Debt relief is urgently needed, but we must also learn the lessons of history. The historic Jubilee 2000 debt relief campaign saw $130bn of debt written off, and yet we now find ourselves in a renewed global debt crisis. This time, action must address the cyclical nature of debt crises.
That countries such as Ghana and Sri Lanka are accepting their 17th IMF bailout packages since independence is a stark illustration of how ineffective existing strategies are at breaking the cycle. Bailout packages often come with harsh stipulations, such as budget cuts, that stifle development, worsen living conditions, and leave economies vulnerable to future debt crises. While the IMF chief, Kristalina Georgieva, noted the urgency of debt action ahead of the Spring Meetings, she continued to prescribe budget cuts as a tool to stabilise debt, despite evidence that spending decreases have little effect on debt reduction.
In contrast, legislative reform and democratising global financial institutions offer long-term solutions. Legislation to prevent private creditors from suing debtor countries for more than they would receive if they took part in debt-relief initiatives on equal terms to other lenders would provide immediate relief for countries in crisis and prevent future crises by disincentivising risky lending.
The creation of a permanent, representative and transparent global debt workout mechanism within the UN system, and an end to harmful conditionalities on loans that exacerbate poverty, harm the environment and stunt growth, would also transform the global debt architecture. It’s time to break free from the redundant cycle of debt and dependency that hinders so many nations.