Greek ministers were due to spend this weekend, almost five grinding years since Athens was first bailed out, wrangling over the details of the spending cuts and economic reforms they have drawn up to appease their creditors.
As the recriminations fly between Europe’s capitals, campaigners are warning that the global community has failed to learn the lessons of the Greek debt crisis — or even of Argentina’s default in 2001, the consequences of which are still being contested in courts on both sides of the Atlantic.
As the US Federal Reserve prepares to raise interest rates, boosting the value of the US dollar, while the plunging price of crude oil puts intense pressure on the finances of oil-exporting countries, there are growing fears of a new debt crisis in the making.
Ann Pettifor of Prime Economics, who foreshadowed the credit crunch in her 2003 book The Coming First World Debt Crisis, said: “We’re going to have another financial crisis. Brazil’s already in great trouble with the strength of the [US] dollar; I dread to think what’s happening in South Africa; then there’s Malaysia.”
Since the aftershocks of the global financial crisis of 2008 died away, the world’s policymakers have spent countless hours rewriting the banking rulebook and rethinking monetary policy. However, next to nothing has been done about the question of what to do about nations that cannot repay their debts, or how to stop them getting into trouble in the first place.
Developing nations are using the UN to demand a change in the way sovereign defaults are dealt with. Led by Bolivian ambassador to the UN Sacha Sergio Llorenti, they are calling for a bankruptcy process akin to the Chapter 11 procedure for companies to be applied to governments.
UNCTAD, the UN’s Geneva-based trade and investment arm, has been working for several years to draw up a “road map” for sovereign debt resolution. It recommends a series of principles, including a moratorium on repayments while a solution is negotiated; the imposition of currency controls to prevent capital fleeing the troubled nation; and continued lending by the IMF to prevent the kind of existential financial threat that roils world markets and causes severe hardship.
It calls for a once-and-for-all write-off, instead of the piecemeal Greek-style approach involving harsh terms and conditions that knock the economy off course and can ultimately make the debt even harder to repay.
However, when these proposals were put to the UN general assembly in September last year, a number of developed nations, including the UK and the US, voted against it, saying that the UN was the wrong forum to discuss the proposal, which is anathema to powerful financial institutions.
Pettifor is also skeptical.
“The problem for me is that the UN has no leverage here,” she said. “It can make these moralistic pronouncements, but ultimately it’s the IMF and the governments that make the decisions.”
While the debate rages, developing nations have been taking advantage of rock-bottom interest rates and the cheap money created by quantitative easing to stack up billions in new debt. Brazil’s economy is likely to be seriously tested as the greenback rises; Turkey, Malaysia and Chile have large US dollar-denominated debts and sliding currencies; and a string of African nations face sharp rises in debt repayments.
It is as if “absolutely nothing has changed since the crisis,” Pettifor said.
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