9. Take-aways for the present day: towards cancelling the debt and facing the climate crisis

With regards to the present debt crisis, the question is not if, but how it will be cancelled.  

Periodic debt cancellation has always been the way society stabilised its financial system. Without it, the accumulation of wealth in private hands leads to systemic imbalance, conflict and disaster. Many more historical examples could have been covered in Africa and Asia. For example, the islamic precept of Zakat, a mandatory act of charity, has been implemented over centuries to re-distribute wealth and avoid extreme poverty. Different Chinese dynasties periodically cancelled the debt of farmers and peasants to prevent famine and uprisings. These and other examples are detailed in David Graeber’s book: Debt, The First 5000 Years. 

Constituent to the emergence of Debt For Climate as a global movement, the impact of the climate crisis is much worse for the Global South than for the Global North. It appeals to common sense that the countries who contributed the least to the pollution responsible for altering the climate shouldn’t be the ones to bear its financial consequences. 

The climate crisis presents an unparalleled challenge to our planet. Facing the cost of adjusting to climate change and transitioning to renewable sources of energy, there is no desirable outcome for the population of the Global South without debt cancellation. On the side of creditors, there is no plausible path to sustainability without debt cancellation to allow the necessary investments, in the North as well as in the South. 

However, political will is lacking among creditors. Global lenders are pulling all the brakes on debt relief. At the time of writing these lines, the Trump tariffs are causing the bond market to heat up, raising interest rates on the debt of countries at risk of default, while the USA is refusing to take any position on climate with relation to debt. The United Kingdom, which had a central role at the time of the Jubilee 2000 campaign, made drastic budget cuts on foreign aid and diverted its budget to defence, preparing an escalation in Ukraine, like other countries in Europe. China, with a growing role of the new creditor of developing countries, is using debt cancellation on its own terms to augment its influence, outside of multilateral institutions. 

In such a predicament, what is there to be learned from past cases of debt cancellations ? 

There is a limit to the capacity of creditors to exact payment from debtors. The power of lenders is limited by the necessity of social order, not only obtained by force, but through the agreement of all actors. Without this agreement, the conventions by which humans coexist and thrive together are invalid. 

In all cases of debt cancellations that were examined in this series, the process of cancellation or repudiation is triggered by a rupture of confidence between debtors and lenders. The most extreme case is the Russian Revolution, where the Bolsheviks executed a regime change to upend a medieval monarchy. To a lesser degree, the same sentiment was present in the US population in the case of the debt that was owed by some states of the Union to private British individuals. The 1934 collective default on the debt of World War I, followed by the debt cancellation of Mexico a few years later, was largely due to the disastrous effect of the 1929 financial crash on the reputation of the US private financial sector. As British and US financiers were negotiating debt payments with Hitler before World War II, the other debtor countries in Europe and the rest of the world suddenly refused to pay crippling interest rates caused by US bankers' lack of judgement and foresight. The debt audit in Ecuador, in 2008, was a manifestation of defiance against the IMF and the World Bank. 

War, famine and calamities never stopped creditors from claiming their due. In all the cases covered in this short list, a decisive factor was the involvement of the debtors to either cease payments or negotiate favorable terms.

The collective movement of debtor states in the South is a strong indication that debt cancellation could indeed be on the way, or at least a profound transformation of the global financial infrastructure. 

The African proposition for a new framework of sovereign debt will be presented at the next UN Conference on Financing for Development (FfD4, Sevilla, June 30-July 3). The Community of Latin American and Caribbean States (CELAC) has long advocated for transformation of the global sovereign debt infrastructure to account for the sovereignty of all nations and the asymmetry of the impact of the climate crisis between North and South.   

The next period of debt cancellation is unlikely to resemble the Jubilee 2000 campaign. The political landscape in the Global North is radically different. In the late nineties, we had a democratic US presidency full of globalist optimism upon the disband of the Soviet Union. In Europe and the USA, the so-called anti-globalisation movement was mobilising large crowds to call out the IMF and World Bank, and denounce the Structural Adjustment Plans imposed on indebted countries in the South.   

Now we have Trump’s authoritarian isolationism, and European democracies are also leaning to the hard right, only starting to cope with the reality of the war in Ukraine. We can’t expect governments in the Global North to show the same inclination towards debt cancellation as in 2000. Civil society is fragmented and polarized into identity struggles. Mobilisations around debt cancellations are much smaller than the peak of the Jubilee 2000 campaign, even if many groups, such as the climate movement, labor unions or Christian organisations, contribute to the cause. 

For the South, the path to self-determination and financial independence will not come from inward-looking powers of the North. Not only are they waging war against each other with armies or tariffs, but they have a debt problem of their own. To mention only one, the USA have such a high public debt that Larry Fink, the CEO of BlackRock, the largest private creditor of the Global South and largest financial company on the planet, declared that the bitcoin could one day dethrone the dollar as global currency, if creditors lost confidence in the capacity of the USA to pay their due.

Although it is early to say, the shift caused by the Trump presidency could signify the beginning of the end of the central role of the IMF and World Bank as global creditors. BlackRock is already perceived as the real decision-maker, as it pressures debtor countries and ignores negotiations led by the IMF. Debtor countries increasingly turn to China to finance their budget, and the Middle Kingdom is only happy to periodically erase large debts to subservient governments, reinforcing its growing influence 

The new paradigm of multipolar hegemony could be an opportunity for developing countries to gain independence. 

In this transformation of the world’s financial architecture, a likely scenario could be a collective default in the Global South, concurrent with the emergence of new financial institutions managed regionally by Global South countries themselves. This scenario would be similar to the 1934 default on the debt inherited from World War I, with climate change taking the role of the catastrophic catalyst. 

Negotiations could also lead to a debt cancellation from the IMF or the World Bank, obtained through a quid pro quo as in the case of Mexico in 1941, but only if there is a radical leadership change in the USA and Europe. 

While these observations might help set some clarity for a course of action in the Global South, the direction for collective action in the Global North is more complicated to discern.

With governments and public opinion focused on the genocide being committed in Palestine and the war in Ukraine, mobilisations are scarce on the climate issue, after a decline during the covid pandemic.  

The key might be in the connection between the climate movement and the decolonization movement. Debt cancellation functions as an axis of coalition between various struggles that transcend differences because it addresses the fundamental level of systemic inequity and imbalance. 

The Global North is marked by the loss of confidence between elites and regular people. Symptomatic of this loss is the rise of proto-fascism or authoritarian populism, promising retribution against corrupt politicians and scapegoated minorities. But this precarious situation is also having a coalescing effect on the progressives, with the emergence of movements like the Surge, which combines pro-Palestine, climate-friendly and anti-fascist currents. Beyond the uncertainty of tomorrow, movements like Debt For Climate and many others look to the day after. We are here to create a new system.

This is the last article of a series dedicated to the timeline of debt cancellations in history.

Thanks to Dianx, Scarlett and Jana for their contributions.