS COLUMNIST SERVICE)

Edited by Phil Harris   

The views expressed in this article are those of the author and do not necessarily represent the views of, and should not be attributed to, IPS – Inter Press Service. 

* This column is based on Internationalization of Finance and Changing Vulnerabilities in Emerging and Developing Economies, South Centre Research Paper 60, January 2015, which is available here.

Excerpt:

By Roberto Savio
ROME, Oct 22 2014 (IPS)

The new European Commission looks more like an experiment in balancing opposite forces than an institution that is run by some kind of governance. It will probably end up being paralysed by internal conflicts, which is the last thing it needs.

During the Commission presided over by José Manuel Barroso (2004-2014), Europe has become more and more marginal in the international arena, bogged down by the internal division between the North and the South of Europe.

Roberto Savio

We are going back to a new Thirty Years’ War – which took place nearly five centuries ago – between Catholics and Protestants. Catholics are considered profligate spenders, and there is a moral approach to economics from the Protestant side.

The Germans, for example, have transformed debt into a financial “sin”.  The large majority of Germans support the stern position of their government that fiscal sacrifice is the only way to salvation, and the looming economic slowdown will only strengthen that feeling. As a result, the handling of Europe’s internal governance crisis has largely pushed Europe to the side lines of the world.

It is a mystery why it is in the interests of Europe to push Russia into a structural alliance with China and, in such a fragile moment, inflict on itself losses of trade and investment with Russia which could reach 40 billion euro next year.“We are going back to a new Thirty Years’ War – which took place nearly five centuries ago – between Catholics and Protestants. Catholics are considered profligate spenders, and there is a moral approach to economics from the Protestant side.”

The latest issue of the prestigious Foreign Affairs magazine – the bible of the U.S. elite – carries a long and detailed article on “Why the Ukraine Crisis is the West’s Fault” by Chicago academic John J. Mearsheimer, who documents how the offer to Ukraine to join the North Atlantic Treaty Organisation (NATO) was the last of a number of hostile steps that pushed Russian President Vladimir Putin to stop a clear process of encroachment.

Mearsheimer wonders how all this was in the long term interests of the United States, beyond some small circles, and why Europe followed. But politics now has only a short-term horizon, and priorities are becoming conditioned by that approach.

A good example is how European states (with the exception of the Nordic states), have been slashing their international cooperation budgets. Not only have Spain, Italy and Portugal – and of course Greece – practically eliminated their official development assistance (ODA) budgets, but France, Belgium and Austria have also been following suit. Meanwhile China has been investing heavily in Africa, Latin America and, of course, Asia where the term ‘cooperation’ would not be the most appropriate.

But the best example of Europe’s inability to be in sync with reality is the last cut in the Erasmus programme, which sends tens of thousands of students every year to another European country. Has it been overlooked that one million babies have been born to couples who met during their Erasmus scholarships, and that this programme is being cut at a moment when anti-Europe parties are sprouting everywhere?

In fact, education – and especially culture (and medical assistance) – are under a continuous reduction in spending. As Giulio Tremonti, Finance Minister under Italian Prime Minister Silvio Berlusconi, famously said, “you don’t eat with culture”.

The per capita budget for culture in southern Europe is now one-seventh that of northern Europe. Italy, which according to UNESCO holds 50 percent of Europe’s cultural heritage, has just decided in its latest budget to open up 100 jobs in the archaeological field with a gross monthly salary of 430 euro. In today’s market, this is half what a maid receives for 20 hours of work a week.

Italian politicians do not say so explicitly, but they believe that there is already such rich heritage that there is no need for further investment and, anyhow, the tourists continue to arrive. The budget for all Italian museums is close to the budget of the New York Metropolitan Museum … in the real world, this is like somebody who wants to live by showing the mummified body of his great grandmother for the price of a ticket!

It can be said that, in a moment of crisis, the budget for culture can be frozen because there are more urgent needs. But no need is more urgent than to keep Europe running in the international competition in order to ensure a future for its citizens. And yet, the budget for research and development, which is essential for staying in the race, is also being cut year by year.

Let us look at the situation since 2009. Spain has reduced investment in R&D by 40 percent, which has led to a 40 percent cut in financing for projects and a 30 percent cut in human resources. Italian universities have witnessed a total cut of 20 percent in spending which has meant a reduction of 80 percent in hiring and 100% in projects, while 40 percent of PhD courses have disappeared.

France has cut hiring in centres of research by 25 percent and in universities by 20 percent. Less than 10 percent of demand for projects receives financing because funds are no longer available.

Greece has cut budget for centres of research and universities by 50 percent since 2011, and has frozen the hiring of any new researchers.

In the same period in Portugal, universities and research centres have suffered a cut of 50 percent, the number of scholarships for PhDs has been cut by 40 percent and post-doctoral courses by 65 percent.

It is important to recall that the Lisbon Strategy, the action programme for jobs and growth adopted in 2000,  aimed to  make the European Union “the most competitive and dynamic knowledge-based economy in the world, capable of sustainable economic growth with more and better jobs and greater social cohesion” by 2010. Not only were most of its objectives not achieved in 2010, but Europe continues to slide backwards. The Lisbon Strategy had set 3 percent of GNP for R&D, but southern Europe is now below 1.5 percent.

A notable exception is the United Kingdom. The current government, which works in strong synchronicity with the City and its industrial constituency, has funded a 6 billion euro “Innovation and Research Strategy for Growth” plan to the applause of the private sector.

China is steadily increasing steadily its R&D budget, which is now 3 percent (what the Lisbon Strategy had set for Europe), but it aims to reach 6 percent of GNP by 2020 and, in just seven years, China has become the largest producer of solar energy, bankrupting several U.S. and European companies.

Is cutting Europe’s future in international competition really in the interests of Germany? Or it is that politics are losing the view of the forest while they discuss how many trees to cut, to reach a compromise between the Catholics and the Protestants?

We are now making of economics a moral science, which makes of Europe an unusual world. (END/IPS COLUMNIST SERVICE)

(Edited by Phil Harris)

Excerpt:

Puerto Rico is a commonwealth of the U.S. Its relationship with the United States has been denounced as colonial by both the independence and pro-statehood movements. Credit: Arturo de la Barrera/cc by 2.0

By Carmelo Ruiz-Marrero
SAN JUAN, Aug 27 2014 (IPS)

A feeling of insecurity has overtaken broad sectors of Puerto Rican society as the economy worsens, public sector debt spirals out of control, and the island’s creditworthiness is put in doubt.

To tackle this economic crisis, the administration of governor Alejandro Garcia-Padilla has adopted a number of measures that have been extremely unpopular with civil society and labour unions."Capital is on the offensive all over the world. But in Puerto Rico it's worse because it is a colony of the United States." -- Retired telephone company worker Guillermo De La Paz

Retirees have been particularly affected. In 2013, the government passed Law 160, which drastically changed the retirement system of public employees. It puts an end to the previous retirement system, established by Law 447 of 1951, under which every public sector worker was entitled to a full pension after 30 years of service, regardless of age.

But Law 160 changes that. The size of monthly pension payments is no longer guaranteed, and employees must work more years in order to get full benefits.

“The retirement system has been compromised,” said labour attorney Cesar Rosado-Ramos in a position paper for the Working People’s Party (PPT).

“It is unheard of, abusive and unjust that people with 30 years of service now have to keep working for four, five, 10 or even 15 additional years in order to receive a full pension. This means the working class will have to spend a lifetime working and if you survive you get a miserable retirement plan.”

The PPT was formed in 2009 by current and former members of the Movement Toward Socialism and the Socialist Front. Its first electoral participation was in the 2012 general elections but it did not get enough votes to elect any candidate.

Public school teachers were spared from Law 160. They sued and last April the PR Supreme Court ruled key parts of the law unconstitutional because they violated teachers’ contracts. Thus the teachers’ retirement was saved, but the court ruling upheld other parts of the law that reduce their Christmas bonuses, summer pay and medical benefits.

“The retirement age of public employees has been raised and their [retirement] benefits have been reduced to poverty level,” economist Martha Quiñones told IPS.

Ramón Marrero, an emergency doctor who works in the city of Cayey, was forced to continue working just when he was due for retirement. He was going to retire after 18 years of work, but with the new law he has to stay on for three more years to get a full pension.

“One has life projects for when retirement comes. When all of a sudden the date for retirement is postponed, all of these projects and plans are turned upside down,” said Marrero, who commutes to work from the nearby town of Cidra.

Quiñones, who teaches at the University of Puerto Rico, pointed out that private sector workers and pensioners are also in for a raw deal. “Many of those private pensions are tied to Puerto Rico government bonds, which have recently been downgraded by Moody’s and Standard and Poor. When the value of these bonds is affected, pensions are reduced.”

Many public sector retirees are politically active, not only defending their benefits and pension plans from the ever present threat of privatisation, but also protesting the government’s neoliberal austerity policies, which affect all of society.

“The local ruling class seeks to reverse the gains and livelihoods of workers to what they used to be in a bygone era,” said labour activist Jose Rivera-Rivera, president of the retirees chapter of the UTIER labour union.

“In order for the neoliberal system to establish its superiority it must erase the last two centuries of labor struggle and solidarity. It’s the new stage of capitalism, they want us to start from zero.”

“Capital is on the offensive all over the world. But in Puerto Rico it’s worse because it is a colony of the United States,” retired telephone company worker Guillermo De La Paz told IPS. “Here the exploiters can experiment in ways they cannot do in a sovereign country.”

Puerto Rico is a commonwealth of the U.S. Its relationship with the United States has been denounced as colonial by both the independence and pro-statehood movements.

The Puerto Rico Telephone Company was public until it was privatised by then governor Pedro Rosselló in 1998. Privatisation opponents paralysed the island in a two-day general strike in July of that year, but to no avail.

“For the rich there is no crisis,” said De La Paz. “I mean, we’ve got [billionaire] Henry Paulson urging rich people to come here to avoid taxes.”

Rivera-Rivera believes that in order to get Puerto Rico out of its economic crisis and protect retirement benefits, the government could start by taxing the rich.

“Our government is supposedly in crisis because it cannot pay its debt, but the previous administration [Governor Luis Fortuño, 2009-2012] practically eliminated the fiscal responsibility of major corporations and rich people in its 2009 tax reform. It wasn’t justified, they were already enjoying major tax breaks.”

Edited by Kitty Stapp

Leah Hughes has big dreams of becoming a community organiser in Appalachia. A rising senior at the California-based Scripps College, Hughes is pursuing a dual degree in International Relations and Studio Art, and is incredibly thankful for her higher education experience thus far.

“As a first generation college student, my experience at a private institution, which specialises in the fields of study that I am interested in, has been the single most transformative experience of my life,” Hughes told IPS.

Araba Hammond of the Young African Leaders Initiative (YALI) says student debts are generally not an issue in Africa. Credit: Julia Hotz/IPS

“It has led me to dedicate my life to public service…and has provided an opportunity for me to help others with the knowledge I have gained.”

Yet before Leah can embark on her community service aspirations, she has one not-so-little thing to worry about.

So far, she has incurred more than 30,000 dollars worth of tuition debt, in addition to more than 15,000 dollars of loans with interest rates.

Though Hughes was offered Scripps’ only merit scholarship, the college’s award will cover only 14,000 dollars worth of her debt, which will continue to grow by accumulating interest for every year she cannot pay.

Leah is certainly not alone in this battle, as she one of more than 40 million Americans who currently holds student debt.  They are collectively responsible for 1.2 trillion dollars of outstanding student loans in the United States.

Overall, student loan debts have doubled since 2007.

“What’s going on is exploitative and wrong,” Hughes told IPS. “If we continue to sell the idea that education is the way students and people from low-and middle-income backgrounds-such as myself are to move up and become productive members of society and supporters of a healthy economy, we are obligated to provide a framework for students to pay off their debt, rather than be crippled by the weight of unpaid loans.”

According to an analysis of the 2011-12 school year conducted by the Centre for American Progress, a think tank here, higher education institutions collected 154 billion dollars in tuition and fees, while families and students financed such costs with 106 billion dollars in loans from federal student-aid programmes.

Regardless of these enormous figures, Olivia Murray, the analysis’ co-author, is enthusiastic about the return on investment that college offers.

“Despite rising college costs and potentially high student debt, college is still the most valuable investment a student can make in their future, and is becoming increasingly important in an ever more specialising economy,” Murray told IPS.

“Unfamiliar” model

This fervent belief in the value of higher education was echoed by fellows from the Young African Leaders Initiative (YALI), who discussed the topic at the Centre for Strategic International Studies (CSIS), a think tank here, last week.

Yet while Araba Hammond and Regina Agyare, two of the YALI fellows, were similarly enthusiastic about the benefits of college that Hughes and Murray outlined, they said they were “unfamiliar” with the payment model in the U.S.

“The cost of education isn’t something we’ve really had to worry about,” Hammond told IPS. “Even for Africa’s most expensive universities, they are affordable for almost all people, given the amount of scholarships available.”

Adding that she cannot recall any friends who have accumulated student debt, Hammond said that “students [in Africa] wouldn’t graduate with the debts that students here graduate with.”

Agyare seconded Hammond’s remarks, stating that “student loans here are very, very small,” and that workplace compensation is and has been reliable source of debt relief.

“Obscene” government profits

U.S. President Obama has recently recognised this potential, and has announced his plan to expand the Pay as You Earn (PAYE) plan, which would forgive student loans to borrowers who pay 10 percent of their incomes back after a 20-year period.

Yet for a more direct and immediate intervention, prominent U.S. lawmaker Elizabeth Warren has crafted the “Banks on Students Emergency Loan Refinancing Act,” which would let student loan borrowers refinance their debt at lower interest rates.

“This is obscene,” Warren said of the U.S.’s student loan model. “The government should not be making 66 billion in profits off of the backs of our students.

“It’s time to end the practice of profiting from young people who are trying to get an education and refinance existing loans.”

While partisan opposition has prevented the bill from being enacted, Warren, with an army of students and families from the middle class, are still fighting for its passage.

“Students and parents should be able to refinance their student debt, just like every other loan type in the U.S., especially as student debt becomes the largest form of debt carried by people in this country,” Hughes told IPS.

As the legislative battle for refinanced student loans rages on, students, families and non-profits are mobilising around the issue of student loan debt, calling their cause the “Higher Ed Not Debt” campaign.

The organisation bases its work on providing support to current borrowers, addressing the causes of declining affordability, educating the public about the financial sector’s role in creating student debt,  and engaging the masses through democratic action.

Edited by: Kitty Stapp

The writer can be contacted at hotzj@union.edu

By Yilmaz Akyüz
GENEVA, Jul 16 2014 (IPS)

Since the onset of the crisis, the South Centre has argued that policy responses to the crisis by the European Union and the United States has suffered from serious shortcomings that would delay recovery and entail unnecessary losses of income and jobs, and also endanger future growth and stability. 

Despite cautious optimism from the International Monetary Fund (IMF), the world economy is not in good shape. Six years into the crisis, the United States has not fully recovered, the Euro zone has barely started recovering, and developing countries are losing steam. There is fear that the crisis is moving to developing countries.

Yilmaz Akyuz

There is concern in regard to the longer-term prospects for three main reasons.

First, the crisis and policy response aggravated systemic problems, whereby inequality has widened. Inequality is no longer only a social problem, but also presents a macroeconomic problem. Inequality is holding back growth and creating temptation to rely on financial bubbles once again in order to generate spending.

Second, global trade imbalances have been redistributed at the expense of developing countries, whereby the Euro zone especially Germany has become a deadweight on global expansion.

Third, systemic financial instability remains unaddressed, despite the initial enthusiasm in terms of reform of governance of international finance, and in addition new fragilities have been added due to the ultra-easy monetary policy.“The external financial vulnerability of the South is linked to developing countries’ integration in global financial markets and the significant liberalisation of external finance and capital accounts in these countries” – Yilmaz Akyuz

The policy response to the crisis has been an inconsistent policy mix, including fiscal austerity and an ultra-easy monetary policy. While the crisis was created by finance, the solution was still sought through finance. Countries focused on a search for a finance-driven boom in private spending via asset price bubbles and credit expansion. Fiscal policy has been invariably tight.

The ultra-easy monetary policy created over one trillion dollars in fiscal benefits in the United States – which was more than the initial fiscal stimulus; the entire initial fiscal stimulus was limited to 800 billion dollars.

There was reluctance to remove debt overhang through comprehensive restructuring (i.e. for mortgages in the United States and sovereign and bank debt in the European Union). Thus, the focus was on bailing out creditors.

There was also reluctance to remove mortgage overhang and no attempt to tax the rich and support the poor, particularly in the United Kingdom and the United States – where marginal tax rates are low compared with continental Europe. There has been resistance against permanent monetisation of public deficits and debt, which does not pose more dangers for prices and financial stability than the ultra-easy monetary policy.

The situation in the United States has been better than in other advanced economies. The United States dealt with the financial but not with the economic crisis, whereby recovery has been slow due to fiscal drag and debt overhang. And employment is not expected to return to pre-crisis levels before 2018.

As for the Euro zone, Japan and the United Kingdom, all have had second or third dips since 2008. None of them have restored pre-crisis incomes and jobs.

Meanwhile, trade imbalances have not been removed, but redistributed. East Asian surplus has dropped sharply and Latin America and sub-Saharan Africa have moved to large deficits. Developing countries’ surplus has fallen from 720 billion dollars to 260 billion dollars. On the contrary, advanced economies have moved from deficit to surplus, whereby U.S. deficits have fallen and the Euro zone has moved from a 100 billion dollars deficit to a 300 billion dollars surplus.

As tapering comes to an end and the U.S. Federal Reserve stops buying further assets, the attention will be turned to the question of exit, normalisation and the expectations of increased instability of financial markets for both the United States and the emerging economies.

This exit will also create fiscal problems for the United States because, as bonds held by the Federal Reserve mature and quantitative easing ends, long-term interest rates will rise and the fiscal benefits of the ultra-easy monetary policy would be reversed.

Developing countries lost steam as recovery in advanced economies remained weak or absent due to the fading effect of counter-cyclical policies and the narrowing of policy space. China could not keep on investing and doing the same thing. Another factor contributing to the change of context in developing countries has been the weakened capital inflows that became highly unstable with the deepening of the Euro zone crisis and then Federal Reserve tapering. Several emerging economies have been under stress as markets are pricing-in normalisation of monetary policy even before it has started.

The external financial vulnerability of the South is linked to developing countries’ integration in global financial markets and the significant liberalisation of external finance and capital accounts in these countries. These include opening up securities markets, private borrowing abroad, resident outflows, and opening up to foreign banks. While developing countries did not manage capital flows adequately, the IMF did not provide support in this area, tolerating capital controls only as a last resort and on a temporary basis.

Several deficit developing countries with asset, credit and spending bubbles are particularly vulnerable.  Countries with strong foreign reserves and current account positions would not be insulated from shocks, as seen after the Lehman crisis. When a country is integrated in the international financial system, it will feel the shock one way or another, although those countries with deficits remain more vulnerable.

In regard to policy responses in the case of a renewed turmoil, it is convenient to avoid business-as-usual, including using reserves and borrowing from the IMF or advanced economies to finance large outflows. The IMF lends, not to revive the economy but to keep stable the debt levels and avoid default. It is also inconvenient to adjust through retrenching and austerity.

Ways should be found to bail-in foreign investors and lenders, and use exchange controls and temporary debt standstills. In this sense, the IMF should support such approaches through lending into arrears.

More importantly, the U.S. Federal Reserve is responsible for the emergence of this situation and should take on its responsibility and act as a lender of last resort to emerging economies, through swaps or buying bonds as and when needed. These are not necessarily more toxic than the bonds issued at the time of subprime crisis. The United States has much at stake in the stability of emerging economies. (END/IPS COLUMNIST SERVICE)

*   A longer version of this column has been published in the South Centre Bulletin (No. 80, 30 June 2014).

Excerpt:

“Family photo” at the fifth BRICS Summit, held in 2013 in Durban, South Africa. Credit: Government of South Africa

By Fabiana Frayssinet
BUENOS AIRES, Jun 18 2014 (IPS)

As Argentina starts to mend fences with the international financial markets, the emerging powers that make up the BRICS bloc invited it to their next summit. This could be a step towards this country’s reinsertion in the global map, after its ostracism from the credit markets since the late 2001 debt default.

For now, there is no letter “A” in the BRICS acronym, which stands for Brazil, Russia, India, China and South Africa. But in Buenos Aires speculation is rife about whether it should be called BRICSA, ABRICS or BRICAS, if Argentina is admitted.

The invitation for President Cristina Fernández to participate in the group’s sixth summit, scheduled for Jul. 15 in the northeast Brazilian city of Fortaleza, is seen as another sign that Latin America’s third-largest economy may be incorporated, after India, Brazil and South Africa indicated their interest.

“This is very significant for Argentina,” Fernanda Vallejos, an economist at the University of Buenos Aires (UBA), told IPS.

“It not only points to the recognition by the rest of the members of Argentina’s importance and potential, but also opens a door for our country to gain greater political and economic clout on the international stage.”

Vallejos stressed the key role played by BRICS over the last decade in the growth of the global economy at a time of financial crisis in the industrialised North.

The term BRICS was coined for the world’s major emerging markets in 2001 by economist Jim O’Neill of investment bank Goldman Sachs. Together, these countries represent around one-quarter of global GDP, 43 percent of the planet’s population, and 20 percent of global investment.

In addition, as Argentina’s foreign ministry stressed, the five countries account for 45 percent of the world’s labour force, hold over three trillion dollars in combined foreign reserves, and produce two billion tonnes a year of agricultural products.

Vallejos said that in a world where blocs are playing a bigger and bigger role, BRICS has a growing voice in international forums, where the members are “demanding participation in accordance with the weight of their economies.”

“The proposal set forth by India – with which bilateral trade expanded 30 percent in 2013 – and backed by Brazil and South Africa also puts paid to the opposition’s tired complaint about our country supposedly being isolated from the world,” said Vallejos, who is also a researcher at the Energy, Technology and Infrastructure Observatory for Development (OETEC).

The formal invitation to Fernández was issued by Russia, which also thus confirmed its support.

“I think this shows that Argentina is fully inserted in international relations, not ‘isolated from the world’,” Nicolás Tereschuk, a political scientist at UBA, told IPS. “It simply doesn’t toe the line with the policies of the central countries at just any cost or in any circumstances, as it used to do at other times in its history.”

Argentina’s invitation from BRICS came almost simultaneously with the May 28 announcement of an agreement reached by the Fernández administration and the Paris Club, which this country owed 9.7 billion dollars since the default 13 years ago.

Some political sectors here see the public debt contracted by the 1976-1983 military dictatorship as illegitimate. But the centre-left Fernández administration hopes the agreement with the Paris Club will facilitate the renewed flow of international credit and investment.

Economist Diego Coatz said the agreement and other measures adopted by the government such as “improving” its economic data, whose reliability was questioned by the International Monetary Fund (IMF), point to a “shift” by the authorities aimed at “reintegration in the world in financial terms…and at positioning the country better on the international front.”

Coatz, with the research centre of the Argentine Industrial Union – the country’s leading industrial employer federation – said that if Argentina is admitted to the BRICS bloc, “it will once more be seen as an emerging developing country with great potential.”

In addition, incorporation in the bloc would open a new window for external financing, when Argentina is in need of foreign exchange and investment, he said.

At the Fortaleza summit a formal decision could be reached on creating a regional development bank as an alternative to international financial institutions like the IMF, World Bank or Interamerican Development Bank.

The new bank would have a 50 billion dollar fund for financing infrastructure in the bloc’s member countries. It would also establish a joint foreign exchange reserves pool of 100 billion dollars, “which would serve as insurance against the volatility of the markets,” Vallejos said.

“Argentina could access financing at very beneficial rates compared to the heavy interest rates of other international institutions” in order to finance infrastructure for development, she underscored.

“The strengthening of international trade by the possible admission to BRICS means important possibilities for Argentina to make significant progress towards a more developed industrial sector, with insertion in global production chains, the development of strategic sectors and the industrialisation of the countryside,” Vallejos said.

The interest would appear to be mutual.

“The invitation came after the turmoil in emerging markets early this year, after which the ‘establishment’ international financial press talked about a ‘decline’ of BRICS,” Tereschuk said.

In addition, “growth in China is slowing down, India is at a decisive moment, with the dilemma of faster growth or stagnation, and the Brazilian economy is not really flourishing at this time,” the economist said.

So for them and the rest of the members of the bloc, “joining together with a periphery country that makes up the G20 [Group of 20] would seem to be a decision of interest to the BRICS countries,” he said.

The G20 block of leading industrialised and emerging economies “is in somewhat of a crisis itself, because of the crisis that the central countries are still immersed in.”

For that reason, according to Tereschuk, Argentina would be useful to the BRICS so that the voice of their two South American leaders, Argentina and Brazil, “would be heard in unison in the greatest number of places possible.”

The political scientist said Brazil and Argentina have led a “shift to the left with growth, reduction of poverty and inequality in a framework of democracy and greater political, civilian and social rights for their citizens.

“The other members of BRICS cannot offer all of these characteristics combined,” he said.

Vallejos, for her part, stressed Argentina’s role as a supplier of raw materials. “We are an agricultural powerhouse,” she pointed out.

In addition, “Argentina has the world’s second-largest reserves of lithium, one of the biggest reserves of gold – nearly 10,000 tonnes – 500 million tonnes of copper, and 300,000 tonnes of silver, while we are becoming the third-largest global exporter of potassium,” she said.
“We are sitting on the world’s third- largest platform of unconventional fossil fuels. And to that you have to add our technological development, and the development of nuclear energy for peaceful purposes,” she added.
So would it be “BRICAS”, “ABRICS” or “BRICSA”? At any rate, what is at stake is a bit more than deciding on a new acronym.

Greek PM Antonis Samaras greets European Commission President José Manuel Barroso in Athens for the ceremony marking Greece's assumption of the rotating EU presidency. Credit: Apostolis Fotiadis/IPS

By Apostolis Fotiadis
ATHENS, Jan 8 2014 (IPS)

The start of Greece’s six-month presidency of the EU was marked by a ceremony Wednesday in the Greek capital attended by the EU commissioners. But protests were banned and there was no in-depth talk about the raging controversy over the bloc’s handling of the Greek debt crisis and the renewed concerns about the vitality of the Eurozone.

In May 2010, the Eurozone countries and the International Monetary Fund (IMF) agreed on a 110 billion euro bailout for Greece, conditional on compliance with severe fiscal consolidation, privatisations and economic reforms to bolster competitiveness. A second bailout of 130 billion euro with a debt restructure followed in February 2012, with additional austerity measures.

The recipe soon mutated into a scorched earth policy. Greece entered its seventh year of recession in 2014, with unemployment hitting a historical high of 28 percent and youth unemployment surpassing 65 percent – up from seven percent when the austerity measures began to be implemented.

In June 2013, the IMF – part of the so-called troika of international creditors overseeing implementation of the austerity policies in Greece, along with the European Commission and European Central Bank – admitted mistakes in handling the Greek debt crisis.

Deregulation of the labour market, severe taxation of the labour force and reforms of the health sector have cut so deeply through the social fabric that many are wondering whether austerity has caused a humanitarian crisis in Greece.

In 2012, nearly one million of the country’s 11.3 million people were living below the poverty line, according to the Greek Finance Ministry. Among them, more than 65,000 were surviving on less than three euros (four dollars) a day, while 102,000 people earned incomes ranging between 1,000 euros (1,358 dollars) and 2,000 euros (2,716 dollars) a year.

According to Greece’s statistics agency, by late 2012, austerity measures had shrunk the labour market by 20.8 percent – 870,000 jobs were lost since 2009 – and had taken more than 40 percent of the labour force out of the national insurance system.

Lee Buchheit, a globally acknowledged legal expert involved in the debt restructure accompanying the second bailout for Greece, told IPS that the Eurozone debt crisis is not over yet.

“It is worth remembering that with the single exception of Greek PSI [private sector involvement], not a single euro of the debt of the afflicted countries [Ireland, Portugal, Spain and Greece] has been written off. Each of those countries will be emerging from their bailout programmes carrying debt loads far heavier than when they entered the programmes.”

What has changed, Buchheit says, is the identity of the lenders. “The original private sector bondholders have been paid back in full and on time through new borrowings from official sector sources [the EU and IMF]. So the taxpayers of the debtor countries remain entirely on the hook for the repayment of those debts; they will just be paying them to a different set of creditors.”

Changing the identity of the creditor does not solve the debt problem, he said. “A sustainable solution would require either a reduction in the size of the debt loads or significant growth in the economy of the debtor countries, or both. Unfortunately, neither of those things has yet happened in the Eurozone periphery.”

But instead of considering a change of course to stimulus economics, European – most notably German – leaders are refusing to accept the failure of austerity. On the contrary, they have speculated that any extra help for Greece will come in the form of another bailout package.

Economist Philippe Legrain resigned last month from the Bureau of European Policy Advisers, an advisory body to the president of the European Commission. A week after his resignation he delivered a speech in Athens blaming European leaders for postponing an inevitable default at great social cost.

“I think Greece cannot pay back its debts in full. So the questions are not whether Greece’s debts will be written down, but when and how,” he told IPS in an email interview. “As of now, I think it will happen little by little and that it will take the form of lower interest rates and longer repayment terms rather than writing down the principal of the debt, to preserve the fiction that the debt is being repaid in full.”

Despite increasing concerns about society imploding, the Greek government insists on its optimistic scenario that foresees a return of the country to positive growth rates in 2014. The Finance Ministry has repeatedly reassured that Greece will mark a 0.6 percent primary surplus and will successfully return to the credit markets by the end of 2014.

Its optimism has been met with disbelief. The Organisation for Economic Cooperation and Development’s (OECD) forecast of a 0.4 percent contraction contrasts with the Greek government’s projection of 0.6 percent growth this year. The European Commission has predicted a Greek return to the markets in 2015.

In a scathing editorial this week, Germany’s Der Spiegel magazine described Greek Prime Minister Antonis Samaras as “out of touch with reality.”

Meanwhile, Samaras’ coalition government, expected to face a huge protest vote in the European elections next May, has no alternative but to carry on with a painful reform of Greece’s primary care sector, suspending 1,000 doctors and 8,000 administrative jobs, many of which will eventually be lost. This will make up the bulk of the 15,000 jobs the Greek government has to suspend in 2014, under its austerity obligations.

The reform will transform the biggest insurance fund in the country from a service provider to a purchaser in the private health market, with many accusing the government that the real aim is not the creation of a more effective system but the indirect privatisation of primary care which will exclude hundreds of thousands from any kind of medical coverage.

“Austerity politics are a mistake,” says cardiologist George Vichas, the spirit behind a major parallel grassroots health structure, the Metropolitan Community Clinic at Helliniko, that has treated 20,000 uninsured people in its 23 months of existence.

“But those who implemented them have not made a mistake. These results are exactly what they aimed at and what they believe in. They have experimented on Greece the last four years, but now the first signs of health sector deregulation have started appearing in Britain, France and Italy. This is Europe’s future.”

Children affected by Typhoon Haiyan (local name Yolanda) wait for their turn to receive aid in Tacloban, Leyte, Philippines. Credit: UNICEF

By Samuel Oakford
UNITED NATIONS, Dec 23 2013 (IPS)

Since Typhoon Yolanda made landfall in the Philippines on Nov. 8, the country has sent holders of its debt close to one billion dollars, surpassing, in less than two months, the 800 million dollars the U.N. has asked of international donors to help rebuild the ravaged central region of the archipelago.

Even as the Philippines goes hat in hand to wealthier countries seeking disaster relief, it continues to diligently pay creditors in those same countries millions of dollars every day – much of it interest on debt that can be traced back to the corrupt regime of Ferdinand Marcos (1965-1986) , Cold War ally to the West.“We think it is always a bad idea and unjust to respond to a disaster by lending money." -- Tim Jones of Jubilee

When Philippine President Benigno Aquino III announced last week the staggering cost of rebuilding from the storm, the price tag – 8.17 billion dollars – and a pair of emergency loans to help meet that goal distressed debt reduction campaigners in the country who have for many years called for a cancellation of illegal debts.

“Every dollar of funding assistance will be used in as efficient and as lasting a manner as possible,” Aquino assured reporters. “The task immediately before us lies in ensuring that the communities that rise again do so stronger, better and more resilient than before.”

Yet every 12 months, the Philippines transfers to lenders nearly the same amount Aquino hopes to raise for reconstruction. And because Filipino law privileges the payment of debt over all other expenses, those installments could end up eating into rebuilding funds.

Even before the storm, education and healthcare spending in the country fell well short of global benchmarks; one in five Filipinos live in poverty and over 15 million are malnourished.

As the storm’s damage became clear, Aquino rushed to the World Bank and Asian Development Bank (ADB), both of which quickly inked 500-million-dollar emergency reconstruction loans and several small cash grants of less than 25 million dollars.

“From now until December 2014 we will be preoccupied with critical immediate investments such as the rebuilding and repair of infrastructure and the construction of temporary houses,” said President Aquino.

But the Philippines suffers on average seven to eight typhoons annually and climate change models predict storms like Yolanda will become more commonplace in the future.

Emergency loans set a troubling precedent, especially in a country where 20 percent of government revenue already goes to debt servicing, says Tim Jones, senior policy and campaigns officer at the Jubilee Debt Campaign.

“We think it is always a bad idea and unjust to respond to a disaster by lending money,” Jones told IPS.

The U.N. Framework Convention on Climate Change prohibits climate-related investments from increasing the debt of a country. But the statute is ignored in emergency situations.

If the tomorrow predicted by climatologists is already here, ask activists, what can be considered “critical immediate investments?”

As financial and climatic “crisis” insinuates itself into the everyday, temporary measures that further indebt nations can easily morph into long-term palliative care for the world’s most vulnerable countries.

“The logic of the loan, if there is any, is that the money is lent so the money can be repaid, and by definition that cannot happen in the context of a reconstruction loan,” said Jones. “What sticks in the throat even more is when the World Bank and ADB present these amounts as aid.”

Though the Philippines has made progress in reducing its debt burden over the past decade – in large part due to one-time payments from wide-scale privatisations – the country may find itself in a similar state of climate-induced paralysis as soon as the next typhoon season.

Marcos’ legacy

President Marcos, who is said to have stolen as much as 10 billion dollars during his 21-year rule, borrowed 5.5 billion from the IMF and World Bank and a further 3.5 billion through bilateral deals with foreign governments.

Among the many fraudulent agreements Marcos was able to skim from were a set of U.S. loans earmarked for a Westinghouse-built Nuclear Power Plant on the Baatan peninsula. The structure, which was eventually built along a seismic fault line and next to a volcano and would cost the Philippines 2.3 billion dollars, never produced a single watt of electricity – though it did help finance Marcos’ wife Imelda’s infamous collection of over 3,000 pairs of shoes.

In 2008, the Philippine Congress suspended payments on 11 “illegitimate loans,” only to be reversed by then president Arroyo, under pressure from the IMF and fearful of interest rate repercussions.

Again, in 2011, Congress attempted a debt audit, but the committee chairman was quickly dismissed by President Aquino.

“They don’t want a precedent to be set,” said Jones.

Multilateral lenders, larger and more easily tracked than private bondholders, fear a forensic analysis of the debt could unearth billions in illegitimate loans, opening the floodgates for cancellation. Governments, for their part, fear that unilateral targeted defaults would be punished severely by investors.

Both the World Bank and ADB have been financially supportive – through both grants and loans – of innovative cash transfer schemes and climate change mitigation programmes in the Philippines. But neither would comment on questions of climate reparations or of a debt audit in any form.

Rogier Van Den Brink, the World Bank’s lead economist in the Philippines, told IPS the country’s immediate needs were paramount.

“It is critical that reconstruction begins quickly to minimise the economic impact and more importantly to reduce the hardship for people, especially the poor and vulnerable,” said Van Den Brink.

Though the loans offer grace periods of between eight and 10 years and yields barely above interbank rates, they are nonetheless debt, says Ricardo Reyes, president of the Freedom from Debt Coalition.

“Filipinos are being asked to pay without any consultation,” Reyes told IPS.

Reyes is one of many activists who, following Marcos’ overthrow in 1986, turned their attention to what they saw as his lasting legacy – a severe debt overhang made possible by complicit Western governments.

“The conversation of those in government after Marcos has been the same: ‘rely on foreign loans’ was always a mantra for them,” said Reyes. “I think taking these loans is a fatal mistake.”

Asked to what extent the Philippines’ debt could be tied to corruption, a spokesperson for Finance Secretary Cesar Purisima told IPS, “It is difficult to make a guess, your guess is as good as mine.”

But efforts to do more than guess have been successful elsewhere.

In 2008, Ecuador carried out an extensive audit of its foreign debt and decided to default on 3.2 billion dollars of loans. That decision, at the height of the financial crisis, was timed propitiously and the country recently announced plans to return to the international bond market in 2014.

“Economically and morally it is outrageous for the Philippines to be paying so much out of country in debt payments when it’s been hit by this disaster that’s been influenced by carbon dioxide emissions from the richest countries in the world,” said Jones.

After Hurricane Sandy struck Jamaica a year ago, critics say the country's recovery was hampered by the IMF budget. Credit: European Commission/cc by 2.0

By Samuel Oakford
UNITED NATIONS, Nov 18 2013 (IPS)

On May 23, shortly after wrapping up negotiations on the International Monetary Fund’s (IMF) 958- million-dollar loan – its second in three years – to keep Jamaica out of default, the fund’s mission chief in the country, Jan Kees Martijn, set out to visit Croydon, a former plantation settlement in the mountainous northwest of the island.

Also in Croydon that day was Verene Shepherd, professor of social history at the University of the West Indies and chair of the national reparations commission."There’s been a lot of talk about the new IMF... but what they are still pushing is from 15 years ago.” -- Jake Johnston

Shepherd was recording her weekly radio show, “Talking History” – she was marking the anniversary of the hanging of Samuel Sharpe, leader of the slave rebellion of 1831-32 – when she ran into Martijn being led through town by the local chamber of commerce.

The phlegmatic Dutch technocrat listened as Shepherd discussed the brutal history and economic legacy of slavery, one difficult to compute in dollars and cents (though Shepherd has, at 7.5 trillion dollars), but something that many in the region feel should at least footnote every budget shortfall and each emergency loan taken.

“I tried to tell him that you are looking at the end result of colonisation,” Shepherd told IPS. “It’s easy to say ‘you’re independent now, stop complaining’ but it’s very hard to distance what is happening now from the past.”

Though Shepherd was aware that in October Jamaica would be one of 14 Caribbean countries to sue Britain, France and the Netherlands for slavery reparations, she wished Martijn well, and the IMF team continued on to their heritage tour.

A towering crisis

Since 1990, there have been 37 debt restructurings in the Caribbean, a problem critics say international bodies like the IMF are woefully unprepared to tackle.

Barbados, Belize, Jamaica, Antigua and Barbuda, Grenada, St. Kitts and Nevis, and St. Lucia all have public debt higher than 80 percent of GDP; in Jamaica the figure is 143.3 percent.

Already this year, bondholders in Belize took 10-20 percent cuts, and in St. Kitts and Nevis, investors have seen 50-percent “haircuts” on their principal.

In a February report, the IMF found that the “main challenges for Caribbean small states looking ahead include low growth, high debt and reducing vulnerabilities from natural disaster.”

Yet even after issuing a mea culpa of sorts for pushing austerity in Europe following the 2008 financial crisis, the IMF turned around and insisted those very policies – ones that led to contractions and unemployment – were the only way out of the Caribbean’s fiscal mess.

“There’s been a split in their policies for rich countries and for developing countries,” said Jake Johnston, research associate at the Centre for Economic Policy Research (CEPR). “There’s been a lot of talk about the new IMF and in some cases they have been more lenient, but when you are talking about developing countries what they are still pushing is from 15 years ago.”

Despite successive loans from the IMF, Jamaica still spends around half its budget on interest payments, crippling the country’s ability to provide social services and prepare for natural disasters.

After Hurricane Sandy struck Jamaica one year ago, “they couldn’t repair or prepare for the next one because they were constrained by the IMF budget,” Johnston told IPS.

The IMF said it was unable to comment for this story because a team was currently in the country.

However, holding back spending can lead to a dangerous feedback loop: experts predict that for every dollar a country forgoes today on climate change mitigation, it will spend six or seven on disaster response in a few years’ time.

Media portrayals of the crisis tend to rely on sources in the IMF and investment community and adopt the same terse, tough-love language they favour that serves to distance themselves from people on the ground. Depictions often treat extreme weather and zero-growth economies as if in a vacuum, without interrogating their climactic or historical causes.

A history too quickly forgotten

Caribbean economies were ushered into independence underdeveloped and limited by colonial regimes that favoured primary exports over industrialization.

Countries came to rely heavily on preferential trade agreements that the EU offered former colonies.

The 1973 oil price shock forced many to take out dollar-denominated loans to pay for energy.

When interest rates in the U.S. shot up, payments on those loans ballooned and countries in the region had no choice but to accept the structural adjustment that accompanied IMF and World Bank bailouts, a position they’ve been in ever since.

To make matters worse, the U.S. successfully sued to end the EU concessions, effectively shuttering banana growers unable to compete with huge U.S.-owned plantations in Central America.

Before, “all the produce was sold and that was money in the pockets of people throughout the island, even in the smallest villages,” Father Sean Doggett, a catholic priest in Grenada, told IPS. “That came to a very sudden stop around 1998.”

Countries turned to tourism, but the recovery from the global financial crisis has been slow and uneven – in Grenada, unemployment doubled between 2008 and 2012.

Doggett and other members of the Grenadian Conference of Churches (COC) sat down with the IMF and the Grenadian government in October, proposing the creation of a “conference of creditors” to negotiate the terms of a two-thirds debt reduction and called on the IMF to attach greater importance to poverty reduction and unemployment.

In 2013, Grenada’s debt payments will amount to over 250 percent of what it spends on education and health.

“There is no way that Grenada can pay off its debt as it stands,” Doggett told IPS.  “We need to get out of this cycle of indebtedness and get on a development path that is more sustainable.”

“Having debt hanging around the neck of people forever and ever is contrary to the biblical concept of Jubilee, of debt forgiveness… this is as much an issue of justice and the building of a better society,” he said.

Though Grenada may one day serve as a model for more inclusive debt forgiveness in poorer countries, Johnston insists an international mechanism to settle sovereign debt disputes is needed.

“Companies go bankrupt, cities go bankrupt but when countries cannot pay their debt they end up being punished for it. It’s clear there is a need internationally and especially for the Caribbean that they have a mechanism to work these things out.”

At the Commonwealth Heads of Government Meeting in Colombo last weekend, countries discussed exploring a debt swap plan that would pay off the principal of heavily indebted countries with money already pledged by wealthier countries to combat climate change.

“In return for having their debt paid, countries would agree to set aside the principal amount into a trust fund to finance climate change mitigation” over 10 to 15 years, Travis Mitchell, economic advisor at the Secretariat, told IPS.

But for Shepherd, all of this misses the point.

“When we are talking to the international community, it’s always what you can do for us,” said Shepherd. “You need to own up to the exploitation and underdevelopment.”

For countries that are responsible for a miniscule portion of greenhouse gas emissions yet suffer the most from climate change, taking the money wouldn’t address the economic and moral offences that saddled them with debt in the first place.

Any payment, Shepherd says, should come as redress, not as a form of charity that lets the developed world clear its conscience.

“When you frame it in the post-2015 agenda and look at the (U.N.) Millennium Development Goals, you realise those aren’t realised without a change of attitude, otherwise you’ll be here talking about the same thing 50 years hence.”

Aggressive creditors and investors are seriously undermining the ability of poor countries to deal sustainably with debt issues, academics and anti-poverty campaigners told a briefing at the U.S. Capitol on Wednesday.

Further, many of these investors are now based in the United States, after other important financial centres have moved to curtail such practices. As such, national lawmakers and international experts are stepping up calls for Washington both to follow suit domestically and to lead a related international effort.“If the hedge funds win, they will have a precedent that will allow them to dismantle 15 years of core U.S. debt restructuring policy." -- Jubilee's Eric LeCompte

“We need to acknowledge that aspects of the financial crisis could have been prevented if we had basic, common-sense principles on responsible lending and borrowing within the international financial system,” said Eric LeCompte, executive director of Jubilee USA, a network of anti-debt campaigners and a co-host of Wednesday’s briefing.

“In fact, both Northern and Southern countries that have gone through severe external debt crisis may have been saved the severe shocks to their economies and austerity restructuring if these reasonable principles were in place.”

(Jubilee released a full report on these proposed principles last year.)

Maxine Waters, a member of the House of Representatives, agreed, saying in a statement, “The time has come for the world to design a formal, more efficient system for managing the restructuring of sovereign debt.”

At issue is a strategy adopted by a small number of hedge funds to purchase reduced-rate debt from poor countries with little hope of repayment. These firms then file lawsuits against those governments for failure to repay, looking to scoop up government revenues and international aid monies when they eventually start to flow.

Perniciously, these firms maintain the lawsuits even as other investors typically agree to reduce some debts, accepting lower-than-expected returns that nonetheless allow the indebted government to begin to recover. Even a single such “holdout creditor” (also known as a “vulture fund”, for having purposefully sought out governments in fiscal distress) can gum up the entire debt-restructuring process.

“One of the most obvious remedies being discussed is that of collective action clauses, which allow a super-majority of creditors to force holdouts to accept a restructuring,” Rep. Waters noted Wednesday.

“Yet it would be wrong to rely solely on such clauses … This is why I favour the establishment of a formal, institutionalised, and politically recognised mechanism for restructuring the debt of bankrupt sovereigns, which would address all forms of debt.”

Other countries, most notably the United Kingdom, have already put in place restrictions aimed at undercutting the motivation to engage in such “vulture” speculation. Yet the United States has yet to do so.

On Wednesday, Cephas Lumina, the United Nations independent expert on the effects of foreign debt, noted that the U.S. is today a “preferred jurisdiction” for holdout creditors. He called on Washington to take “robust legislative measures … to limit the ability of vulture funds to pursue immoral profits at the expense of the poor.”

High stakes

In the aftermath of the 2008-09 financial crisis, government debt has become an increasingly important topic for all countries. And as austerity measures increasingly impact on poor communities, some advocates suggest that stronger international principles on sustainable lending practices could mitigate some of these ongoing ramifications.

Perhaps improbably, the issue of holdout creditors has heated up considerably here in Washington in recent months. Much of this is due to a landmark legal fight taking place between the government of Argentina and two New York-based hedge funds – NML Capital and Aurelius – that own some of the bonds Buenos Aires, then facing bankruptcy, defaulted on in 2001.

In a widely watched decision, in August a judge ordered the Argentine government to pay the two funds nearly 1.5 billion dollars. But Buenos Aires rejected the decision, saying that it would continue to repay its debts on its own terms (indeed, it is barred from paying the hedge funds, due to a law passed by the Argentine legislature in 2005).

It also warned that agreeing to pay off NML and Aurelius would embolden the 93 percent of Argentina’s other creditors – each of which has agreed to accept lower repayment – to demand their full share. Doing so, Argentina noted, would put the government back in the situation it faced in 2001.

The case has now been appealed to the U.S. Supreme Court. Although the justices refused to take on the issue in October, following a new appeal many observers now see a high probability the court will review the case.

Jubilee’s LeCompte says the stakes are high. Most countries facing holdout creditors, it should be noted, are far poorer than Argentina.

“The outcome could have some of the most far-reaching consequences for global poverty in our lifetimes,” he says.

“If the hedge funds win, they will have a precedent that will allow them to dismantle 15 years of core U.S. debt restructuring policy. With this precedent, the hedge funds will hurt some of the most fragile economies in the world.”

In June, even the International Monetary Fund was planning to file a brief on behalf of Argentina with the U.S. Supreme Court, its first ever such move. That decision was scuttled, however, reportedly due to lack of support from the U.S. government.

Legislative momentum?

Some see the issue’s suddenly high visibility as encouraging for potential legislative action.

“It would certainly be good timing right now, so we’ll probably see something rolling out,” Nathan Coplin, coordinator of the New Rules for Global Finance Coalition, a Washington-based international network of activists and researchers, told IPS.

“This will have a major precedent for sovereign debt for middle income and low-income countries. But there could also be an impact for the United States – given that one holdout creditor can stall the entire [restructuring] process, countries may consider issuing their bonds outside the U.S.”

It is currently unclear how much appetite there is in the U.S. Congress to tighten regulations on holdout creditors. Representative Waters has repeatedly introduced legislation to do so in past years, but none of these proposals was even brought up for a full vote.

Still, despite the significant lobbying power of the U.S. financial services industry, most investors don’t want to have anything to do with “vulture funds”.

“Certainly legitimate investors are in support of having a streamlined process, in which they can restructure the debt and move on,” Coplin says. “Where exactly the pushback is coming from is an interesting question – it’s hard to see how a small group of investors and hedge funds could influence or obstruct any kind of legislation.”

Brazil’s investments in Africa are steadily growing. The Odebrecht company leads the firms building the Cambambe hydropower complex on the Kwanza River in Angola. Credit: Mario Osava/IPS

By Fabiana Frayssinet
RIO DE JANEIRO, Sep 10 2013 (IPS)

The Brazilian government projects the cancellation of nearly 900 million dollars in debt owed by a dozen African countries as a gesture of solidarity. But others simply see an aim to expand the economic and political influence of South America’s powerhouse.

The decision by the left-wing government of Dilma Rousseff, which is now being studied by Congress, will especially benefit the Republic of Congo, which owes 350 million dollars, Tanzania (237 million), and Zambia (113 million).

The other beneficiaries are Ivory Coast, Gabon, Guinea-Bissau, Mauritania, Democratic Republic of Congo, Republic of Guinea, São Tomé and Príncipe, Senegal and Sudan.

The decision was described by Rousseff as a “two-way street that benefits both the African countries and Brazil.”

But it was not interpreted the same way by the opposition, and some lawmakers are seeking to block congressional approval.

Cases that have been called into question include those of Republic of Congo, Gabon and Sudan, which are facing international legal action for cases of corruption and even genocide.

Authorities in those countries are “corrupt figures who buy Louis Vuitton and Mercedes Benz luxury cars. Writing off the debt of governments that enjoy such privileges sends the wrong message,” said Senator José Agripino of the opposition Democratic Party.

A statement issued by Brazil’s foreign ministry says the forgiveness of the debt is based on the rules and principles of the Paris Club of rich creditor nations, aimed at easing the debt burden of poor countries.

The communiqué said the move was not just something that occurred to Brazil in a vacuum, but formed part of “an international practice with clear objectives to keep the debt burden from being an impediment to economic growth and anti-poverty efforts.”

In an interview with IPS, political scientist Williams Gonçalves at the Rio de Janeiro State University said the argument raised about dictatorships and “supposedly corrupt governments…has nothing to do with international relations.”

Gonçalves said the critics “were not scandalised” when the United States and other economic powers “protected and financed dictatorships in Latin America.”

“And today they are protecting similar regimes in the Middle East,” he said. “Nor are the defenders of human rights and democracy raising their voices.”

Brazil’s foreign policy defends respect for national sovereignty, Gonçalves said.

“Attaching political strings and interfering in local political systems is a common practice by the United States and other major powers,” he said. “Just as we don’t want anyone to meddle in our political life, we suppose others feel the same way.”

There are other aspects to the controversy.

Senator Alvaro Dias of the Brazilian Social Democracy Party mentioned the economic objectives.

Cancellation of the debt would reopen credit lines at Brazil’s National Economic and Social Development Bank (BNDES) and bolster the involvement of leading Brazilian business consortiums in the African countries in question.

Trade between Brazil and Africa climbed from five billion dollars in 2000 to 26.5 billion dollars in 2012, according to foreign ministry figures.

In Africa, Brazilian public and private enterprises have invested in sectors like oil, mining and major infrastructure works.

Marcelo Carreiro, a history professor at the Federal University of Rio de Janeiro, told IPS that Brazil’s Africa policy has “strategic objectives” such as “the extension of a strategic security area and the expansion of market access.”

That is reflected by the selection of countries, many of which are in West Africa, geographically across the ocean from Brazil’s impoverished but fast-growing Northeast, he said.

That could give rise to “the creation of a geostrategic Brazilian sphere in the south Atlantic, responsible for conceptually expanding this country’s frontier towards the African coast,” he said.

This would safeguard “not only its strategic pre-salt area (the ultra-deep oil reserves hidden under a thick layer of salt off the coast of Brazil) but also the vast extension of Atlantic coast, in a ‘mare brasiliensis’,” protecting this country from future access by enemies to its territory.

The history professor said “this new carving up of Africa” is indicated by the inclusion of “the only country on the planet governed by a leader facing genocide charges,” the president of Sudan, Omar al-Bashir, who is wanted by the International Criminal Court.

“Sudan is triply attractive for Brazil: it is rich in oil, in need of civil construction, and hungry for industrial and agricultural goods,” Carreiro said.

“It is possibly the most advantageous market in Africa, for the Brazilian economy,” he added.

Closer ties would bring additional advantages, such as support for Brazil’s aspirations to a permanent seat on the United Nations Security Council.

But Gonçalves is not shocked by this interpretation. “The forgiveness of the debts of small states by large economies is a common thing,” he said.

“The technical explanation for this cancellation is clearing the slate for those countries to pave the way for loans from the BNDES that favour the activities of large (Brazilian) companies,” he added.

But the political science expert does not see this as running counter to the principles of aid. “Solidarity and cooperation are carried out by means of loans and the implementation of projects,” he said.

“International economic relations occur under the capitalist system, which means the aim is always profit,” he said.

But the analyst believes that unlike other kinds of aid, “these projects will be carried out under financial conditions and with social objectives that do not awaken the interest of the big industrialised economies.”

Investments by South America’s giant also reach Africa through the Brazilian Cooperation Agency (ABC), with a total of 50 million dollars in projects in agriculture, health and education in 2010.

Carreiro pointed out that shortly before the debt cancellation plan was announced in May, the Rousseff administration reported that ABC would be overhauled, and its aid would be increased by 300 million dollars, mainly for Africa.

“But that was apparently seen as too little, and Rousseff decided to speed up the decision, directly buying influence in key countries in Africa,” he said.

“Earmarking 300 million dollars for cooperation projects and writing off some 900 million dollars in debt for corrupt governments are two contradictory practices in a chaotic foreign policy,” Carreiro said.

A 2012 study by the Don Cabral Foundation showed that Brazil’s presence in Africa was growing, with 34 Brazilian multinational corporations operating in the continent. In the view of 44 percent of the companies surveyed, the government’s foreign policy over the last decade has fuelled expanding international involvement by Brazilian firms.

The Casa Rosada, the seat of the Argentine government, which is seeking to reopen a debt swap to overcome the legal action brought by “vulture funds”. Credit: Marcela Valente/IPS

By Marcela Valente
BUENOS AIRES, Aug 29 2013 (IPS)

As a sign of Argentina’s willingness to repay its bondholders, President Cristina Fernández introduced a bill for a new swap of the foreign debt held by “holdout” creditors who refused earlier restructurings after the country’s late 2001 default.

This time around, most of the opposition backs the proposal.

In the initiative that the Senate began to discuss on Wednesday Aug. 28, the government seeks authorisation to reopen the debt restructuring process for a second time.

Although 93 percent of bondholders accepted the earlier restructurings, in 2005 and 2010, the remaining seven percent refused the offer of about 35 cents on the dollar, and insisted on full repayment.

Through the restructuring, Argentina renegotiated 90 billion dollars in debt.

The new swap, expected to be approved by Congress, would offer the same conditions as the previous deal. The difference is that it would be open-ended, whereas the earlier exchanges gave bondholders only a few months to swap their debt.

“Equity is a foundation stone of this debt restructuring process,” states the bill, which prohibits offering holdouts who have brought legal action more favourable treatment than those who did not do so.

The government initiative is in response to the Friday Aug. 23 ruling by the U.S. Court of Appeals for the Second Circuit in New York – the last step before the Supreme Court – that upheld an earlier decision that Argentina must pay the holdouts in full.

Fausto Spotorno, an economist with the Centre for Economic Studies, told IPS that the bill “is very reasonable.”

“They should never have closed the swap. But opening it now is a good political signal to the justice system and could get some more of the bondholders to agree to an exchange,” he said.

Spotorno said that if the case was accepted by the Supreme Court, a favourable verdict for Argentina was unlikely.

The hedge funds that sued in federal court in New York for full payment of 1.3 billion dollars in Argentine bonds had acquired them in 2008 at 20 to 30 percent of their nominal value.

They are known as “vulture funds” – opportunistic investors who purchase the debt of heavily indebted countries cheap and then sue for full repayment.

The lawsuit in New York is led by hedge fund billionaire Paul Singer’s Elliott Management.

The bill presented by the Argentine government stresses that the holdouts who sued represent only a small portion of the unrestructured debt. It also points out that if they were paid 100 percent of the nominal value, as they are demanding, they would make a profit of 1,300 percent.

The bill also states that “it is common knowledge that our country is the object of ruthless legal attacks and heavy political pressure by these vulture funds.”

When she unveiled the proposal on Monday Aug. 26, centre-left President Fernández said the Aug. 23 U.S. court ruling was “unfair to our country” because it ignored the restructuring agreements reached with 93 percent of the bondholders.

She also said “we are serial payers, not serial debtors.”

Since the restructuring began, Argentina has serviced its debt punctually.

By 2003, the country’s debt represented 150 percent of GDP, the bill presented to the legislature states. The country has not had access to the global credit markets since 2002.

But as the economy began to recover from the 2001-2002 severe economic crisis, the debt situation began to improve as well.

According to the latest report by the Economy Ministry, as of late 2012 Argentina held 83 billion dollars in net debt, equivalent to 18.8 percent of GDP.

And with the payment of restructured bonds scheduled for September, the foreign currency denominated private debt to GDP ratio will drop to just 8.3 percent, Economy Minister Hernán Lorenzino said.

However, the country’s successful reduction of the debt burden is threatened by the small group of litigious hedge funds, which found their first ally in District Judge Thomas Griesa, who handed down the initial sentence in New York, in March.

The Aug. 23 ruling, which will be appealed by Argentina, dealt a blow to the restructuring process that Fernández’s late husband Néstor Kirchner, her predecessor, began while serving as president from 2003 to 2007.

If Argentina was forced to pay 100 percent of what the holdouts are owed in principal and accrued interest, the bondholders who agreed to the 2005 and 2010 restructurings could invoke the “most favoured creditor clause” and demand the same treatment.

Fernández also proposed that the voluntary debt swap invite holders of foreign-law bonds to exchange them for new debt that would be paid under Argentina’s local legislation, in order to evade eventual embargoes in case the Supreme Court upholds the Aug. 23 ruling.

The Radical Civic Union, the main opposition party in both houses of Congress, responded positively to the bill overall. But some of its leaders said the measure came too late, or contained overly critical language when referring to the holdout creditors and the judges.

The right-wing PRO also called the bill “reasonable.”

“Argentina has to do whatever it can to get the Court to open the case and turn around the sentence,” PRO lawmaker Federico Pinedo told IPS.

He said it was necessary to act “responsibly and in a serious manner, and to send out a message that we want to ensure equal conditions for all of the creditors. That is an argument that holds a great deal of weight with the Court.”

Many legislators, including members of the governing Frente para la Victoria, believe it will be difficult to get the vulture funds to agree to any kind of swap. But they say it is necessary to show a willingness to restructure the debt – as long as it is under conditions set by Argentina.

A recent U.S. court ruling over a fight between Argentina and its creditors on Wall Street will increase global poverty by making it easier for “vulture funds” to seize the assets of indebted nations, according to anti-debt campaigners who are urging the U.S. government to overturn the decision.

In 2001, Argentina suffered an extreme economic crisis that led it to default on nearly 100 billion dollars in debt. Since then the country has settled with 93 percent of its creditors on a plan to pay back about a third of what was originally owed.

The seven percent who are holding out, however, insist that Argentina must pay the full value of its defaulted bonds, despite the fact that many of those now holding those bonds never paid the full value themselves, having purchased the debt in the immediate wake of the 2001 crisis for a fraction of what they are now demanding.

The International Monetary Fund (IMF) has argued that a victory for Argentina’s holdout bondholders would undermine efforts to renegotiate debt held by other nations while also risking another major debt default in Argentina, which could have major consequences for global financial markets."[The case against Argentina] will set a precedent that will just have huge repercussions in terms of global poverty."
-- Eric LeCompte

In a Jul. 23 statement, the IMF said it was “deeply concerned about the broad systemic implications” of the case. The administration of U.S. President Barack Obama has similarly argued that how Argentina handles its debt is a matter of national sovereignty. However, the administration cancelled an IMF plan to side with Argentina in the U.S. legal system, maintaining that such support was premature.

That excuse may no longer hold. On Aug. 23, the U.S. Court of Appeals for the Second Circuit  – the last step before the Supreme Court – upheld an earlier decision that Argentina must pay its bondholders in full, to the tune of 1.3 billion dollars, rejecting claims of negative impacts on global financial markets as “speculative” and “hyperbolic”.

“We believe that the interest – one widely shared in the financial community – in maintaining New York’s status as one of the foremost commercial centres is advanced by requiring debtors, including foreign debtors, to pay their debts,” the court ruled.

The government of Argentina has appealed the case to the Supreme Court. Its creditors, meanwhile, have spent millions of dollars on a lobbying and public relations campaign aimed at increasing the political cost to the Obama administration of siding with Argentina before the high court.

Paul Singer – the billionaire CEO of Elliot Management and a major Republican donor whose subsidiary NML Capital is the lead plaintiff in the legal fight against Argentina – has singlehandedly spent millions of dollars funding right-wing think tanks, pundits and politicians who have painted Buenos Aires as an increasingly lawless ally of Iran, as previously reported by IPS.

The campaign has included position papers and letters from Singer-supported members of Congress suggesting Argentina may even be helping the Islamic Republic develop nuclear weapons.

A victory for Singer and Argentina’s other creditors could make Singer hundreds of millions of dollars. It could also have devastating consequences for the world’s poor.

Increasing profits and poverty

The hedge funds pursuing legal action against Argentina “are profiting off the backs of the poorest people in the world,” Eric LeCompte, executive director of Jubilee USA, told IPS. Wealthy by global standards, those suing Argentina also hold the debt of the some of the world’s poorest nations – and the case against Argentina is crucial to their long-term business strategy.

“Essentially, it will set a precedent that will just have huge repercussions in terms of global poverty,” LeCompte said. Representing a coalition that includes organised labour and hundreds of religious groups and anti-debt campaigners, LeCompte said his group is urging the Obama administration to maintain its support for Argentina in the U.S. legal system while also pursuing a legislative solution in Congress.

If the hedge funds prevail, “poor countries will have less access to credit, and it will be much more difficult to restructure debt,” LeCompte said. If Argentine bondholders successfully hold out for the full value of their bonds, that could encourage the holders of other defaulted debt to do the same, miring indebted nations in poverty.

Even if a nation in default has already renegotiated its debt payments with the vast majority of its creditors, as has Argentina, all it takes is one firm to hold a nation hostage. Instead of funding domestic priorities such as education and health care, developing countries and others facing economic distress could be stuck paying off foreign creditors for a generation or more. The cost of credit for these countries will rise as financial institutions balk at the increased risk of lending.

This has happened before. In countries such as Zambia and the Democratic Republic of Congo, U.S. hedge funds used courts around the world to seize assets of poor nations they claimed owed them money. They are planning to do the same elsewhere.

“These vulture funds have been buying up distressed debt across Eastern Europe, in Greece, in developing countries, waiting for the precedent of this case being set,” said LeCompte. He hoped the Obama administration would not be cowed by the public relations campaign against Argentina and would continue to stand up for the right of sovereign nations to renegotiate their debt, before the Supreme Court and elsewhere.

“If the Supreme Court doesn’t take the case or takes the case and rules against Argentina,” said LeCompte, “we would hope the Obama administration would take executive action to protect the international financial system from this reckless behaviour.”

Flooding in Trinidad's capital of Port of Spain in May 2013 left residents little choice but to wade through the deluge. Credit: Peter Richards/IPS

By Jewel Fraser
PORT OF SPAIN, Trinidad, Aug 19 2013 (IPS)

The Caribbean is in danger of becoming “a region of serial defaulters” with respect to international debt obligations, according to one expert, and this may partly be due to its economies suffering frequent shocks from natural disasters.

Caribbean nations are among the world’s most vulnerable to natural disasters, with the region being struck by 187 such disasters in the past 60 years.

According to an International Monetary Fund study entitled “Caribbean Small States: Challenges of High Debt and Low Growth” and published in February, “The effects of natural disasters on [the region’s] growth and debt are also significant,” and “many Caribbean economies face high and rising debt to GDP ratios that jeopardize prospects for medium-term debt sustainability and growth.”

Commenting on the region’s restructuring of loans after some countries had defaulted on bond payments, a Bloomberg news report quoted an expert in international finance from American University who claimed Caribbean governments find it easier to default on bond payments than to reduce their spending.

Over the past three years, a number of Caribbean countries have restructured bond payments, making this period one of the highest for defaults on loan agreements by Caribbean governments. The Bloomberg report cited Grenada, Jamaica and Belize as three of the Caribbean countries restructuring debt obligations.

However, Michael Hendrickson, an economic affairs officer with the Economic Commission for Latin America and the Caribbean (ECLAC), emphasised the pressures brought by natural disasters on these countries’ economies over the past decade.

“In Grenada, GDP contracted largely due to the fallout from Hurricane Ivan, the growth rate declined from 9.5 percent in 2003 (before Ivan) to -0.7 percent in 2004 (year of Ivan) then recovered strongly in 2005, with growth of 13.3 percent, no doubt related to strong reconstruction, i.e. investment, but declined again in 2006, after the investment had run its course.

“Jamaica also felt the impact of Ivan and its growth rate slowed from 3.7 percent in 2003 to 1.3 percent in 2004 [the year Ivan struck the island]. This reflected the impact on productive sectors such as agriculture, mining and tourism.

“Moreover, the impacts lingered into 2005, when the economy grew by only 0.9 percent. In Belize, growth slowed to 1.1 percent in 2007 from 5.1 percent in 2006, partly as a result of the impact of Hurricane Dean, owing to damage to agriculture and productive infrastructure,” he told IPS.

Regional governments’ tendency to fund social and economic development through borrowing rather than through establishing an appropriate framework for sustainable economic development has also contributed to the high debt to GDP ratio.

Some Caribbean countries “have debt levels that can be considered unsustainable”, Hendrickson said. “Moreover, debt service payments, namely, interest and principal repayments, absorbed a full 29 percent of government revenue in 2011.

“We are still collating numbers for 2012. This reduces the ability of governments to finance public investment and social protection programmes.”

The 2013 IMF study noted that “part of the build-up can be traced to the cost of natural disasters, successive years of fiscal deficit, public enterprise borrowing and off-balance-sheet spending, including for financial sector bailouts.”

An IMF working paper entitled “Macroeconomic Implications of Natural Disasters in the Caribbean” observes that following natural disasters in the Eastern Caribbean region, “the tendency appears to have been a marked increase in expenditure and a small reduction in total revenue (including grants) despite an increase in inflows of official assistance and aid.”

The working paper said this “is not surprising, as governments and households would be expected to borrow in response to temporary shocks.”

Since natural disasters affect two of the largest economic sectors in the region, tourism and agriculture, the impact on countries’ economic growth is considerable.

According to ECLAC’s “The Economics of Climate Change in the Caribbean Summary Report,” it is estimated that natural disasters due to climate change will likely cost countries in the subregion up to five percent of annual GDP between 2011 and 2050.

It is also estimated that GDP in the region has declined by about one percent annually over the past several years because of natural disasters.

However, because of their middle income status, the majority of the region is unable to benefit from international debt relief, says the 2013 IMF study on Caribbean debt. The study also noted that “only a few Caribbean countries still qualify for concessional borrowing at the World Bank.”

“Given the exceptionally high costs of natural disasters, small states in the Caribbean should be seen as frontline candidates for support from climate-change funding,” the IMF report stated.

The president of the Caribbean Development Bank (CDB), Dr. Warren Smith, also stated a case for increased insurance coverage to help offset the impact of natural disasters due to climate change, at a recent meeting of the CDB’s governors.

He made specific reference to the region’s need to make greater use of the Caribbean Catastrophe Risk Insurance Facility (CCRIF), an organisation set up to insure Caribbean countries against natural disasters.

Dr. Simon Young, who heads Caribbean Risk Managers Ltd., which supervises most of the technical aspects of CCRIF, said 16 countries in the region have policies with CCRIF.

“Those policies cover hurricane and earthquake and the total amount of risk that is covered amounts to just over 600 million” for all 16 countries, he told IPS.

Dr. Young conceded, “It is not adequate, but the adequacy of the coverage is a function of the countries’ ability to pay premiums that would be needed to buy adequate coverage. CCRIF provides premiums at less than half of what the commercial market would require.”

Yet, many countries find it difficult to pay for coverage even at those preferential rates. As a result, the insurance coverage has provided only “a very small amount” of compensation to islands hit by natural disasters in recent years.

Dr. Young added that insurance coverage should not be seen as a “silver bullet” for disaster risk reduction.

“Caribbean countries need to look for cost efficient ways to manage disaster risk reduction,” he said, and CCRIF provides just one tool for doing so.

Paul Singer at the World Economic Forum in Davos, Switzerland, Jan. 23, 2013. Credit: WEF/cc by 2.0

By Charles Davis
LOS ANGELES, Jul 31 2013 (IPS)

Vulture capitalist Paul Singer has hundreds of millions of dollars at stake in his legal battle with Argentina over the country’s 2001 debt default.

The promise of a huge payday has led the Wall Street hedge fund manager to sink a small fortune into a campaign against the South American nation portraying it as a close – and anti-U.S. – ally of the Islamic Republic of Iran. (See series, Part One)

One way he has done this is by issuing press releases through the American Task Force Argentina (ATFA), a trade group he helped found, and buying full-page ads in major newspapers.

Giving money to politicians is another way to affect the debate in the United States.

Senator Mark Kirk, an Illinois Republican, has been a vocal critic of Argentina, writing a letter to the country’s president denouncing her agreement with Iran to investigate the the 1994 bombing of the Asociación Mutual Israelita Argentina (AMIA) in Buenos Aires. That letter was later quoted in an ATFA ad.

As it turns out, Kirk has received more than 95,000 dollars from employees of Singer’s firm, Elliott Management, according to the Centre for Responsive Politics. Indeed, many letters expressing concern about Argentina’s ties to Iran appear are signed by lawmakers who have received campaign cash from Singer and his close associates.

A Jul. 10 letter to Attorney General Eric Holder, for instance, urged the Justice Department not to side with Argentina in its legal battle before the Supreme Court, citing both the AMIA agreement and Argentina’s expanding trade with the Islamic Republic “at a time when the rest of the world (including the United States) is attempting to isolate Iran to pressure it to give up its nuclear programme.”

“Rewarding Argentina’s decision to flout well-established international principles regarding the orderly restructuring of sovereign debt has clearly emboldened its leaders to defy other international norms with impunity,” the 12 lawmakers wrote.

Those who signed the letter received more than 200,000 dollars last year from companies and PACs tied to Singer.

One signer, Congressman Michael Grimm, a New York Republican on the House Financial Services Committee, was reelected to Congress last year after receiving 38,000 dollars from Elliott Management, nearly twice as much as his next largest donor.

Grimm has cosponsored legislation demanding “full compensation” for Argentina’s bondholders – the sponsor of that bill, former Congressman Connie Mack, took in 39,000 dollars from Singer’s company – and has urged the Barack Obama administration to investigate Argentina’s relationship with Iran. ATFA has commended Grimm for his work.

Another lawmaker who signed the letter to Holder is Ileana Ros-Lehtinen, a Florida Republican who chairs the House Foreign Affairs Committee. She accuses the Argentine government of colluding with the Islamic Republic to cover up its alleged role in the AMIA bombing and undermining U.S. interests “by giving Iran a larger footprint in the Western Hemisphere”.

But she isn’t just worried about Iranian-backed terrorism. In a 2012 press release, she said it was “troubling that Argentina refuses to honor its outstanding debts, and evades U.S. court decisions.”

Ros-Lehtinen received 108,000 dollars last year from the American Unity PAC. The PAC was founded in 2012 with a one-million-dollar investment from Singer, accounting for more than a third of the group’s budget.

New Jersey Republican Scott Garrett, chair of the House Financial Services subcommittee on capital markets, also signed the letter to Holder. On Jun. 7, 2012, Garrett held a hearing to address the Obama administration’s support for “deadbeat foreign governments . . . at the expense of our own U.S. investors.”

At the hearing, he decried that “U.S. investors are taking billions of dollars in losses, despite Argentina having the money to pay the bill.”

Garrett received 35,000 dollars from employees at Elliott Management last year, more than all but one of his other campaign contributors.

On Jul. 9, a House subcommittee chaired by South Carolina Republican Jeff Duncan held a hearing entitled “Threat to the Homeland: Iran’s Extending Influence in the Western Hemisphere”, the primary purpose of which was to rebut a recent report from the State Department that said Iran’s influence was on the decline.

Duncan received 10,000 dollars in 2012 from the Every Republican is Crucial PAC, which was heavily supported by the executives of Wall Street hedge funds, including Singer.

At the hearing, Douglas Farah, a former Washington Post reporter turned right-wing foreign policy analyst, testified that Argentina “is rapidly becoming one of Iran’s most important allies.”

He accused the government of Cristina Fernández de Kirchner of taking steps “aimed at absolving senior Iranian leaders of their responsibility in a major terrorist attack,” while also embracing “a series of seemingly irrational economic and political polices that favour transnational organised crime, are overtly hostile to U.S. interests, and could offer Iran a lifeline in both its economic crisis and its nuclear programme.”

That testimony was followed by a Jul. 11 letter to Secretary of State John Kerry, signed by a bipartisan group of politicians, including Singer-supported lawmakers Duncan and Grimm.

The letter, which warned that “Argentina may be seeking to aid Iran’s illicit nuclear weapons programme,” urged the secretary to weigh the Fernández government’s “ties with the world’s leading sponsor of terrorism” when considering whether the State Department will side with Argentina in its legal battle with U.S. hedge funds.

Farah, whose testimony was cited in the letter, wrote a Jun. 26 column for the Miami Herald in which he referred to Argentina’s “increasingly cozy relationship with the ayatollahs,” citing the 2012 Nisman report to claim Iran is using the country as a base from which to conduct intelligence and terror operations with the ultimate goal of “exporting the Iranian revolution”.

The column also asserts that the president-elect of Iran “would have been infinitely familiar with the planning” of the 1994 AMIA bombing, a claim echoed by other right-wing pundits but which Nisman himself rejected a day before the column was published.

The column was co-authored by Mark Dubowitz, executive director of the Foundation for Defence of Democracies (FDD), a neoconservative think tank that has been highly critical of Argentina’s relations with Iran. This year, FDD and its analysts have published more than a half-dozen such critiques.

“Why is Argentina letting Iran examine the 1994 AMIA bombing in Buenos Aires, a crime Hezbollah surely committed?” asked Lee Smith, an editor at The Weekly Standard and fellow at FDD, in a column for Tablet magazine. In The Atlantic, FDD’s vice president of research, Jonathan Schanzer, explored the “dark connections between Argentina’s government and Tehran”.

Since 2008, Singer has given FDD at least 3.6 million dollars, according to a 2011 tax filing seen by IPS.

Conservative connections

FDD is but one of many neoconservative organisations with ties to Singer. Since there aren’t that many neoconservatives to begin with, those who don’t recoil at the label all tend to know each other – and serve on each other’s boards.

William Kristol, publisher of The Weekly Standard, serves on the board of the Singer-funded FDD, as well as the Manhattan Institute, a New York think tank that advocates hands-off capitalism and an interventionist military policy; Singer is the chairman of the institute’s board.

In the small world of neoconservative politics, even when there aren’t necessarily financial ties, everyone still knows each other. Still, there are usually financial ties.

In March, Roger Noriega, another former Bush administration official, wrote a piece with José Cárdenas – another Bush official who now works at Noriega’s consulting firm – calling on the U.S. government to hold Argentina accountable “for its failures to abide by its obligations to international financial institutions” and “troubling alliances with rogue governments”. The piece was published by the American Enterprise Institute (AEI), an influential neoconservative think tank in Washington.

Noriega has been paid at least 60,000 dollars (in 2007) by Elliott Management to lobby on the issue of “Sovereign Debt Owed to a U.S. Company.” A tax filing that was mistakenly disclosed and reported on by The Nation shows that the publisher of Noriega’s piece, AEI, received 1.1 million dollars from Singer in 2009. Filings for subsequent years have not been made public.

Asked to comment, an AEI spokesperson told IPS that the think tank had “looked into the matter” and found Noriega “has no conflicts of interest in this regard”.

The other people and organisations named in this article did not respond to requests for comment.

Money is power

Singer has used his riches the way a lot of other wealthy people do: to get richer, of course, but also to promote what he believes – and fund the politicians and pundits who will promote it too.

At the very least, those who benefit from his generosity are going to think twice about opposing his interests; one doesn’t bite the hand that feeds. Some may even see the money they receive from Singer as a reason to actively promote his interests.

One thing is clear: no matter how his case against Argentina turns out, Paul Singer is going to be a very rich and powerful man. If he wins, though, he will be richer. And money in the United States means the power to shape the debate not just on financial matters, but war and peace.

Excerpt:

By Charles Davis
LOS ANGELES, Jul 29 2013 (IPS)

When Argentina defaulted on its national debt in 2001, U.S. hedge funds swooped in to buy the nation’s bonds at pennies on the dollar, confident they would eventually prevail in the U.S. legal system and force the country to pay out in full.

That battle is set to reach the Supreme Court later this year, but the country’s creditors on Wall Street – labeled “vulture capitalists” by their critics – are also making their case in Congress and the court of public opinion, with a current media campaign aimed at painting Argentina as an increasingly rogue nation in bed with Washington’s enemies.

The public relations effort, which focuses on Argentina’s increasingly friendly relations with Iran, comes as the administration of U.S. President Barack Obama is weighing whether to side with Argentina before the Supreme Court in its battle with Wall Street. According to The Washington Post, officials from the Justice Department, Treasury Department and State Department met Jul. 12 with lawyers from both sides to discuss the case.

In previous court filings, the Obama administration has argued that Argentina’s debt is not a matter for the U.S. legal system, reflecting concerns that a victory for its holdout bondholders could cause another default and complicate future debt restructuring plans for other nations.

However, Argentina’s bondholders, including one of the top financiers of right-wing politics in the U.S., have a string of victories under their belt. In October 2012, a federal appeals court ruled that the South American nation and member of the G20 must pay out more than 1.3 billion dollars to its creditors.

Meanwhile, the International Monetary Fund (IMF) announced Jul. 24 that it would not formally side with Argentina in its U.S. legal battle. An IMF statement cited opposition from the Obama administration.

That the White House is backing away from its earlier defences of Argentina indicates that the millions of dollars U.S. hedge funds have spent lobbying members of the administration, Congress and the press are starting to change the debate, with Iran about as popular as Iraq was in 2002.

“We do whatever we can to get our government and media’s attention focused on what a bad actor Argentina is,” Robert Raben, executive director of the American Task Force Argentina (ATFA), recently explained to The Huffington Post.

An assistant attorney general under President Bill Clinton (1993-2001), Raben’s group was founded by Argentina’s holdout bondholders and, to date, has spent at least 3.8 million dollars on its efforts to paint Argentina in a bad light. But the money it has spent pales in comparison to what ATFA’s funders stand to gain.

In 2008, hedge fund NML Capital – whose parent company Elliott Management, led by major Republican donor Paul Singer, is spearheading the legal and political battle over Argentina’s debt obligations – paid 48 million dollars for bonds that prior to the country’s default had been valued at over 300 million dollars.

After the default, more than 92 percent of Argentina’s bondholders agreed to accept a fraction of what they were originally owed as part of a negotiated settlement. NML, however, insists Argentina pay out the full 370 million dollars, which would be a return of more than 770 percent on the firm’s initial investment.

Singer has done this before, purchasing bonds worth around 30 million dollars from the world’s poorest country, the Democratic Republic of Congo, and suing for repayment of over 100 million dollars. In the case of Argentina, the groups behind ATFA stand to gain more than 1.3 billion dollars.

Including fights going on in other jurisdictions, however, Singer alone ultimately stands to gain more than two billion dollars in his battle with the South American nation. But it’s not just about debt anymore.

A request for comment from ATFA was not responded to by deadline.

Fear of an Iranian planet

Paul Singer is a very rich man – one of the 400 richest in the world. According to Forbes, the hedge fund manager and founder of Elliott Management has a net worth of 1.3 billion dollars. That wealth has enabled him to become one of the top funders of the Republican Party.

In 2012, he gave more than one million dollars to the party’s failed presidential candidate, Mitt Romney, and millions more to those lower down on the ballot. Employees of his firm, meanwhile, gave more than three million dollars to various politicians, making his company one of the top 100 funders of U.S. politics. And those politics are decidedly to the right.

In 2007, Singer described himself as a believer in American exceptionalism, noting that he has given “millions of dollars to Republican organizations that emphasize a strong military and support Israel.” Speaking to the New York Times, Singer explained that he believes the West “finds itself at an early stage of a drawn-out existential struggle with radical strains of pan-national Islamists.”

In the case of Argentina’s relations with Iran, which have grown to more than one billion dollars per year in trade, he finds his financial interests and fear of radical Islam perfectly aligned: by stoking fear of the latter, the U.S. government may be less inclined to interfere with the former.

“What’s the TRUTH About Argentina’s Deal With Iran?” asks a recent full-page ad from ATFA placed in The Washington Post. The deal in question concerns an agreement announced by the governments of Argentina and Iran to open a “Truth Commission” examining the 1994 bombing of a Jewish community centre in Buenos Aires, the Asociación Mutual Israelita Argentina (AMIA), which killed 85 people and injured more than 300.

Another ATFA ad featuring photos of Argentina’s president Cristina Fernández de Kirchner and outgoing Iranian president Mahmoud Ahmadenijad poses the question: “A Pact with the Devil?”

A 2006 report from Argentine prosecutor Alberto Nisman fingered Iran as the culprit, allegedly using the Lebanese group Hezbollah as a proxy. That led to INTERPOL arrest warrants being issued for several high-level Iranian officials.

An updated 2013 report from Nisman, oft-cited in the media campaign against Argentina, claimed the attack was but one piece of evidence for the existence of an extensive Iranian intelligence apparatus throughout South America that has only grown since the AMIA attack, a conclusion that contradicts the US State Department’s recent assessment that any influence Iran had in the region is now “waning”.

No one has ever been convicted in the AMIA case, which has been hampered by a botched prosecution and judicial corruption. Concerns have also been raised about the veracity of Nisman’s report, which claims Iran’s Supreme Leader, Ayatollah Khamenei, approved the bombing at a meeting in Tehran just months prior to the attack, a finding that is based on the testimony of a former Iranian intelligence official known as Aboghasem Mesbahi who defected from the Islamic Republic in 1996.

That defector previously told U.S. officials that Iran had funded and facilitated the Sep. 11, 2001, terrorist attacks in New York and Washington, claiming he was made aware of the authorisation by secret messages in newspapers. His testimony was dismissed by the 9/11 Commission.

In its ad, ATFA quotes a letter from Senators Kirsten Gillibrand, a Democrat from New York, and Mark Kirk, a Republican from Illinois, to President Kirchner expressing concern that the opening of the commission “will lead to a dismissal of charges and the whitewashing of this heinous crime”.

The ad also quotes a defiant Iranian politician stating that under “no circumstances” will the Islamic Republic allow its senior officials to be questioned by any Argentine judges or prosecutors.

Though not mentioned in the ad, Iran’s refusal to submit to the Argentine legal system is the ostensible reason for the “truth commission”, which would create a panel of independent jurists from third-party nations to assess the case and, alongside Argentine jurists, interview suspects in Iran.

The details of Argentina’s relationship with Iran – which consists mostly of agricultural exports – are not terribly important to ATFA, however. Instead, as its executive director put it, that group would simply like to know: “Why is Argentina willing to negotiate with Iran, but not with its law-abiding creditors?”

Argentina has of course successfully negotiated with nine out of 10 of its creditors. But the holdouts, led by Singer, think they can get the whole pot. (See series, Part Two)

Excerpt:

The fate of countries with major debt problems is at stake in federal courts in New York, which are to decide in April whether or not they accept Argentina’s proposal to the bondholders who rejected two restructurings of sovereign debt.

Since Argentina defaulted on nearly 100 billion dollars in debt in late 2001, close to 93 percent of the bonds have been restructured at a deep discount, with lower interest rates and at longer terms.

But a group of hedge funds that refused to participate in the 2005 and 2010 restructurings sued for full payment of 1.3 billion dollars in Argentine bonds in federal court in New York.

On Tuesday, the 2nd U.S. Circuit Court of Appeals in New York declined to grant a full-court rehearing of a decision by a three-judge panel that went against Argentina in October, ruling that this country had to deal with all of its debt holders equally.

The suit not only threatens to return Argentina’s debt restructuring process to square one. Experts warn that it could have an impact on the decision-making capacity of other countries that run into severe financial difficulties at times of global crisis.

The government of centre-left President Cristina Fernández has until Friday Mar. 29 to present a solution for making the payments to the hedge funds.

The government says it will offer the holdouts the same conditions as the ones accepted by the rest of the creditors in the 2010 restructuring: discounts, lower interest and longer terms.

But that would involve a new debt swap, which would require congressional approval because a law passed after 2010 banned the reopening of debt restructuring.

Argentina is now financially stable and makes its debt payments on time, despite the fact that it lost access to global credit markets after the December 2001 default, which was announced in the context of an economic and social meltdown.

According to the latest report by the Economy Ministry, as of mid-2012 Argentina holds 183 billion dollars in debt, equivalent to 41.5 percent of GDP, one of the lowest proportions in Latin America. The report did not include the defaulted bonds.

Up to now, the Fernández administration had refused to settle with the hedge funds, referring to them as “vulture funds” – opportunistic investors who purchase the debt of heavily indebted countries cheap and then sue for full repayment.

The lawsuit in New York is led by hedge fund billionaire Paul Singer’s Elliott Management. The hedge funds acquired the Argentine bonds at 20 to 30 percent of their nominal value.

If the courts finally come down on the side of the hedge funds, Argentine assets could be embargoed internationally.

Some experts in Argentina believe the U.S. court will accept the Fernández administration’s proposal, in order to put an end to the dispute and to defend the credibility of global payment systems.

But others are more sceptical.

Fernando Porta, an economist with Centro Redes, a research institute in Buenos Aires, told IPS that if the courts in New York refused to recognise Argentina’s restructuring proposal, “a huge level of uncertainty would be introduced in the system.”

“The potential negative impacts would go beyond Argentina and would throw into question the operation of the international debt restructuring system when countries are having trouble meeting their payments,” he said.

Porta said that with respect to debt restructuring, there are no multilateral agreements setting rules, but merely precedents that give the process predictability.

For that reason, he believes Argentina’s proposal “will be accepted in the end,” although several other obstacles may have to be overcome first.

But analyst Fausto Spotorno with the Orlando Ferreres y Asociados consultancy was less optimistic. “I don’t think this proposal will be accepted by the holdouts,” he said.

In Spotorno’s view, the New York appeals court is unlikely to accept Argentina’s offer if it does not have unanimous support among the creditors. “The holdouts have the first-instance ruling in their favour, which means they aren’t going to accept a proposal with discounts and longer terms now,” he said.

The analyst said it was naive to believe that the court would take into account the impact that its decision could have on future cases of debt restructuring. “New bond issues contain clauses that prevent this problem,” he noted.

He was referring to collective action clauses (CACs), first proposed by Mexico in 2003, which since then have been included in bond issues to facilitate eventual restructuring.

CACs allow a majority of bondholders to agree to a legally binding debt restructuring. By forcing potential holdouts to accept the restructuring if a large majority of other creditors do so, it provides protection against vulture funds.

The clauses were used controversially by Greece in 2010, when it introduced them retroactively to restructure the country’s debt and avoid default, according to “Un ensayo sobre las Cláusulas de Acción Colectiva”, a paper on collective action clauses published in Mexico.

The study, published this year by Mexican economists Alejandro Castañeda and Pablo Newman in the Gaceta de Economía journal, says the new mechanism became widely used as a result of the threat posed by opportunistic creditors in the cases of Argentina and Peru.

The European Union has required the inclusion of CACs in all new eurozone bond issues since January.

But they had already been incorporated by most countries in Latin America and other regions, with varying minimum percentages of support required from bondholders.

In their report, the Mexican academics point out that the bonds issued by Argentina in its debt swaps contain CACs, but older rules requiring unanimous acceptance of new conditions apply to the bonds held by the holdouts.

Under the older rules, if one single bondholder rejects the proposed new financial terms, the process can be blocked by litigation which, if successful, can also benefit the rest of the bondholders – and seriously affect the state issuing the bonds.

But there are still countries with bonds issued in the 1990s that would be affected by a resolution against Argentina.

Nearly 20 of the world’s largest creditor countries have announced that they would be cutting nearly half of Myanmar’s total foreign debt, worth some six billion dollars.

Those countries, which include the United States, United Kingdom and several members of the European Union, are part of the Paris Club, a group of 19 of the world’s largest donors. On Monday, the group stated that its members were aware of Myanmar’s “exceptional situation” and had agreed to a 50-percent cancellation of arrears and a seven-year grace period for the remainder.

On the sidelines, Norway and Japan came to separate agreements to cancel additional debts amounting to around four billion dollars. President Thein Sein, who has overseen more than two years of contested political and economic reforms in Myanmar, had reportedly made debt relief a priority for his administration.

The Paris Club move comes just a day after the World Bank and the Asian Development Bank (ADB) came to a separate agreement to restructure close to a billion additional dollars that Myanmar owed the institutions. This deal, made possible by a substantial “bridge loan” from Japan, will give the country economic breathing room as it works to emerge from decades of international isolation and almost nonexistent economic and social development.

The deals follow on an agreement signed last month stipulating that Myanmar would adhere to conditionalities set by the International Monetary Fund (IMF). Together, the accords signed in recent days clear up, at least temporarily, almost three-quarters of Myanmar’s total foreign debt.

Estimated by the IMF at around 15 billion dollars, that debt load has been described by some economists and diplomats as one of the most significant impediments to the new government’s plans for reforms and development.

Among other things, the new agreements will allow Myanmar leeway to engage in new programmes through the World Bank, which had been constrained in the extent to which it could engage with the country. Last week, the World Bank approved a new credit, worth 440 million dollars, aimed at strengthening the country’s macroeconomic climate – and beginning to pay back the Japanese government’s bridge loan.

Future saddling

Myanmar received significant foreign financing during the 1980s, but that was largely halted following a brutal crackdown on civil liberties that began in 1988. By the end of the 1990s, the military government, amidst broad stagnation and increasingly isolated on the international stage, essentially stopped paying its foreign debts.

As the past two years of reforms have taken hold, however, international donors and multinational companies have begun to eagerly flood back into the country; the World Bank Group re-opened Yangon offices in August. Yet the fact that Myanmar will now again be fully integrated into the international framework strikes some overly quick – and the terms of the new agreements as overly generous.

“These agreements allow large amounts of new lending, before any investigation has been made into how past loans did and did not benefit the people of Burma,” Tim Jones, a policy officer with the Jubilee Debt Campaign, an international anti-debt advocacy group, said Monday in a statement.

He also noted that the new World Bank and ADB deals, which simply restructure rather than cancel Myanmar’s debts, will now allow the government once again to engage in borrowing from these institutions.

“None of these deals save Burma any money now, but they commit future governments to making payments on debt they inherit,” he says. “This support for a military dictatorship could bind the hands of a hoped-for future democratic government.”

Indeed, for all of the changes of the past few years, Myanmar’s government is still dominated by the military, with President Thein Sein himself a former general. And despite suggestions of significant factionalisation within that force, it is far too early for many in and out of the country to believe that the Myanmarese military is in any way reformed.

“It is incredible that Burma gets billions of dollars of debt relief when its biggest spending is on the military,” Anna Roberts, executive director of Burma Campaign UK, said Monday. “Burma’s leaders should be on trial in The Hague, not getting special deals on debt relief.”

Unnecessary exception

The “specialness” of the new deals is of particular interest. Over the past decade, after all, the international community has made some progress in consolidating a set of principles by which it should deal with foreign debt amassed by developing countries.

“If two developing countries have the same amount of debt, we’d like them to get the same deal,” David Roodman, who researches aid and debt relief at the Center for Global Development, a Washington think tank, told IPS.

“But according to the norms that have been developed, Myanmar didn’t meet those requirements. So this agreement not only is an exception to those rules but undermines the rules-based approach more generally.”

In evolving discussions over the past 10 years, the international community has agreed to define eligibility for debt relief based on the sustainability of debt levels – the ratio of debt to gross domestic product (GDP), for instance, or the ratio of debt to exports.

Yet Roodman says that while the agreed level for debt to GDP is 30 percent, Myanmar’s debt stands at just 18 percent of GDP, almost half of the stipulated requirement. Likewise, the level for debt to exports has been agreed at 100 percent, while Myanmar’s stands somewhat lower at 85 percent.

“Further, the IMF has done some scenarios through modelling on the likely course of exports and GDP in coming years in Myanmar,” he says, “and they found that the debt load, if anything, is going shrink.”

The key to understanding the Paris Club decision, then, might have to do less with development than with foreign policy. From this perspective, while foreign governments may be successfully jockeying for position with Myanmarese officials, they may be losing valuable leverage that could still be required down the road.

Notably, Myanmar still owes around two billion dollars to China, the military’s closest ally for decades and a key reason many Western countries may be prioritising relations with Myanmar today. In a new blog post, Roodman notes that opposition leader Aung San Suu Kyi has in the past urged foreign governments to suspend rather than end economic sanctions.

“(T)he threat of easy reinstatement, in her judgment, would spur further reform,” he writes. “The analogous step in the debt dance was to refinance defaulted loans rather than cancel them. Just as sanctions can be permanently abolished later, so can debts be.”

Much of the anger in Egypt has been fuelled by labour demands. Credit: Mohammed Omer/IPS

By Walter García and Carey L. Biron
WASHINGTON, Sep 5 2012 (IPS)

As reports surfaced Tuesday that U.S. negotiators, in Cairo for the past week, are closing in on an agreement to cut a billion dollars from Egypt’s bilateral debt, the State Department here announced that a record-sized U.S. business delegation would travel to Egypt later this week.

Any debt relief, reportedly to be made up of unused U.S. aid, would signal the end of a year and a half of vacillating on the part of the United States over how to engage with Egypt’s post-Arab Spring governments, particularly that led by President Mohamed Morsi’s Muslim Brotherhood.

Doing so would also finally make good on a 2011 pledge that President Barack Obama made to renegotiate Egypt’s debt, a plan reiterated by U.S. Secretary of State Hilary Clinton’s visit to the country in July even as the programme did not go forward.

“Economic recovery is essential to any prospect Egypt has for a peaceful transition to democracy,” Neil Hicks, with Human Rights First, a Washington-based watchdog, said on Tuesday. “At this delicate time, when Egypt is emerging from over a year of political uncertainty and turmoil, the United States is right to offer debt relief.”

Originally, Washington’s offer was to “swap” a portion of Egypt’s bilateral debt to assist in job-creation. In July, Clinton had also noted a possible 60-million-dollar programme to support the creation of small- and medium-sized enterprises.

Although the details of the new package are yet to emerge, on Tuesday State Department spokesperson Patrick Ventrell noted that “dept swaps” remain “one of the options”.

Worryingly, after initial reports emerged of the talks, Egyptian Prime Minister Hisham Qandil stated that his government had not been officially consulted on any U.S. debt-relief plan, according to a report in a state-run newspaper on Tuesday.

President Morsi, having recently asserted his control over the military powers that had ruled Egypt since Mubarak’s downfall, is currently attempting to right the country’s floundering economy, which has been hit hard by spooked foreign investors and tourists in the aftermath of the January 2011 popular uprising that knocked longtime leader Hosni Mubarak from power.

The situation has exacerbated the country’s 35-billion-dollar external debt, threatening a balance-of-payments crisis. On Monday, the Egyptian pound dropped to its weakest point in more than seven years, as the Egyptian government attempts to make up a 25-billion-dollar budget gap.

First, to Beijing

Egypt currently owes the United States more than three billion dollars, particularly for a 1970s-era aid programme called Food for Peace. For years, the United States supported Egypt with around 250 million dollars in annual aid, in addition to around 1.2 billion dollars every year for military expenditure.

Recent years have seen rising frustration with U.S. positions in Egypt, not only for Washington’s longstanding support for Mubarak but also with U.S. officials’ lack of policy clarity in the aftermath of Mubarak’s fall.

Despite President Obama’s May 2011 pledge, for instance, little has taken place on this front in the intervening year and a half. Last week’s arrival of the U.S. government negotiating team in Cairo marked the first resumption in related talks in a year.

“Support for much-needed economic assistance to the Egyptian government will better enable U.S. policymakers to encourage Egypt’s leaders to move forward with essential political reforms and vital measures that protect basic rights and freedoms for all Egyptians,” Human Rights First’s Hicks says.

Indeed, analysts have made much of President Morsi’s decision to visit Beijing last week – before making his first state visit to Washington. Some suggests this highlights the raging war of influence in the Arab World and much of Africa between China and the United States.

During that trip, Chinese officials offered Egypt a 200-million-dollar loan and signed a series of investment agreements. In addition, the governments of Qatar and Saudi Arabia have already moved to shore up Egyptian coffers by offering two billion dollars apiece.

In late August, President Morsi also formally requested a 4.8-billion-dollar loan from the International Monetary Fund (IMF), which the United States backs. During a visit to Cairo by IMF head Christine Lagarde at that time, civil-society activists mounted protests expressing anxiety that the negotiations with the IMF were taking part in secret and could burden the Egyptian people with an even greater debt load in the future.

“Egypt is in a transitional democracy and needs international support to grow. But Egypt already has more than 35 billion dollars in debt, most of this from an illegitimate and corrupt former Egyptian regime. Making the Egyptian people pay this debt is a punishment they don’t deserve,” Eric LeCompte, executive director of the Jubilee USA Network, told IPS.

“As the largest debtor nation in the region, instead of piling up more of a debt burden, the nation needs to make already unsustainable debts more manageable – and lending institutions should consider debt relief as a way to free up resources for the new Egypt.”

Largest ever trade delegation

According to initial reports, U.S. negotiators are also putting together loan guarantees amounting to some 375 million dollars for U.S. investors interested in going into Egypt.

On Tuesday, the U.S. State Department announced the creation of “the largest ever trade delegation to the region”. That group, to visit Egypt Sep. 8-11, will include 100 senior executives from 50 U.S. companies and will be led by several top U.S. government officials, including Deputy Secretary of State Thomas Nides.

“Egypt’s potential for economic growth is unparalleled within the region,” Lionel Johnson, a vice president with the U.S. Chamber of Commerce, the world’s largest business lobby, said Tuesday in Washington. “The breathtaking pace and scope of the country’s transition to a more transparent and accountable governance will set the stage for even greater engagement by U.S. companies.”

Those companies currently confirmed to be taking part in the business delegation include large-scale military-services companies such as Boeing, Lockheed Martin and Raytheon; utilities such as General Electric; oil and chemical companies such as Dow, Cargill and Exxon Mobil; as well as a host of finance interests.

According to the U.S. Egypt Business Council, a part of the Chamber of Commerce, delegation members are likely to meet with President Morsi, Egyptian cabinet members and members of Parliament, as well as heads of political parties, business leaders and senior U.S. government representatives.

“During this critical phase of Egypt’s transition,” the U.S. Egypt Business Council states, explaining the rationale for the trip, “it is imperative that (U.S.) businesses have a profound appreciation of the nature and scope of recent developments, an understanding of Egypt’s economic and policy priorities and to underscore the continued commitment of the American business community to Egypt’s economic recovery and long-term development.”

According to official U.S. statistics, bilateral trade with Egypt amounted to around 8.2 billion dollars in 2011.

Twelve years after a global campaign successfully advocated the cancellation of some of the world’s poorest countries’ public debt, developing economies are again facing unsustainable debt burdens. Only this time, it is the private sector’s debt in developing economies that is inflating dangerously.

Children in Otjivero, Namibia. Credit: Servaas van den Bosch/IPS

A recent report by the Jubilee Debt Campaign, a coalition of organisations supporting debt relief and increased transparency in global financial markets, highlights that foreign debt payments of the private sector in impoverished countries have increased from four percent of export earnings in 2000, to 10 percent on average in 2010.

“Some countries like Ethiopia, Niger or Mozambique continue to spend as much on debt service as before the rounds of debt cancellation in 2000,” Tim Jones, who authored the report, told IPS. The governments of El Salvador, the Philippines and Sri Lanka also continue to spend a quarter of government revenue on foreign debt payments.

Debt payments of the private sector are now double those of the public sector in many of the world’s most fragile economies, the ‘State of Debt’ report argues.

“Generally, public debt has decreased because of debt cancellation or better economic prospects, but the private sector has become dangerously indebted in many developing countries, threatening development achievements,” Jones explained. “Nothing has been done to prevent the build up of large debts in developing countries through a very liberalised global financial system,” he added.

Despite the international community agreeing to cancel up to 125 billion dollars for 33 countries since 2000 under the Heavily Indebted Poor Countries (HIPC) initiative, the International Monetary Fund and World Bank predictions foresee foreign debt payments in the least developed countries (LDCs) increasing by one-third over the next few years, the report argues.

The swelling of unsustainable debt, which has afflicted the South since the 1970s, is now causing panic in Europe as well. What is happening in Greece today mirrors what has been happening in the developing world, the Jubilee Debt Campaign argues, observing that history is repeating itself in a world where “lenders can go on lending with impunity and borrowers will always have to pay the price”.

The issue of unsustainable debt came to the world’s attention when Mexico first defaulted in August 1982. Mexico faced another debt crisis in the 1990s, followed by East Asia, Russia, Brazil, Turkey, and Argentina, due to excessive borrowing by the private sector.

The Campaign’s research estimates that “in the 1950s and 1960s, the number of governments defaulting on their debts averaged four every twenty years. Since the 1970s this has risen to four every year.”

“We now have a global financial crisis where people in the Western world are experiencing what many people across the global South have experienced for the last 30 years. It’s amazing how this ideology of liberalisation still holds so much sway,” Jones marveled.

“Some countries have tried to re-regulate international lending in recent years, like Brazil, which imposed a tax on short-term foreign money coming into the country; Iceland as well (whose entire banking system collapsed in 2008, the country’s three largest banks having accrued debt exceeding six times the national GDP) has had a very different response to the global financial crisis: its government refused to take on the banking sector’s foreign debt, largely because the people stood up and refused to do that. Iceland is now recovering far better than other countries from its debt crisis.”

“More countries have been backing regulations on how money flows in and out of their territory, but there are barriers in the system, such as World Trade Organisation (WTO) agreements,” Jones added.

Since 2000, 32 developing countries have qualified for debt relief, their debt payments reduced from an average of 20 percent of government revenue in 1998 to less than five percent in 2010, according to the report. In countries qualifying for debt cancellation, primary school enrolment has increased from 63 percent of children to 83 percent in ten years.

The Jubilee Debt Campaign has been advocating the creation of an international debt court able to cancel unsustainable debts, arguing, “Many developing countries have been, and continue to be, locked in a debtor’s prison.”

The increasing burden of debt is also strongly felt in developing countries that did not qualify for the HIPC scheme, such as Kenya.

“There isn’t enough thinking around debt management policies and development outcomes,” Kiama Kaara, who heads the Kenya Debt Relief Network programmes in Nairobi, told IPS.

“Loans and development financing must be tied to the national development agenda, otherwise we will end up with more useless, ‘white elephant’ projects that drain national resources,” he added.

Kenya’s public debt increased from 46.8 percent of GDP to 48.9 percent today, according to the Network.

“Borrowing makes economic sense, but the level of prudence should increase,” Kaara explained. “This is particularly worrying in countries where the political elite is the same as the economic elite; the appetite for increasing domestic debt benefits banks controlled by influential players, who profit from the private sector’s debt despite the obvious conflict of interest.”

At a national level, civil society is increasingly mobilising to have a stronger say on the level of debt incurred by governments. The Kenya Debt Relief Network has been drafting a ‘Responsible Borrowing Charter’ to gauge loans against the country’s macroeconomic indicators.

“The IMF has been seeking to create a new mandate on how to regulate the movements of money between countries, but it is still very weak,” Jones told IPS. “We are making the same mistake with the European debt crisis as with the Latin American debt crisis in the past, by thinking austerity is the answer, and it just creates further decline in the economy and suffering for the people on the ground.”

(END)