DEBT AND THE CLIMATE CRISIS
There are three direct links between the climate crisis and the debt of large parts of the Global South:
**In order to service their debt, many resource-rich countries in the Global South are forced to exploit their fossil resources. The granting of extraction concessions to foreign corporations is a direct way for indebted countries to obtain the foreign currencies in which they must pay off their debts.
In our factsheet we outline the specific cases where countries in the Global South have been forced into fossil extraction to pay off debt.
High debt burdens rob many countries in the Global South of the space to finance a green transition towards a renewable energy system. High debt levels block both the means for a state-led and just transition as well as access to private capital through global financial markets.
In a recent paper co-published by Debt for Climate, we show in detail how debt blocks a just transition for many countries in the Global South.
Climate and debt vulnerability are interdependent. The lack of sufficient climate finance forces many climate-vulnerable countries to take on debt from foreign creditors after extreme weather events to deal with immediate damage and losses. The financial resources that flow out for debt service in the following years are not available for building climate-resilient infrastructure. This makes countries severely affected by the climate crisis even more vulnerable to the impacts of the climate crisis in the long run - with the consequence that they will have to pay higher interest rates for future borrowing, and thus eventually become more vulnerable to over-indebtedness as well.**
The European Network on Debt and Development (EURODAD) details the mechanisms of climate vulnerability and over-indebtedness here.
Debt and (neo-)colonialism
For centuries, powerful governments, institutions and corporations have used debt to control and exploit the resources of countries in the Global South for their own benefit.
However, in discussions about the debt of the Global South, this is often left out. Instead, the problem is repeatedly presented as technical at best or the fault of the corrupt and inefficient governments of the Global South at worst.
But these narratives fall short! They hide the central role of colonialism in the initial indebtedness of the Global South and fail to recognise that today's over-indebtedness of the Global South is largely the result of an unequal global financial architecture that is fundamentally biased towards the advantage of rich countries.
Debt is a mechanism that allows former colonial powers from the Global North to access labour and raw materials from the Global South without paying (adequately) for them, even after their colonies have formally gained independence.
History is replete with examples of debt being used as a tool against communities and countries, from Thomas Jefferson using debt to force American indigenous nations to sell their land in the 19th century, to France using debt to colonise Morocco in the early 1900s.
In this briefing by Debt Justice UK you will learn in detail and with a number of concrete examples about the colonial roots of the Global South's debt and how it is perpetuated in the wake of neo-colonial economic structures to this day.
FREQUENTLY ASKED QUESTIONS
Why is the debt illegitimate?
The creditors we're targeting - the International Monetary Fund and the World Bank, development banks, commercial banks and mega-investors - are truly the debtors of the people and the earth they continue to exploit. This is their climate and neocolonial debt.
This is why the debt that they hold, the one that's currently legal, is illegitimate: it perpetuates exploitation and is the exact opposite of the climate and neocolonial debt that remains to be paid.
And very often, a tiny local elite maintains itself by taking a huge part of the credited money without paying it back; whereas the many only see their debt burden sky-rocketing.
Lastly, the Global South, and poorer people in the North, pay several times more interest than what the rich pay for their debt. This debt is a trap!
How are creditors benefiting from Global South debt?
Especially private creditors - who hold most of the South’s debt - simply earn money with its interests, as they are higher than the interests in the North. Also, and especially when a country's highly indebted, this debt allows creditors to dictate poorer governments how they should govern.
Most often, this translates into investment protection, weak labour laws, boundless security spendings, commodification of nature - and, when there's a lot of debt at stake, even geopolitical alignment to the creditor.
The World Bank and development banks have been promising for decades that their debt enables poorer countries to get rich - in their terms -, particularly by fueling the South's trade with the North. But as long as richer governments, companies and people don't pay much more for what they take from the poorer ones, the South's debt enables more extraction towards the North, and not a power shift.
In this sense, this debt is also a convenient way for the rich to speak about their link to the poor: they're giving money that enables development. In truth, this is how they hide that they drive extraction and continue to pile up their climate and neocolonial debt towards the South.
Why and how are GN finance ministers blocking debt cancellation?
Because they don't want their - and their friends', i.e. the investors - money to disappear, they want to cash in on their credit. Because they want to leverage their credit, influencing the policy of other governments. And because they don't want to set what in their eyes is a dangerous precedent, as tomorrow's debt cancellation could justify further debt cancellations on the day after tomorrow.
In other words, they see debt cancellations as a loss of their power. This is not necessarily true! Debt cancellation could get them some respect from the Global South, some of the respect that they don't have today because of their extractive policies towards poorer countries.
Global North finance ministers block debt cancellation in four ways: Firstly, they simply don't cancel the debt that they or their governments' development bank hold. They also vote against cancellations in multilateral banks such as the IMF/World Bank. Furthermore, they don't pressure the private investors of their country to do so. And lastly, they don't even speak about it so that only a few officials know that cancellation is possible.
Debt for Climate is here to change that
What does neo-colonial debt exploitation look like exactly?
The principle of debt exploitation is simple: a rich group - a public bank, an investor, the World Bank, et cetera - offers a credit to a poorer one - a Global South government, for example. The latter accepts the offer, as "some money is more than nothing", and with the money, it also accepts the conditions that come with this debt.
Among these are obviously the repayment of the debt at higher interest rates than those of Global North debtors. Often, they're only the beginning of the story, as the debtors commit themselves to adopt policies such as lowering subsidies, wages and social protection and increasing regressive taxes such as consumption taxes.
Creditors such as the World Bank present these policies as attractive for foreign investors - which is true, but this attractiveness equals harm for the people.
In Chad for example, the World Bank has collaborated with Exxon, Chevron and Petronas and the government for the construction of a pipeline connecting landlocked Mali to a port in Cameroon. The pipeline is now working because of this credit, and the local people don't have anything of it but higher debt.
Their president, who was from the outset known for his corruption, and the oil companies took and take all the revenues. In 2022, Chad's creditors, who've been driving this and other extractive activities, refused to cancel the government's debt. But paying it back only means that Chadian people have to work more at low wages and that the extraction of their resources has to continue.
In this sense, Thomas Sankara, president of Burkina Faso, pointed out in his call for united debt cancellation shortly before his assassination in 1987 that “Debt is a tool which has enabled the rich world to develop, using the resources of the global south without having to pay a fair price”.
Is debt cancellation possible?
Every creditor can cancel the debt or some of the debt he holds through a simple contract. One example is the 1953 Agreement on German External Debts, by which several creditor governments cancelled an important part of the German debt: it's a signed piece of paper that names the creditor, the debtor and the debt that is being cancelled.
Debt of individuals and companies can be cancelled in the same way. Even if details change according to national law or the international practise of governments, the basics are the same. So, the stake’s rather if a creditor wants to cancel, and not if s/he can.
What would be the economic effect for the Global North?
Debt cancellation mainly impacts the ones who hold that debt in the North, i.e. banks, investors - they hold about two third of it - and governments - they hold about one third. They would lose a part of their property, and their livelihood wouldn't be endangered (contrary to the current state of affairs, which already harms the livelihood of millions of people).
The people in the North who don't hold debt, and this is the majority, wouldn't feel anything. The scenario differs a bit for countries that have large and investment-based pension funds such as the US, Norway and Australia - some of these pension funds hold Global South debt and their present and future pensioners are thus concerned by debt cancellation.
In that case, Global North governments can take additional measures that protect poorer people from this effect.
Some might argue that large-scale debt cancellation affects the general economic dynamism of the North, but this view is based on the wrong assumption that credit drives the economy and not work and climate.
Why are we not calling for debt swaps?
A Debt swap is an exchange of Global South debt against a pledge to conserve land, oceans to protect biodiversity or to lower greenhouse gas emissions. It is often big NGOs such as The Nature Conservancy and WWF that bring in the money and push for the swap contracts.
These contracts are mostly kept secret and even if they impact the ones who live in the region that is to be "protected", they don't allow for any participation. Once they're signed, Global South governments thus get a relief of some of their external debt and have to spend the freed money according to their pledge.
Some NGOs have been promoting debt for nature/climate swaps since the 1980s. They've never tried to change the game but to satisfy the guilty conscience of rich environmentalists, their own pockets, and to have a say in the government of "beautiful Global South nature".
Debt swaps not only confirm the legitimacy of Global South debt which truly is illegitimate, their terms are also dictated by NGOs, investors, the IMF/World Bank and rich governments and are thus truly undemocratic.
We call for a debt cancellation that allows a people-led, democratic transition and rejects any arrangement that takes the people's decisions.
Debt for Climate regularly organises webinars with leading academics, intellectuals and representatives of leading social movements. The webinars examine debt and its problematic impacts from different perspectives:
Feminist Movements Fighting Debt and the Climate Crisis
Women are caught in the crossfire of the multiplying and intersecting crises of debt, climate change and ecological collapse. How do debt, patriarchy, capitalism and colonialism intersect? How have feminist movements organised resistance?
This international webinar will focus on contributions from feminist movements that look back on a long history of struggle against debt.
Debt from the perspective of political economy
In this webinar, Fadhel Kaboub and Ndongo Samba Sylla, two leading economists and experts on financial colonialism, and Esteban Servat, Argentine activist and co-initiator of the Debt for Climate movement, discuss the concrete implications of cancelling debt. The following questions will be discussed: How did the debt of the Global South come about, and why is this debt illegitimate? What is the difference between debt in a foreign currency and in a country's own currency? What opportunities would debt cancellation offer the countries of the South - and what would it mean for creditors in the North?
70 years since debt cancellation for Germany - But what about the Global South?
In this webinar, Argentinean scientist and "Debt for Climate" activist Esteban Servat, internationally renowned anthropologist Jason Hickel and policy researcher Iolanda Fresnillo from the European Network on Debt and Development (EURODAD) speak.
A BRIEF HISTORY OF DEBT
Any history of debt must begin by acknowledging that societies choose how they relate to debt and for the longest time societies have made different choices. But the history that has led us to the sixth mass extinction which threatens all life on Earth follows a very particular sequence of choices made by a few and exported globally.
This is universal: in every culture there is exchange and every exchange is underpinned by a sense of fairness and reciprocity. Fairness does not mean like for like. What is fair or equal changes depending on the relations between people, the situation, culture, history and available materials and skills. In the moment of exchange there is debt and credit: one owes, another is owed.
The distribution of nature’s gifts is often unfair and the families with better land, better health and more members to work can accumulate more than less fortunate families. If the resulting divide in living standards is allowed to increase too much, it would provoke jealous actions that could tear the community apart. People everywhere developed practices to prevent excess inequality and greed that drives communities to the point of violence. Some cultures held all-in-common; others said a tax was owed from every family's harvest or earnings to the Gods, or a ruler, or to society itself and the collection was redistributed or used to build public works, temples or palaces. In many places, failing to share or pay the appropriate sacrifice was blamed for causing imbalances that would lead to terrible events that would inevitably destroy the community. In one way or another, everyone must pay their debt to the community.
Lending has been common for thousands of years. Credit allowed merchants to travel long distances to find buyers for commodities. Currencies appeared as a form of debt - every coin is the promise of value in relation to a real object. Then, wealthy individuals around the Mediterranean began lending and demanding interest - an extra amount as a rent for the service and risk of lending. Money-lending has the peculiar effect of alienating people from expecting equality from those in their community with better fortunes. Money-lending puts the burden onto those with the least wealth to find ways to increase their yield enough not only to survive - which they were struggling to do before - but to repay a loan and its interest to those who had surplus wealth to lend in the first place. Some cultures saw this led to increasing inequality and exploitation of the less fortunate and outlawed charging interest or ‘usury’, which is still haram according to the Koran, but others did not.
Inequality did increase. The wealthy bought better land and found ways to justify the imbalance. In times of war or crisis when communities need quick access to wealth, the rich would compete to be ‘protectors’ and were rewarded with honour, state contracts and political access that often made them even richer. This made a virtue of the wealth gap and many slowly became used to class and family divisions. Meanwhile, others could not pay their debts and became debt-slaves. In some places, those in debt slavery threatened to outnumber the ‘free’ people and there was the risk of revolution. Some executives declared debt forgiveness and redistributed the land. Sumerian rulers called wiping the slate clean like this, Ama-gi - 'return to the mother'. To many Jewish communities, and in the Bible, it is called 'Jubilee'. Other powers fought against popular uprisings for debt cancellation and championed the continued enrichment of a land-owning minority, Julius Caesar was one of these. Debt bondage continues today, Alaa Abd El Fattah remarked that in 2021 “a very very massive number” in Egyptian prisons is there for debt.
Religions changed, culture changed, conflicts carried on and finance continued its rise to power in Europe. A little over 600 years ago, private creditors financed the raids on what was later called South America expecting windfall interest - it was joked that the Portuguese ships that sailed to Brazil belonged to English creditors - and the wealthy developed a genocidal global market for abducting and using humans as chattel slaves.
European governments also fell into debts with high interest rates that they could not pay, often due to wars. Instead of redistributing wealth and land, which was now difficult in countries where the wealthy class had the most political and cultural access, governments created Central Banks to lend them money. The Bank of England was created 300 years ago to refinance the English state after its wars with France. The people exchanged their gold for 1.2 million pounds of bank notes in the name of King William III. The King was now £1.2m in debt to ‘his’ people - but he didn’t have to pay it back, the value of a bank note just had to stay stable.
European invaders took the rule of debt everywhere they went. They exported new machines, weapons, commodities and ideas and demanded to be paid in their own currencies, which meant a double debt since you must have traded something for pounds in order to buy something with pounds and the demand for pounds supported the English government by making the Central Bank currency stronger. Today, most sovereign debts are still paid in the currencies of the wealthiest nations: $, €, £.
Growing inequality between nations meant that Europeans were able to undercut local manufacturers. The ‘New World’ was a new market that fed European creditors and banks even more - growing their appetite to lend. And since all lending used national currencies and more Europeans had their wealth invested in banks, they became more interested in economic growth which keeps the value of their capital stable or growing. This meant finding new markets and new ways to exploit them and this created instability and conflict which required more lending. Soon Europe was at war with itself and dragged its colonies in too, spreading financial and human catastrophe across the world through its intricate web of debt and trade.
"The Allied and Associated Governments affirm and Germany accepts the responsibility of Germany and her allies for causing all the loss and damage to which the Allied and Associated Governments and their nationals have been subjected as a consequence of the war imposed upon them by the aggression of Germany and her allies."
Today, the IMF and the World Bank legitimise and police the global financial status quo. Their mission to prevent economic war means keeping powerful currencies stable, which requires new credit and economic growth that demands the discovery and exploitation of markets and the regular repayment of international debts and interest. Unlike rich nations, financially poorer countries are prohibited from uniting to repudiate debts (non-payment) or to create new exchanges (lending to their neighbours) - anything that could affect the dominance of European and American markets and currencies. Impoverished nations in the Global South are shackled with unpayable debts for building public and private infrastructure to serve global trade interests. This has enriched a new access-granting class in many countries who benefit from the new status quo and defend it by any means. Debt fuels corruption.
Over the last 70 years, leaders of the Global South like Thomas Sankara saw that their lands and people were rich in all things except the currencies of the North and the reason for this relative poverty - the debts they inherited - were the direct result of a particular and violent colonial history. They knew that the demand to repay sovereign debts with foreign currency was an unfair system that drained their cultures of their wealth, their self-determination and their futures. But few who spoke up survived their office - Sankara did not. Threat of military force or economic sanctions (i.e. economic war) backed up by the actions of the USA and Europe has linked the world together in a seemingly unbreakable edifice of international debt which continues to reward the wealthy and exploit those with least.
For the majority, who take on debt to survive, loan and interest repayments transfer hard-earned wages to a minority class of investors. This wealthy minority - ‘the 1%’ - invests in debt in order to extract more wealth and banks, the merchants of debt, are always willing to lend.
There are and have always been alternatives. Credit can be a dynamic tool for increasing living standards when lent within communities who have no interest in taking wealth from their neighbours who will lend back to them. Instead, the modern system of banks and nation-sized wealth managers like Blackrock and Vanguard has enriched a tiny minority and driven 54 nations into debt distress today - unable to pay their financial debts but too economically dangerous not to try.
This system and this history is the root of the climate and ecological catastrophe.
Unequal debt relationships drive extractivism and exploitation. The modern global debt architecture and its need for economic growth locks us into this pathway to mass extinction. It is also totally unstable as crashes and recessions continue to prove. But today’s political systems in the Global North are not equipped to dismantle the laws they made. Meanwhile, Global South countries are forced to take on new loans to rebuild after the latest climate ‘bombs’ drop on some of the poorest communities.
The former empire-states whose power was built on the back of slavery, fossil fuels, ecological destruction and odious debts owe a climate debt to the Global South.
To fall into the trap of believing that those with least must work harder to pay back those who profit from lending what they have in their power to lend is to add fuel to the system that is driving climate and ecological catastrophe.
It is right to demand justice and not build on the foundations of injustice.
It is right to call for that climate debt to be paid.
It is right to demand repair, redistribution of wealth and debt cancellation as a first and necessary step to enable climate action.
To demand it means that we remember history and grasp at hope because we are choosing the history that we want to write, together.
DEBT FOR CLIMATE!