Lesson 1, Topic 1

In Progress

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Teaching each other: debt justice in four countries

Teaching each other: debt justice in four countries

Activity title	Teaching each other: debt justice in four countries
Overview	In this activity, students are separated into small groups and groups are assigned one of four country case studies about debt, to read and discuss together. After this, they are given an opportunity to discuss and reflect on some of the main concepts in the case study. Finally, students are reallocated into new groups, with one person who has studied each country in each group. The students then ‘teach’ their peers what they have learned about their assigned country. It is a knowledge-based type of learning which is combined with analytical skills development. The learning scenario improves students’ critical thinking skills, communication skills and use of ICT resources.
Objectives	This activity uses peer learning to enable students to first absorb, secondly discuss, and thirdly teach, a case study of one country’s experiences with sovereign debt. It also enables each student to get a flavour of three other countries’ experiences with sovereign debt, and to become familiar with some of the basic ‘jargon’ and concepts associated with debt and debt justice.
Materials	Multiple printed copies of four case studies. Debt “key concept” cards (see below). Blu-tac. Small stickers (enough for three per learner).
Time	1 hour
Instructions For Trainers:	Before the class, place the following “Key Terms” on post its or coloured card on the wall around the room: Debt restructuring Debt cancellation Conditionality Illegitimate debt Colonialism Debt audit Irresponsible lending Vulture Funds
	(A) 15 minutes Divide your group into four smaller groups, and assign a country to each group. Hand copies of the relevant country case study (attached below) to each member of the group. Explain to the class that you want them to read the case study in silence. (B) 10 minutes Give everybody three small stickers (anything will do). After they read their case studies, ask everybody in the class to place a sticker beside the three “Key Terms” they thought were most important in their case study. Ask for a volunteer from the class to speak about why they picked each “Key Term” (one person per term is fine). Make sure everybody understands each of the terms. (C) 15 minutes Next, ask everyone to return to their small groups, and discuss the following questions in relation to their case study: What was the cause of the debt crisis in the case study? What were the consequences of the debt crisis in the case study? Who had to pay for the debt? What did you think was fair or unfair in this case study? What role did these organisations play (if any) What might have made things better in this case study? (D) 20 minutes Finally, move the groups around so that one person from each of the original “country groups” is now sitting in each new group. In the new groups, instruct the learners to take turns introducing their country’s case study to the group, by giving an overview of what happened, and the main points discussed in their group.
Group size	4 – 30

Ecuador Country case study

Ecuador joined the Republic of Gran Colombia, and became a separate republic in 1830. Like many Latin American countries, it went through political turmoil with consecutive juntas and dictatorships. The country had a military dictatorship under Guillermo Lara (1972-1976) and then that of Alfredo Poveda (1976-1979). During the oil boom, the administration borrowed extensively from Western banks, which at that point provided large amounts of money at low rates. When the US interest rates rose from 6% in 1979 to 21% by 1981, Ecuador’s debt payments grew. Over the years, Ecuador has made debt payments that far exceed the money it originally borrowed. Only 14% of all money loaned between 1989 and 2006 was used for social development projects. The remaining 86% was used to pay for previously accumulated debt. Between 1982 and 2006, the country paid foreign creditors $119 billion, while receiving $106 billion in new loans. Yet the total debt increased from $8 billion to $17 billion. In 2007 Ecuador’s government spent more on debt payments than on health care, social services, the environment, housing and urban development combined, all areas where money was badly needed. In 1980, the Ecuadorian government spent 30 percent of its revenue on education, as well as ten per cent on healthcare and 15 per cent on servicing its debts. By 2005, this situation had been reversed, spending 47 per cent of its government income on servicing debt and only 12 and seven per cent respectively on education and healthcare. Meanwhile, poverty increased – especially in rural areas – from 55 percent of the population in 1995 to 60 per cent in 2003. Years of mismanagement by former regimes and irresponsible lending by international creditors left Ecuador with a foreign debt stock of $17 billion, 40% of the country’s GDP in 2007. In 2008 Ecuador became the first country to officially examine the sources and legitimacy of its foreign debt. Social movements had pushed strongly for an audit, and had it adopted as part of the platform of Presidential candidate Rafael Correa. The independent audit commission was launched with a presidential decree by president Correa and the former Economy and Finance Minister, Ricardo Patiño in July 2007. Its main goal was to scrutinize all lending deals from 1976 to 2007, including lending from Western governments and private creditors. The commission was composed of a broad array of government officials, domestic and international academic experts in economic, law, social and environmental issues. Creditors were identified and the terms of the loans were assessed. Debt restructuring and the conditions attached to this were also assessed. The audit concluded that overall the borrowing, debt restructuring and resulting conditions had caused “incalculable damage” to society. Many examples of predatory lending were found including loans which violated international law and domestic laws, in both the borrowing and the lending country. The conclusion was that the biggest part of the debt was a result of corruption, lack of transparency and ‘shady’ deals that did not benefit the people of Ecuador. A series of contracts were pointed out as illegitimate; the Brady bonds. The IMF and World Bank involvement was deemed inappropriate, mainly the SAP, poverty reduction programmes and strategy proposals that liberalised and deregulated the economy during the previous decades. The report also raised concerns about the percentage of public funds allocated to debt repayment, especially in relation to public spending for health and education. Results showed that only a small percentage was used for useful development projects from the money loaned. On the basis of the findings of the debt audit commission, claims were supported and documented that a considerable amount of debt is illegal, and thus should be unilaterally revised with the country’s initiative. Under presidential decree, payments for global bonds that matured in 2012 and 2030 were suspended. By using the assumption of the auditing commission this debt was branded illegitimate and thus ineligible for repayment. In late 2008 Ecuador announced to the IMF that it would pay US$33 million owed to it and will seek no further funding from it. However, a new government came to power in Ecuador in 2017, and sought an IMF loan of over $4 billion. The loan was granted on condition that significant austerity measures be implemented. This has led to sporadic, serious public protest against the IMF loan and terms since 2018. Source: Jubilee Debt Campaign

Haiti – Country Case Study

The slave rebellion in 1804 gained Haitians independence from France, but France forced the new country to pay millions of gold francs over the following decades as reparations for the loss of their property and slaves. Fearing invasion, Haiti agreed to pay back a sum of 90 million gold francs over the following 122 years. In 2004, soon after elected President Aristide demanded reparations of $21 billion for the money extorted after independence, he was overthrown in a military coup supported by the United States. After being kept out of the debt relief process, in 2006 Haiti was allowed in. In 2009, after following IMF and World Bank prescribed policies, the country qualified to have some debt cancelled. More was cancelled after the 2010 earthquake following a campaign by Haitian NGOs. However, the country remains impoverished and vulnerable to disasters and climate change. Loans have continued to be given, and the IMF ranks Haiti as at high risk of another debt crisis. Debt accumulation Between 1964 and 1986 Haiti was ruled by the corrupt and oppressive Duvalier family. The western world strongly supported the Duvaliers because they were anti-communist, and on the US’s side during the Cold War. For years the money used to prop up this corrupt regime was repaid at the expense of those who suffered at its hands. The Duvalier regime was overthrown in 1986, after which popular civil society organisations began to emerge. Long-postponed grievances were raised by these movements, including the unjust debt burden. For many years these calls for debt justice fell on deaf ears. Despite being the poorest country in the Americas, Haiti was not even considered for debt relief when the Heavily Indebted Poor Countries (HIPC) initiative was first launched in 1996. At the same time loans continued to be given. A 2002 evaluation by the World Bank of its lending to Haiti from 1986 to 2001 concluded, “the development impact of [World Bank] lending had been negligible”. Debt relief In 2006 the World Bank finally accepted Haiti was poor enough and indebted enough and allowed it to enter HIPC. Haiti finished the HIPC and MDRI programmes in 2009 and subsequently had $1.2 billion of debt cancelled. However, campaigners argue that whilst HIPC is better than nothing it is not good enough, for Haiti or any other country. Firstly, to enter and complete the scheme a country must accept harmful economic policy conditions imposed by the IMF. Secondly, many debts are not included in HIPC. After getting debt relief Haiti still ‘owed’ $900 million. Nowhere in the debt relief process did rich countries accept their role in creating Haiti’s unjust debt, instead regarding debt relief as charity. In January 2010 a devastating Earthquake struck Haiti killing up to 300,000 people. In the aftermath it seemed the state could collapse, and survivors were left vulnerable to disease and without homes or livelihoods. Soon after the disaster twenty six Haitian NGOs together called for debt cancellation. This message was taken up around the globe, and hundreds of thousands of people signed petitions. Haiti’s debt had already increased to $1.15 billion following debt relief the previous year, and rose to $1.3 billion as new loans were given in the wake of the disaster. The public outcry led governments and the international financial institutions to drop Haiti’s outstanding debt. Loans, not grants Even as Haiti’s debt was cancelled, new reconstruction funds were being offered in the form of loans rather than grants, storing up problems for the future. In 2017, the IMF ranked Haiti as at high risk of another debt crisis. Meanwhile, Haitian NGOs have condemned their exclusion from donor conferences following the earthquake. The twenty six NGOs behind the campaign for debt cancellation have endorsed a call for the population to mobilise a Haitian People’s Assembly, which will address these challenges and define strategies for the alternative reconstruction of Haiti. According to the Centre for Economic and Policy Research, the United States interfered in 2010’s elections, effectively banning one party, preventing Aristide’s return, and influencing the vote counting process. Haiti has been freed from some foreign debt but has not been spared foreign domination. Source: Jubilee Debt Campaign, https://jubileedebt.org.uk/countries/haiti

Liberia – Country case study

Liberia’s large debt was first created in the 1970s as part of the boom in lending due to deregulation of finance in Europe and the US, and the high levels of ‘petro-dollars’ in Western banks due to oil price spikes. Liberia’s debt to private banks increased from $30 million in 1970 to over $150 million in 1979. At the end of the 1970s the US hiked up interest rates and the price of commodities collapsed causing a bust across Latin America and Africa. From growing quickly in the 1970s, Liberia’s economy stagnated with these shocks and the debt increased from 50 per cent of national income in 1979 to over 100 per cent by 1986. The new lending was effectively bailout loans from foreign governments and international institutions to pay-off private lenders. The percentage of debt owed to foreign banks fell from 35 per cent in 1979 to 20 per cent by 1985, replaced by debt owed to the IMF and World Bank. In the early to mid 1980s Liberia’s debt repayments were the equivalent of 30 percent of the country’s earnings from exports; a huge burden of money flooding out of the country. In 1980 Samuel Doe headed a military coup. An ally of the US during the Cold War, the US gave significant financial and military backing to Doe, whilst corruption and political repression increased. In 1989 Charles Taylor launched an insurrection to try to overthrow Doe’s government, which created Liberia’s first civil war. A peace deal in 1995 led to Taylor becoming president in 1997. Under Taylor Liberia became seen as a pariah state internationally. In 1999 a second civil war began, ending in 2003 when Taylor fled into exile. In 2005, Ellen Johnson-Sirleaf was elected president and later received the Nobel Peace Prize. Liberia defaulted on its debt payments for much of the civil war; the notional debt stood at 300 per cent of national income in 2003. There were sporadic repayments, especially of tens of millions of dollars in the mid-1990s. Liberia was admitted to the Heavily Indebted Poor Countries initiative in 2008, leading to it having much of its debt cancelled in 2010. To qualify for debt cancellation, Liberia had to start making payments on debts it had previously been defaulting on, leading to a huge increase in payments. Normally under HIPC’s rules, Liberia would have had to take out new loans to pay defaulted old debts, and the new loans would not have been cancelled. International campaigning led to this largely not happening in Liberia’s case, and the debt was cut to 10 percent of national income in 2010. In 1978 the US Chemical Bank had lent Liberia $6.5 million. The ‘ownership’ of this debt was sold many times, especially once repayments on it stopped during the civil wars. Traders effectively saw it as unlikely that the debt would ever be paid. It ended up in the hands of two vulture funds – Hamseh Investments and Wall Capital. In 2009, the two funds sued Liberia in the UK for $20 million and won the case. In 2010, an Act of Parliament was passed thanks to Jubilee Debt Campaign which limited payments to vulture funds in cases such as Liberia. In late 2010 an out-of-court settlement was reached for just $1 million. Reacting to the passing of the Act of Parliament, President Johnson Sirleaf said: “Bravo! We’ve been waiting for a parliament or an assembly to take this kind of hard decision to be able to bring these funds into consideration. Maybe the US Congress … will pick up this gauntlet and will follow the example of Britain and move that — because it’s just so unfair to poor countries.” The IMF estimates Liberia’s debt in 2012 is 13 percent of national income, but predicts it will increase rapidly to 25 percent of national income by 2016 and 30 per cent by 2020. Debt payments are predicted to use up 2 per cent of government revenue a year over this period. This assumes the economy will grow by more than 7 per cent over the next few years. The IMF says even if Liberia is hit by an extreme economic ‘shock’ (such as drought, flood, world wide recession or change in important commodity prices) debt payments would only use up 5 percent of government revenue. However, over recent years, 12 percent of countries analysed by the IMF have had more extreme economic shocks than the IMF’s predicted extreme. Most of the lending to Liberia in recent years is from the IMF and World Bank. Source: Jubilee Debt Campaign

Ireland Case Study

Reckless lending and borrowing by banks fuelled an unsustainable boom in Ireland, which crashed when the global financial crisis began in 2008. The Irish government guaranteed all the debts of the banks, transferring a huge amount of debt onto the public. Before the crisis, the Irish government had an annual surplus, but after, its total debt increased from 10 percent of GDP to 100 percent. In 2010 the overly indebted Irish government was lent more money by the IMF and EU in order for it to keep paying the foreign banks; effectively yet another banking bailout. Unemployment shot up rapidly, to 15 per cent, and austerity hit the most vulnerable groups the hardest. Campaigners and unions called for debts to be declared illegitimate and repudiated, such as the debts of Anglo-Irish bank which were taken on by the State. Ireland gained its independence from the United Kingdom in 1922. One of the most infamous episodes in the country’s colonial history was the potato famine in the mid-1800s, when 1 million people died, and 1 million emigrated. Potato blight destroyed much of the crops that peasants depended on. But throughout the famine, the country remained a net exporter of food to England, with meat exports actually increasing. But the poor could not afford high prices, and food was shipped under armed guard from the most famine-stricken parts of Ireland. For several decades, Ireland remained one of the most impoverished countries in Western Europe. A major economic expansion began in the late 1980s, as the country shifted from being dependent on agriculture to new digital technologies, and then banking and finance. In 2002 Ireland adopted the Euro, effectively fixing the country’s exchange rate with other Euro members, and giving up any control over interest rates. The boom continued, with economic growth averaging over 5 per cent a year between 2002 and 2007. The boom was increasingly driven by foreign banks lending money to Irish banks. Borrowing by Ireland’s private sector led to the foreign debt of the country as a whole reaching 1,000 per cent of GDP by 2007. Large amounts of foreign owned assets were also claimed to be owed to banks, supposedly partially balancing this huge figure. Much of this money flowed into house prices, which doubled between 2000 and 2007. In contrast to the reckless lending and borrowing of the private sector, the government had a budget surplus during this time, and its total net debt – owed to both Irish savers and foreigners, was down to just 11 per cent of GDP by 2007. The boom rapidly turned to a bust in 2007/2008 when banks, starting in the US with the sub-prime crisis, had to start writing off loans they were due to be paid, and so stopped lending to each other. Irish banks both lost out on assets they claimed to be owed through complex derivative contracts, but also stopped being lent new money. This quickly led to falls in house prices, down by a third by 2010, which cut the amount banks could get back on housing loans which had gone bad. The Irish banking sector was bust. In September 2008, unlike the Icelandic government, Finance Minister Brian Lenihan guaranteed the debts of the six main Irish banks, transferring obligations directly from the private sector to the state. At the same time, the Irish economy crashed; by 3 per cent in 2008 and 7 per cent in 2009. This drastically reduced government tax revenues. Unemployment increased from 5 per cent to 15 per cent, increasing the need for government spending on welfare payments. The Irish government’s net debt increased ten-fold to over 100 per cent of GDP by 2012. The IMF estimates that Ireland’s (public and private sector’s) net foreign-owed debt (so taking account of assets held abroad) was 90 percent of GDP at this time One of the banks guaranteed was Anglo-Irish. Anglo-Irish could not afford to meet payments to its bondholders; the creditors, primarily foreign, which had recklessly lent money to the bank. The Irish government agreed to make sure these payments would be made. To do so, it got agreement from the European Central Bank for the Irish Central Bank to create Euros with which to pay the debt. However, it only did so on the basis that the Irish government ‘repay’ the Central Bank over 20 years. When these payments are made, the money is effectively deleted at the insistence of the European Central Bank, supposedly to stop an increase in inflation. The Irish government will make almost €50 billion in payments on this Anglo-Irish debt between 2011 and 2031. Much of the money to meet these payments will be borrowed, rolling over the illegitimate banking debt for many decades to come. Having taken on the banking debt, and with the collapsing economy, the Irish government was rapidly heading towards not being able to meet its debt payments. In December 2010, the EU and IMF agreed to lend €85 billion over three years to prevent the Irish government defaulting, and hence potentially bankrupting various western banks, particularly in large lending countries such as the UK. The loans are effectively another bank bailout, with the debt remaining with the Irish state. These loans came with harsh austerity conditions, mandating the Irish government to cut social welfare programmes, privatise a number of state assets, and reduce spending on the public sector and the public sector wage bill. The IMF has since recognised that these austerity conditions further damaged the possibility of an economic recovery in Ireland – let alone a fair economic recovery.

Teaching each other: debt justice in four countries

Ecuador Country case study

Haiti – Country Case Study

Liberia – Country case study

Ireland Case Study

Source and Responsibility