Austerity, economic recovery, and the debt trap

SALEEM SAMAD

Why developing nations such as Bangladesh must be especially wary of how they seek to recover from the Covid-19 fallout

Development economists and civil society organizations (CSOs) argue that austerity measures adopted by the governments of third-world countries are not a solution during the coronavirus crisis.

They raise questions about austerity, gradually imposed after the Covid-19 crisis due to the massive debt contract. Immediate suspension of debt payments and better still, cancellation of debt, must take priority.

Instead, they advise governments to opt for economic recovery. The economic recovery will only be possible from “debt relief” and “debt justice.”

Bangladesh and other developing countries have given special attention in the wake of the coronavirus crisis and engaged in servicing external debts to international financial institutions.

The governments are deliberately diverting funds from education, human development, and infrastructure development sectors, whereas the health and safety net programs are implemented under a shoe-string budget.

According to the United Nations Conference on Trade and Development (UNCTAD), the pandemic has pushed another 32 million people in poor countries into abject poverty.

Another report by the International Finance Institute highlights the $272 trillion global debt, a new high, in the third quarter of 2020 and warns us about the “attack of the debt tsunami.”

There are issues in which countries while seeking assistance from international financial institutions, are often imposed conditionalities that have not necessarily been negotiated with borrower states. These conditionalities are even seen in the context of the Covid-19 pandemic.

The government deliberately does not involve the citizens to participate in consultations, discussions, or negotiations. Such conditionalities increase the country's chances of falling into a “debt-trap.”

Ultimately, it is the people that have to foot the debt repayment after authorities impose additional taxes and levies to recover from the vicious cycle of debt.

According to standards of international law, international financial institutions should be held responsible for complicity in the imposition of economic reforms that violate human rights, which is well documented.

Governments and major multilateral institutions like the World Bank, the IMF, and regional development banks have used repayment of public debt to generalize policies that have damaged public health systems.

This has meant job cuts in the health sector, job instability, reduced numbers of hospital beds, closing down neighbourhood health services, increased medical costs both for care and medicines, under-investment in infrastructure and equipment, and privatization of various sections of the health sector along with public under-investment in research and development for treatment, which is to the advantage of big private pharmaceutical groups and companies.

Even before the Covid-19 pandemic broke out, these policies had already led to an enormous loss of human lives, and all around the world, health personnel were organizing protests.

Neither the World Bank nor the IMF have cancelled any debts since the beginning of the coronavirus pandemic.

Although they have made endless calculated declarations to give the impression that they are taking very strong measures. This is completely false.

Worse still, since March 2020, the IMF has extended the loan agreements that entail continuing with the structural measures enumerated above. As for the World Bank, since March 2020 it has received more in debt repayments from developing countries than it has paid out to finance either donations or loans.

Eminent development economist, Dr Atiur Rahman states that “We want to fight the coronavirus and, beyond that, improve the health and living conditions of populations, [for which] emergency measures must be taken.”

Immediate suspension of debt payments and cancellation of debt must take priority, suggests former Bangladesh Bank’s governor Dr Rahman.

The austerity measures do not contribute to economic recovery, but instead have negative consequences in terms of economic growth, debt ratios, and equality, and routinely result in a series of negative human rights impacts.

First published in the Dhaka Tribune, 8 December 2020

Saleem Samad is an independent journalist, media rights defender, recipient of Ashoka Fellowship and Hellman-Hammett Award. He can be reached at saleemsamad@hotmail.com; Twitter @saleemsamad

The depths of debt

SALEEM SAMAD

Developing countries such as Bangladesh are struggling to balance fighting Covid-19 and keep up with their growing public debt

The global leaders have realized that the coronavirus crisis has jolted the world from a slumber, to understand that the crisis has unveiled the spectre of a larger global crisis.

The health care crisis and its cascading economic consequences are predicted to further plunge many countries in the developing world into an unprecedented crisis, further pushing millions of people into poverty and starvation.

These conditions shine a strong light on the continuing debt problem that stands in the way of people’s survival -- the fight against inequality, the realization of their human rights, sovereignty and the self-determination of people, economic, gender, and ecological justice, and the pursuit of a dignified life.

Hundreds of international, regional, and civil society organizations (CSOs) including Action Aid, CADTM International, Oxfam, Third World Network, joined by 120 Bangladesh NGOs led by Coast Trust, are demanding to suspend the realization of debt instalments for all public debts of developing countries combating the Covid-19 pandemic so that the ongoing coronavirus crisis is not aggravated.

They call upon world leaders, national governments, and financial institutions both public and private, to take urgent action in compliance with their obligations and responsibilities, and commit to unconditional cancellation of public external debt payments.

The CSOs demanded the suspension of all instalments of public debt for at least the financial year 2020-2021 so that countries can develop the capacity to combat the pandemic and overcome the impact of this disaster on its citizens’ health, food, and economic vulnerabilities.

An international statement issued during Global Week (October 10-17) of action for debt cancellation sought the decisive and full solution to the debt problem as part of the profound transformation of economic and financial systems that the present crises so urgently demand.

Meanwhile, the CSO network appealed to the World Bank, International Monetary Fund (IMF), Asian Development Bank (ADB), Asian Infrastructure Investment Bank (AIIB), and other bilateral, regional, and multilateral development financiers of Bangladesh.

Bangladesh’s economy is severely under stress due to the additional burden of pandemic management, while the country has a budget deficit of $17.65 billion in the current financial year.

The CSOs in Bangladesh are trying to urgently bring to global attention that the government of Bangladesh for the current financial year is being forced to allocate $6.20bn for servicing external debts to international financial institutions.

They are urging the multilateral, regional, and bilateral financial institutions to strictly follow the suggestions made by the World Bank and IMF and suspend the servicing of the public debts for 2020, so that the government can use its resources to fund initiatives to help the people in overcoming the Covid-19 challenge.

On the other hand, the G-20 governments announced the Debt Service Suspension Initiative (DSSI) -- not a cancelation but merely an eight-month delay of up to $12bn worth of payments for public debts.

Much of this debt is illegitimate, the CSO network argues. The international creditors lend irresponsibly and unfairly, driven by predatory lending. The money is used to finance harmful projects and policies, failing to comply with legal and democratic requirements, is saddled with onerous and unjust terms, and incurred by private corporations but assumed by governments or incurred through public guarantees of private profits.

The conditional loans, including cuts in public services and social protection, and severe austerity programs, have also caused as great if not greater harm than debt servicing, especially on women and girls, indigenous people, and the most impoverished and vulnerable people and communities.

CSOs argue that the demand is much more than “debt relief,” but also for “debt justice.”

First published in the Dhaka Tribune on 24 November 2020

Saleem Samad is an independent journalist, media rights defender, and recipient of Ashoka Fellowship and Hellman-Hammett Award. He can be reached at saleemsamad@hotmail.com; Twitter @saleemsamad