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Africa and the International Monetary Fund 'debt police'

By Jehron Muhammad | Last updated: Mar 11, 2020 - 9:35:20 AM

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African countries have loaded up on dollar debt, leading some to worry that a tightening of global financial conditions could trigger borrowing problems in coming years, stated the Wall Street Journal.

According to a recent Quartz Africa article, “There is renewed concern about the sustainability of rising debt levels in many African countries. Much of this debt is being incurred through foreign currency denominated Eurobonds issued on international financial markets.”

Eurobond is an international bond issued that is denominated in a currency not native to the country where it is issued. A bond is an instrument of indebtedness of the bond issuer to bond holders.

Dr. Ndongo Samba Sylla
During a phone interview from his home in Senegal, Dr. Ndongo Samba Sylla, an economist said, “We (meaning Africa) is paying too much interest on debt.” Dr. Sylla is a development economist and research and program manager at the West Africa office of the Rosa Luxemburg Foundation. “Eurobond had nothing to do with political or economic risk. It is just (a) way of having subprime markets in Africa,” he added.

He explained aspects of the bailout from the financial crisis of 2007 and 2008. There was much capital central banks had created in developed countries like the U.S. Since these banks weren’t investing in economies that “weren’t dynamic,” and they wanted “good interest (rates) for their capital,” they put their capital in emerging markets in developing countries, said Dr. Sylla.

The International Monetary Fund (IMF) plays a key role in debt collection and guaranteeing payment on their wealthy clients’ investment. Dr. Sylla referred to the IMF as “debt police.”

“The IMF certainly doesn’t want to make its wealthy client oligarchies pay. It wants to squeeze economic surplus (through austerity programs) out of the labor force. So, countries are told that the way they can afford to pay their enormously growing dollar-denominated debt is to lower wages even more,” noted economist and anthropologist Michael Hudson, who specializes in the history of debt.

Also, the IMF is responsible for removing subsidies on staples as they’re doing in Sudan with wheat. Hudson’s most recent book, “…and forgive Them their Debts,” claims Jesus during his first sermon, which appears in Leviticus 25 (the Jubilee year), came to proclaim relief from debt.

Hudson says that “currency depreciation is another effective way” the IMF utilized in terms of debt collection, “because what is devalued is basically labor’s wages.”

“Other elements of exports have a common world price: energy, raw materials, capital goods, and credit under the dollar-centered international monetary system that the IMF seeks to maintain as a financial strait jacket,” he added.

According to the IMF’s ideological models, there’s no limit to how far you can lower wages by enough to make labor competitive in producing exports. The IMF and World Bank use junk economics to pretend that the way to pay debts owed to the wealthiest creditors and investors is to lower wages and impose regressive excise taxes, impose special taxes on necessities that labor needs—from food, energy and basic services supplied by public infrastructure.

Dr. Sylla says that the IMF holds countries hostage while they milk those economies for all that they’re worth. History is replete with examples of holding economies hostage.

In David Graeber’s book “Debt: The First 5000 years,” he writes after the Republic of Haiti defeated Napoleon’s army “France immediately insisted that the new republic owed 150 million francs (about $18 billion) in damages for the expropriated plantations, as well as the expenses of outfitting the failed military expeditions, and all other nations including the United States, agreed to impose an embargo on the country until it was paid.”

Graeber writes ever since, Haiti has been “a synonym for debt poverty, and human misery. …”

The high interest rates of Eurobonds includes the mismatch between the short-term duration of the debt that African governments have taken on by issuing Eurobonds compared to the long-term nature of the infrastructure projects they propose to fund with the money raised through Eurobonds, reports Quart Africa.

“The excessive need to attract investors is forcing African governments to borrow short-term to finance long-term projects.” Solutions might include governments using the money secured to fund profitable projects and use the profits from these projects to repay interest owed, Quart Africa continued. Countries should only utilize bonds with favorable yields and tenure, the outlet noted.

Hudson sums up the history of the world’s economic debt question stating: it “has always been— what will happen if debts cannot be paid?”

“Will there be a debt write-down in favor of debtors (as has been done for large corporations), or will creditors be allowed to foreclose (as is always done on personal debtors and mortgage-holders), leading to their political takeover of the assets of the economy—and the government’s public sector?”

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