Developing countries in Asia Pacific are trapped in the vicious cycle of debt. To say that the region is in distress or is in crisis is an understatement, and for decades, developing countries have been spending more of their revenues to pay their dues at the expense of the needs of their peoples. The COVID-19 pandemic heightened the reliance of developing countries to debt and while international finance institutions (IFIs) rapidly provided stimulus packages to respond to the pandemic, the money isn’t just enough.
Civil society’s call to cancel sovereign debt is louder than ever. To unpack and amplify this advocacy, Reality of Aid – Asia Pacific (RoA-AP) and Aid/Watch, together with Jubilee Australia, held the second Aid Talks Webinar last 25 June 2020 entitled, Cancelling Debt in Asia Pacific: Tackling the COVID-19 Health and Economic Crisis.
Iolanda Fresnillo of the European Network on Debt and Development (EURODAD) opened the discussion by describing the debt situation prior to COVID-19. According to her, beyond Asia Pacific and in the Global South, “more than 20% of global revenue was spent in debt servicing in 2018”. This means that developing countries have less to spend for basic social services such as education and health, which essentially contributed to the Global South’s failures in responding to the pandemic.
As export-oriented, global trade-dependent nations, the Global South faced a sharp decline in export revenue, which effectively exposed southern countries to external shocks of the pandemic. Moreover, dependency on tourism resulted in decreasing remittances. The current situation made developing nations turn to lenders – they needed to borrow more and pay more for the interest, Fresnillo added.
Hasan Mehedi of the Bangladesh Working Group on External Debt (BWGED) provided granular data on the current debt crisis in Bangladesh. With an USD 8.8 billion funding gap to respond to COVID-19, IFIs provided USD 2.3 billion worth of loans.This will be added to the country’s outstanding debt of USD 40 billion. Mehedi also pointed out that “lenders’ (both IFIs and donor governments) motivation is their different geopolitical interests in the country,” driving the poor people of Bangladesh into deeper poverty than alleviation.
The same goes for the small island states in the Pacific. Emeline Siale Ilolahia of the Pacific Islands Association of Non-Government Organizations (PIANGO) reiterated how the closing of their borders impacted the islands. Many lost their jobs in the tourism industry and seasonal working schemes in the agriculture sector affected farmers and the quantity of their produce.
The Pacific is also driven by trade and foreign investment. Communal lands were given to investors to build hotels, displacing Pacific communities. Moreover, many communities still do not have access to clean water and electricity. Ilolahia questioned the quality of aid in this regard, “Of all these years, with all the aid coming into governments to address poverty, where are the results?” CSOs in the Pacific are thus concerned with the increasing corporatization of development in their islands.
“The narrative and conversation is moving to the “new normal”. But how does this new normal going to look like? We can’t move to a new normal without recognizing the “old normal”– a system that doesn’t prioritize the interests of vulnerable communities,” added Ilolahia.
The “old normal” can thus be said as a systemic failure of the global financial system, and the cycle of debt facilitated this. According to Rodolfo Lahoy, Jr. of IBON International, “the debt problem grew in tandem with how neoliberal norms have become widespread”. For instance, “capital market liberalization and deregulation of capital flows were pushed by colonial forces to the South, effectively making them dependent on foreign capital,” he added.
With trade stoppage due to the pandemic, “Southern countries find themselves without foreign currency, hence, they turned to multilateral lenders… These multilateral institutions which push neoliberal norms are the same institutions that offer more debts, even if they’re concessional in nature,” Lahoy said.
How then could CSOs change the economic system that favors lenders?
Fresnillo said that emergency actions and systemic changes to switch the power balance are imperative. Participation of all creditors must be secured to provide debt relief to all those who need it. In fact, 76 countries could benefit from debt suspension and up to USD 40 billion in 2020 could be saved from external debt service.
Lahoy said that IBON International, along with other CSOs, also call for cancellation of debt payments that are due in 2020 and 2021 with no interest, charges, and penalties. “In the medium and long-term, there’s a need for bigger and permanent cancellations,” Lahoy reiterated. This will be significant especially if debts were proven to be odious, illegitimate, or have caused long-term problems to Southern development.
Mehedi agreed, “Solution is actually cancelling the current debts immediately,” and mentioned that CSOs in Bangladesh sent a letter to IFIs and bilateral and multilateral investors demanding them to cancel loan repayments.
Lahoy added that in shifting the power away from creditors and toward the peoples, social movements must play a big role. Development and financing decisions must be substantively influenced, and even led, by the peoples. Developing countries would also need progressive taxation and address dependence on debt, export commodities and remittances via people-driven strategic industrial policies and agricultural development.
There’s also a need for CSOs and institutions to revisit the implementation of development effectiveness in relation to debt relief, according to Ilolahia. Government priorities in economic development undermined social protection which exposed communities to COVID-19, thus, developing countries would need more open and transparent governments along with a civic space where CSOs can actively participate in decision-making.
“Aid Talks” is a webinar series discussing the most pressing issues on aid and development cooperation today and the critical issues surrounding it. “Aid Talks” aims to inform the public on how the Official Development Assistance (ODA), commonly known as aid provided by donor countries to developing nations and fragile states, is being utilized as ‘aid investment’ redirected to support private sector players and narrow security priorities over reducing inequality and poverty.