The crisis of capitalism is hitting poor countries hard. After hikes in interest rates over the past two years, the debt collectors are knocking on the door. As a result, imperialist institutions are now forcing draconian austerity measures and tax hikes on the poor in so-called developing countries. This is provoking anger and mass protests worldwide.

Earlier this year, Development Finance International published a list of 77 countries whose debt payments in 2023 amounted to more than 20 percent of government revenue. It included countries like Bangladesh, Kenya, Argentina, Lebanon, Mali, Burkina Faso, Niger, Pakistan, Sri Lanka, Uganda, Cameroon, Sierra Leone, all of which faced significant protest movements of one kind or another over the past years, some of which have reached revolutionary proportions.

The amount of debt in itself is not as large as in many western economies, but the terms that are on offer are the international equivalent of payday loans. Whereas the UK can sell 10-year bonds at a four percent interest rate, the average cost for African countries is close to nine percent, and that’s for those countries that are still able to borrow on the commercial market.

Not only that, but they are forced to denominate their bonds in Euro or US dollar, meaning any fall in the value of their own currency can add massively to the cost of their loans. Not least when high interest rates in the west push up both the interest rates paid by poorer countries, but also the value of the currencies they pay in. As a result, many countries have been completely priced out of the bond markets and are forced to rely on governments and multinational institutions to keep themselves afloat.

Debt trap

The debt trap has since the time of Lenin been used by imperialists to profiteer at the expense of smaller nations: A loan is given to invest in an infrastructure project, typically, that would benefit some big multinational corporation. The loan is conditional on using a company, materials or machinery from the country that is granting the loan.

So, we find that Japan is lending Pakistan money for a disastrous irrigation project using machinery supplied by Japan. Russia is lending Bangladesh money to build a nuclear power plant constructed by a Russian company. China is lending Sri Lanka money to build a port constructed by a Chinese company for Chinese freight companies to use. Germany and the EU are helping to provide financing for a $4.5 billion high-speed rail project, which is delivered by Siemens, and so on.

China is lending Sri Lanka money to build a port constructed by a Chinese company for Chinese freight companies to use / Image: jgmorard, Wikimedia Commons

Lenin explained the process in Imperialism: the Highest Stage of Capitalism:

“The increase in exports is connected with just these swindling tricks of finance capital, which is not concerned with bourgeois morality, but with skinning the ox twice– first, it pockets the profits from the loan; then it pockets other profits from the same loan which the borrower uses to make purchases from Krupp, or to purchase railway material from the Steel Syndicate, etc”.

The term ‘swindles’ is especially apt, as some of these deals are even fraudulent by the standards of bourgeois law. A British judge last month found the bank Credit Suisse and the French company Privinvest guilty of paying bribes to bankers and officials in Mozambique in order to secure a tuna fishing vessel contract, financed by a billion dollar illegal loan.

The Mozambique workers and poor would basically be asked to pay this illegal loan, signed behind the backs of not just them but also the parliament, a large chunk of which was merely payment of bribes to the people that made the agreement. When the loan was revealed, the loan sank Mozambique’s economy, causing up to $11 billion in economic damage, and pushing 2 million citizens into poverty. Apparently, 19 individuals connected to the case are now on trial, but this is not a question of individual bad eggs. This is merely an especially egregious case, under a system based on the systematic exploitation of the small nations by the powerful.

If one puts some of these debt repayments in relation to the size of the economy of the country; or especially the size of the government budget, it becomes clear how unsustainable this is. Egypt, for example, is meant to be repaying every year a sum that is the equivalent of 30 percent of its GDP, or 196 percent of its government budget!

Now, clever folks will reply ‘no government pays back all they owe, they just borrow some new money, and pay the interest’. That’s all well and good if you are able to find someone to lend to you at a reasonable rate. If not, then you will have to go to multinational institutions, like the IMF, which really are merely a cover for western imperialism, or find a bilateral agreement with some imperialist power. Of course all of this comes with conditions attached.

The burden of interest

Furthermore, the interest has become intolerable in and of itself. The central bank rates in the US and Europe have gone up. As a result, the cost of government borrowing has also increased.

The use of debt is one of the means by which finance capital bleeds the poorer nations / Image: AntanO, Wikimedia Commons

The worst affected are what the UN classifies as “lower middle income” countries – precisely countries like Sri Lanka, Kenya and Bangladesh. The poorest nations were too poor to be granted any credit in the first place and therefore have not been so badly affected.

The average lower middle income country spends 3.7 percent of its GDP on interest, in other words about 1 in every 25 dollars generated in the economy will be syphoned off to pay interest. It is also 19.6 percent of the average government budget of such a country. This is approximately the same as spending on education, or spending on public investments.

‘Lower middle’ income really means nothing except being poor and exploited. These countries, in which 3 billion people live, have nothing to look forward to but the constant misery of capitalism and imperialism.

The advanced capitalist countries, by comparison, might spend exorbitant amounts on interest payments, but this is only one tenth of what they spend on public investment, and a third of what they spend on education. On average, such countries spend only 5.3 percent of their government budget on interest repayment.

The use of debt is one of the means by which finance capital bleeds the poorer nations and keeps them in a state of underdevelopment and subjugation. But there are limits to this, and now a limit is being reached.

Country after country is defaulting, or having to turn to the IMF. The attempts of the IMF to impose their usual programmes of cuts and austerity are not solving the problem. However, the hardships they are imposing on the population are provoking the masses. The workers and poor of these countries never benefited from these loans, and in many cases they have been repaid many times over.

Breaking point

Many of the countries in Africa that demonstrably left the French sphere of influence over the past couple of years were facing precisely these kinds of debt problems: Niger, Mali, Burkina Faso and Cameroon all have debts servicing equal to 40-60 percent of government revenue. Most of their debt is owed to one multinational institution or another, but their former colonial power France is also owed a substantial proportion, as well as China.

Some governments have attempted to follow the IMF ‘recommendations’, which invariably means regressive taxation (making life even harder for ordinary people) or cuts to necessary food and fuel subsidies. These programmes provoked mass protests in Argentina, Sri Lanka and Kenya. The killing of protesters and mass arrests failed to quell the anger.

The killing of protesters and mass arrests failed to quell the anger / Image: fair use

Other countries have so far managed to hold back the tide by using repression, but the government’s harsh responses reveal their own feeling of weakness. In this category we find Nigeria, Zambia, Ghana, Gambia, Egypt and Uganda, among others.

The pressure is reaching breaking point. The 2008 crisis didn’t hit these countries as hard as in the West, partly because low interest rates enabled governments to keep borrowing, and trade with China opened up new avenues of investment. But that’s all in the past. The pandemic hit Africa very hard and the subsequent inflation caused a cost of living crisis often worse than in the West. As though that wasn’t enough, now the high interest rates are sinking government finances, forcing another round of austerity. No wonder people are up in arms.

Capitalism has nothing to offer to the masses, and the debt is both a symptom of the disease as well as a festering wound that keeps them in subjugation. Renegotiation of the debt solves nothing. Even repudiating the debt, as we saw in the 2000s, doesn’t solve the problem.

In the postwar period, these countries broke free of their colonial masters and gained their formal independence. But this hasn’t loosened the thousands of chains that tie them to finance capital in the imperialist countries. The struggle was not carried out to the end.

Only by placing their nations’ wealth and resources into their own hands can the masses seize control of their own destinies. The revolutionary movements we have seen in Sri Lanka, Kenya and Bangladesh are a sure sign that the masses are ready to take the next step, and that step is on the road to the socialist revolution. There is no other way.