An open letter to SADC finance ministers on Covid-19 and debt justice

Dear SADC Ministers of Finance,

As well as destroying people’s lives, the Covid-19 pandemic is devastating every part of the global economy. The International Monetary Fund (IMF) estimates that the economy of sub-Saharan Africa will contract by 1.6% in 2020. Meanwhile, the United Nations University World Institute for Development Economics Research (UNU-WIDER) estimates that as many as 120.3 million people in sub-Saharan Africa could fall into income poverty due to the crisis.

In light of the human and economic impact of the Covid-19 emergency, Action for Southern Africa (ACTSA) calls on you to work together and demand the cancellation of all external government debt payments from the Southern African Development Community (SADC) region for the next 12 months. Last year, research by ACTSA found that the SADC region spent at least $21.1-billion in external government debt payments (principal and interest) in 2018. Of the $21.1-billion total, $1.9-billion was paid to multilateral institutions (international financial institutions), $11.2-billion was paid to bilateral institutions (other governments) and $8-billion was paid to the private sector. Debt cancellation would free up precious resources that could be utilised to strengthen health and social protection systems in SADC countries.

The IMF has announced that it will cancel $215-million of debt payments for 25 countries over the next six months. While this is welcome, the IMF should not have restricted this programme to such a small group of countries. The organisation has a lending capacity of around $1-trillion and gold holdings of $137.8-billion. Furthermore, serious pressure must be applied on the US government, so that it allows the IMF to approve a major (at least $1-trillion) new allocation of Special Drawing Rights, which would provide your countries with a much-needed liquidity boost. More broadly, other multilateral institutions have been slow to act, and thus they need to be vigorously challenged.

In regard to bilateral debt, the G20 recently announced the suspension – not cancellation – of debt payments by 77 countries to G20 and other governments from 1 May to the end of 2020. Yet merely suspending debt payments means that interest continues to accrue, and these debts will still need to be serviced after 2020. This is likely to create a future crisis for many countries. Moreover, not all SADC members are included in this initiative. Olaf Scholz, Germany’s Finance Minister, hailed the G20’s move as “an act of international solidarity with a historical dimension”. In reality, however, it is nothing of the sort.

The G20 initiative is also problematic as it only requests foreign private creditors to join the debt relief effort on a voluntary basis. This means that funds saved as a result of the (inadequate) debt programmes outlined above may just end up servicing commercial debts. Powerful governments must do two things in relation to the external public debts that SADC countries owe to the private sector.

First, they should legislate to ensure that private creditors cannot sue SADC countries if they miss payments. Authorities in both the UK and the State of New York (USA) are particularly important here, as most relevant debt agreements use those jurisdictions’ laws.

Second, a combination of carrots and sticks should be employed by powerful governments to ensure that the private sector properly plays its part. Options could include covering certain payments to the private sector and making Covid-19 bailout support for the private sector conditional on it cancelling certain debts.

Of course, it also crucial that you demand that emergency aid financing to counter Covid-19 does not exacerbate debt vulnerabilities. Huge levels of multilateral and bilateral aid to SADC countries are certainly required. But all of this aid must take the form of grants and not loans. In addition, while accountability for all financial assistance measures are crucial, such measures must be free of economic policy conditionalities. Economic policy conditionalities are undemocratic and counterproductive, as they make financial assistance contingent on recipients implementing certain (usually neoliberal) economic policies.

Alongside advocating for the immediate measures detailed above, it is necessary for you to take a number of steps for long-term debt justice for the SADC region.

First, you must initiate comprehensive public debt audits that take place in a participatory and transparent manner. This will help you and your citizens to better understand the nature of your debts and how different loans have been used.

Second, you need to repudiate all illegal and odious debts (the latter concern loans where creditors were aware of the danger that borrowers would misappropriate funds). An independent and well-resourced international commission on debt could support such a process, and you should work with other African and Global South countries to push for the establishment of such a commission.

Third, you must work internationally to ensure that all loans to governments are recorded in full in a publicly accessible registry and are unable to be exploited by vulture funds (entities that purchase distressed debt on the secondary market, where it trades significantly below its face value, and then seek to recover the full amount, often through litigation).

Finally, you should support the establishment of a comprehensive, fair and transparent international framework for debt crisis resolution under UN auspices. Such a mechanism would only need to be used in exceptional circumstances if the other steps outlined above were taken.

It is essential that civil society in the SADC region is meaningfully involved in all aspects of both the immediate response to Covid-19 and the wider response to the structural factors underpinning unjust debt in the region.

Our many civil society partners across the region are clear that you must take action now so that, when the next pandemic comes, your countries will find themselves in a much stronger position as a result of a fairer global economic order and more inclusive domestic political contexts. DM