Dr Owain Williams By: Dr Owain Williams
Lecturer in IR and Human Security
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28 Oct 2020 : COVID and the Old/New Politics of Debt

In the last two weeks the IMF and World Bank held their annual meeting. Top of the list was of course the COVID recovery and the role of the two International Financial Organisations in plotting the way out of the global depression. Both organisations have serious financial clout behind them. The IMF announced earlier in the year that it loan capacity for 2020 was USD$1 trillion, the World Bank family is also pumping over $160 billion in grants/loans into COVID recovery over the 15 months from March 2020, with yet more cash on the table.

What did make headlines is the IMF brief that stated that ‘progressive taxation’ and a form of Keynsian demand side stimulus were the obvious choice for recovery from the secondary effects of COVID on the global economy. The meeting also used a ‘green and just’ recovery as its badging. This startled many observers, but it should be noted that the IMF regularly produces these weird policy briefs and reports that seem to suggest volte face in its previous orientations. How it lends and the conditionalities it imposes are another matter. The fact is that many LMICs are facing real liquidity problems, at the level of businesses and government. Remittances and taxes are down; commodity export taxes down, as are revenues from oil. It is a disaster and countries are pleading for huge increases in drawing rights.

The IMF has lending power and it seems that it is insisting on conditionalities very reminiscent of the Structural Adjustment era – public spending, public sector wage caps, and privatisation are all in the frame. How much the disjuncture between rhetoric and the actualities of lending will seep through as the loans increase in volume. It is already clear that the loans that have emerged are not paying any attention to conditionalities such as pro-poor gearing or assisting the most vulnerable

In a recent policy brief for Jubilee Australia, Susan Engel Natalie Madkour and I started to look at the COVID packages offer from the Bank group and IMF.[1] It was a first dive, and we were particularly focused on health. Since then ActionAid has also produced a study, with further analysis from Bretton Woods Project and Oxfam also emerging. It is clear that the rhetoric of condition free loans for COVID relief are paper thin – in fact the conditionalities are present, as are in some loans very stringent repayment periods. Public sector wages are one key target. It seems that post-pandemic we will be back to the future in terms of mass desertion of public sector positions – including in health systems – because the pay on offer is beneath what can be earned elsewhere, including in the informal economy. Also, both the bank and IMF are persisting with the market as a means of servicing public and welfare goods areas – such as health. There appears no let up in this despite evident market failures in private health during the pandemic

Some analysis paints a brighter picture. Criticism is limited to loans and assistance being too slow, too small or not sustainability focused enough. I fear that it may be missing what an opportunity for the IFIs the pandemic presents. In a policy void for COVID recovery (the G20 anyone?; Europe struggling to agree on its own economic recovery course) the IFIs have an open field at present. No wonder the new President of the IMF spoke last week of a ‘new Bretton Woods moment’.  This is tempered by China who is already negotiating a raft of bilateral loans in Africa, in particular. There seems to be well over $500 billion already heading out from China, much of it in the form of ‘hidden loans’. China is also refusing any moratorium on its extant loans. There is power at play here, all thinly veiled by appeals to the lenders own debt ratings. All this as debt relief is still being stalled on existing loans, albeit tempered by suspension of some repayments during the pandemic. In the main, many of the highest debtor LMICs are paying more in loan repayments to the IFIs than they are on public services. The private sector has been especially hostile to any suspension of repayments for bank and other loans, and these sources of revenue now compete alongside bilateral state lenders and the IFIs in a form of hybrid structuring set of conditionalities for LMIC policy – COVID and before. There is a serious debt trap emerging as countries face a collective $25 trillion fall in global output by 2025.

Debt and the economic fallout of the pandemic threaten more than a lost decade for development. On the line at present are countries being saddled with huge debt, social dislocation, and lack of state capacities and fiscal space to respond in any self-determined fashion to economic challenges of recovery, climate change, or gearing public services to sustainable development based on any of the key drivers of the SDGs. The SDGs themselves would seem moribund unless collective actions steers fiscal and loan-driven global policy responses away from the neoliberal policy template. Markets in LMICs can provide only a fraction of the required support for populations, yet are still the go-to route for reform, investment and state mediated external loans. Nothing may change, and a lot may get far worse.

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