5. The first global sovereign debt crisis

This post-war settlement started to unravel when, in the early 1970s, the United States decoupled its currency from gold, allowing greater currency fluctuation, and the US, soon followed by other wealthy countries, began to remove the restrictions which were in place to limit the free movement of money around the world. This liberalisation of capital flows coincided with the 1970s oil crisis, in which oil producing countries coordinated cuts to oil production, which in turn drove up their profits. These profits were recycled into western banks, and, coinciding with rapid financial deregulation during the same period, were used to fuel a lending boom which precipitated the first major global sovereign debt crisis. 

In almost all cases, these economies, under colonialism, had been developed to depend heavily on the export of raw commodities – on terms highly beneficial to the colonising power.  As well as having a low ‘added value’ in economic terms, reliance on commodity exports also meant that, whenever commodity prices on international markets fell, the economies of many postcolonial countries were deeply exposed. In some countries, the colonial roots of debt are even more stark. For example, following the slave rebellion and Haiti’s independence from France in 1804, Haiti was forced to pay millions of gold frances as reparations for the slaves and land France “lost” because of independence, beginning two centuries of debt.    

Many postcolonial countries saw a significant drop in commodity prices from the beginning of the 1980s, which continued for almost two decades, and took a dramatic toll on many postcolonial economies. Their debts became harder and harder to repay. Of the 57 countries which faced difficulties repaying their debts in the 1980s, all were former colonies. 

A sustained campaign by debt justice campaigners led to debt cancellations for some of the poorest countries, from the mid-1990s to the present day. This was known as the Heavily Indebted Poor Countries Initiative (HIPC). However, the amount of debt cancelled has been small. And, even more importantly, many of the conditions attached to debt cancellation pushed the same economic model onto economies, a model which had itself contributed to the debt crisis.