Onerous Debt Making Poorest Poorer

By Jomo Kwame Sundaram

KUALA LUMPUR, Malaysia, Jan 31 2024 (IPS) - Contractionary economic trends since 2008 and ‘geopolitical’ conflicts subverting international cooperation have worsened world conditions, especially in the poorest countries, mainly in Africa, leaving their poor worse off.

Conditions and prospects are so bad that two well-known globalisation cheerleaders have appealed to rich nations for urgent action. Former IMF Deputy Managing Director and World Bank Senior Vice-President, Professor Anne Krueger and influential Financial Times columnist Martin Wolf warn ominously of the dire consequences of inaction.

Deepening stagnationFollowing tepid growth after the 2008 global financial crisis, Covid-19 disrupted supply chains worldwide. Then, post-pandemic recovery was disrupted by wars in Ukraine and then Gaza.

Food and energy prices soared briefly, largely due to market manipulation by opportunistic investors. Invoking the price hikes as a pretext, the US Fed and European Central Bank raised interest rates, deepening economic stagnation worldwide.

Countries which borrowed heavily during the earlier decade of unconventional monetary policies – especially ‘quantitative easing’, offering easy credit – now have to cope with increasingly unbearable debt burdens, particularly in the global South.

Earlier modest progress in reducing poverty – now termed ‘extreme poverty’ – and food insecurity has slowed sharply, if not worse. For many of the world’s poorest, progress has not only stopped but even been reversed.

The World Bank currently defines the poor as those with daily per capita incomes under US$2.15 in 2017 prices. It estimated those deemed poor fell from 1.87bn – 31% of the world’s population – in 1998 to a forecast of 690mn (9%) in 2023.

The rate of decline of poverty has slowed sharply: global poverty is forecast to fall by a little over three percentage points during 2013-23 – very much less than the 14 percentage points in the decade before 2013.

Poorest mainly in poor countriesThe pace of poverty decline has slowed most in the world’s poorest nations. Wolf defines these countries as those deemed eligible for concessional loans from the World Bank Group’s soft-lending arm, the International Development Association (IDA).

Seventy-five countries are now considered eligible for IDA resources, including 39 in Africa. Some – e.g., Bangladesh, Nigeria and Pakistan – can also borrow on costlier terms from financial markets and the Group’s International Bank for Reconstruction and Development.

In IDA-eligible countries, those in extreme poverty fell from 48% in 1998 to 26% in 2023. But this only involved a single percentage point decline over 2013-23, compared to 14 percentage points in the decade before.

Extreme poverty has mainly declined in better-off middle-income countries, with 497 million poor in IDA-eligible countries. With 72% of the world’s total of 691 million poor in IDA-eligible nations, the remaining 193 million were in other countries.

The population share in extreme poverty in countries not IDA-eligible fell from a fifth in 1998 to 3% in 2023, falling by only four percentage points during 2013-23. Expecting modest overall growth, Wolf expects this 3% share will be largely eliminated by 2030.

Hence, he argues that extreme poverty can only end if attention and resources are focused on the world’s poorest countries, where poverty is most concentrated and deeply entrenched.

Unequal debt burdensGovernment debt is widespread, but especially debilitating in countries where the poor are most concentrated. The World Bank’s last International Debt Report notes such countries depend too much on unreliable and expensive funding.

The report acknowledges, “For the poorest countries, debt has become a nearly paralysing burden: 28 countries eligible to borrow from [IDA] are now at high risk of debt distress. Eleven are in distress.”

During 2012-21, the external debt share of IDA-eligible countries owed to private creditors jumped from 11.2% to 28.0%! Their debt service payments more than tripled from $26bn in 2012 to $89bn in 2022, as interest due jumped from $6.4bn to $23.6bn!

Meanwhile, the share of bondholders and other private lenders in total government debt fell from 37% in 2021 to 14% in 2022! As the US Fed raised interest rates sharply during 2022-23, investors dumped ‘high-risk’ poor borrowers, lending much less to those in most need.

With this ‘perfect storm’, debt distress should come as no surprise. The 2023 International Debt Report found 56% – over half – of IDA-eligible countries at risk of such distress.

Distress of the poorestWolf argues it is in rich nations’ interest and their obligation to provide poor countries with far more concessional finance. But such funding has actually declined in recent decades, especially with the end of the first Cold War over three decades ago.

The IDA is using its 20th replenishment for July 2022 to June 2025 to provide financing on concessional terms. The World Bank president has argued for a much bigger new replenishment ostensibly to accelerate growth, reduce poverty and address other challenges in the poorest countries.

IDA-eligible countries include many of the world’s worst-managed nations, often very fragile, vulnerable to shocks, and stuck in “hard to escape” poverty. But their problems have become pretexts to withhold or withdraw concessional finance from those most in need.

Much more concessional finance and other resources are needed for poor nations to develop sustainably. But reducing sustainable development to simply eliminating poverty, nowadays with climate action, will condemn the poorest developing countries to backwardness.

World financial arrangements have been crucial in undermining fair, sustainable development in poor countries. While it will be critical to enable these nations to overcome their current and imminent predicaments, far more fundamental reforms must quickly follow.

As the poorest developing countries are both weak and vulnerable, needed reforms are nowhere on the horizon. Instead, the ‘international community’ continues to kick the can down the road instead of undertaking bold reforms for the short and medium term.

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Ungku Aziz’s lasting footprints in the nation’s sands of time

Jomo Kwame Sundaram 

Forum, The Edge Malaysia Weekly, December 25, 2023 - January 7, 2024

The Edge Malaysia 03 Jan 2024, 01:00 pm https://theedgemalaysia.com/node/695953

Ungku Aziz was seen by many of his contemporaries as a ‘Renaissance man’ — a man of letters, a man seriously interested in the arts and, philosophically speaking, one who appreciated knowledge, ilm, science

All of us are undoubtedly much influenced by the circumstances in which we live. Profesor Diraja Dr Ungku Abdul Aziz Ungku Abdul Hamid (Jan 28, 1922 to Dec 15, 2020) chose a path less well taken by his peers of privilege, dedicating himself instead to a nation not yet born, to the poor, the solidarity economy and conserving the rich cultural heritage of the Malays.

After all, Ungku Aziz was born and spent the first few years of his long and eventful life in London. A grand-nephew of New Johor’s first Sultan Abu Bakar, his mother was Armenian-French and paternal grandmother Circassian from the Ottoman palace.

It would have been unsurprising if he had taken a different path. But he chose a path less well trodden, dedicating himself to a post-colonial nation not yet in existence, then still “imagined” differently by various cultural communities and political tendencies.

He chose not to study abroad, not even to return to the University of Cambridge of his father. Instead, Ungku Aziz chose to study at Raffles College, and subsequently worked at the University of Malaya, first in Singapore, and later in Kuala Lumpur. This was an unexpected choice, especially for someone as privileged as Ungku Aziz. But it anticipates other choices he would make.

Singapore in Malaya

When the Japanese invaded Malaya from Dec 8, 1941, and the British surrendered Singapore 10 weeks later, Ungku was barely 21 and studying at Raffles College. The Japanese wanted to groom young scions of Malay aristocrats for collaboration. In Japan, Ungku became a ward of the Shogun, Tokugawa.

The role of Sharifah Azah, Ungku Aziz’s wife, has not been fully acknowledged. Azah Aziz was immersed in Malay journalism and culture. She opened up a world often superficially known to men in the larger Malay world of letters. With her help, Ungku Aziz articulated many women’s concerns.

After Japan’s surrender, Ungku Aziz continued at Raffles College, where he received first-class honours in economics. In 1949, the college became the core of the new University of Malaya (UM). Despite the many options open to him, he chose Serving the Nation, the title of his collected works.

Less mentioned today is Ungku Aziz’s role in establishing the Dewan Bahasa dan Pustaka (DBP). Supported by Utusan Melayu and Angkatan Sasterawan 50, or ASAS 50, UM’s Malay Language Society organised a historic conference at UM in Singapore in 1955.

This led to DBP’s establishment in 1958 in Johor Bahru under Ungku Aziz’s leadership. For an anglophone, often surrounded by Anglophiles, his new role was all the more remarkable.

Ungku Aziz was seen by many of his contemporaries as a “Renaissance man” — a man of letters, a man seriously interested in the arts and, philosophically speaking, one who appreciated knowledge, ilm, science. At UM, he initiated the teaching and study of the history and philosophy of science, personally giving lectures himself.

Perhaps inspired by the 1947 Perlembagaan Rakyat (People’s Constitution) and Utusan Melayu, Ungku promoted the Malay language in an inclusive way. Progressive students at the Chinese-medium Nanyang University were thus inspired to demand a Malay studies programme, reflecting their inclusive sense of what the new nation should be.

His promotion of Malay letters and the arts more generally was also significant. At UM, Ungku found niches for the visual artists Ibrahim Hussain and Syed Ahmad Jamal, among others. He chose Ariff Ahmad, a significant cultural figure in his own right, to set up UM’s Pusat Budaya.

UM honoured writer Ishak Haji Muhammad, or Pak Sako, once chair of the Labour Party of Malaya. With PAS head Dr Burhanuddin al-Helmy, Socialist Front (SF) leader Ahmad Boestamam, former Umno minister Aziz Ishak and Pak Sako were detained under the Internal Security Act in the mid-1960s. Ungku Aziz even spoke at the SF coalition’s events, mainly in Labour Party education programmes.

Ungku Aziz was instrumental in setting up Lembaga Urusan Tabung Haji in 1961. The initiative built on his early 1950s research investigating the low savings rate among rural Malays. His late 1950s follow-up note proposed how to encourage savings without involving interest.

Tabung Haji has since sought to promote Malay savings while avoiding interest. These savings are also linked to the prospect of fulfilling the Muslim duty to go on pilgrimage to the holy land.

Of course, Ungku was closely associated with the development of higher education in Malaysia. However, his contributions are only partly captured by the official institutional histories of these institutions, including UM.

Poverty and exploitation

Besides Ungku Aziz’s role in building at least three major Malaysian institutions, three major intellectual contributions are also worth noting. Despite being born into privilege, Ungku made an “option for the poor”, trying to deepen public understanding of poverty, especially among rural Malays.

Sadly, his “sarong index” proposal for asset estimation has been much mocked, so much so he did not want attention to it later in life. Although superseded by other measures, it was an eminently practical measure of the modest assets of rural Malays in the 1950s and beyond.

Today, people prefer using monetary income as a measure of well-being. But historically, this has not been the best measure of income, assets or well-being. Money measures can mislead as researchers who study incomes and assets of poor rural communities readily testify.

Contrast the well-being of poor rice farmers to rubber smallholders with higher cash incomes. Fieldwork in Kedah found children of poorer rice farmers much healthier due to supplementary nutrition from rice fields (for example, “cheap” canal fish) not available from rubber land.

Nutritional well-being not well captured by money measures probably influenced Ungku Aziz’s interest in “protein poverty”.

Even today, poverty is still often blamed on the poor, for having the wrong values or ideas. In the 1970s, Ungku’s cousin, Prof Syed Hussein Alatas repudiated such notions in his The Myth of the Lazy Native.

His early 1970s work, Siapa Yang Salah?, had demolished Tun Dr Mahathir Mohamad’s The Malay Dilemma and Umno’s Revolusi Mental blaming poor Malays’ “wrong” ideas and attitudes. New versions of such thinking remain influential, invoking new pseudo-scientific jargon cloaked in fashionable new discourses and language.

Ungku Aziz’s understanding of exploitation involved many elements, not only commercial, marketing or supply chains. Ungku Aziz emphasised credit and debt, elaborated by Mokhzani Abdul Rahim, one of his early students. Likewise, the question of land, the most important productive asset in agriculture, was emphasised by Syed Husin Ali, among others.

Nationalism

In an age of decolonisation, Ungku Aziz wrote on nationalism, still not deemed a subject amenable to economic analysis. Clearly, he was responding to the challenges of the times as he saw them.

Ungku Aziz recognised the major challenge of his times as that of nation-building. His Jejak-jejak di Pantai Zaman (Footprints in the Sands of Time from Za’aba to Aziz) traced the evolution of Malay understandings of poverty and backwardness while hinting at the special needs of the new nation.

Tun Abdul Razak Hussein’s 1971 New Economic Policy sought to create conditions for forging the new nation after May 1969 by reducing poverty and inter-ethnic disparities via affirmative action programmes. This challenge was taken up again in Mahathir’s Vision 2020, which included forging a bangsa Malaysia (Malaysian nation), first mentioned, without elaboration, by Abdul Razak in 1971.

Sadly, more than six decades after Malayan independence, we seem further away from building that nation. For Ungku Aziz, as for all who agreed to the compromises underlying the 1947 Perlembagaan Rakyat demanding independence, patriotism, not genealogy, was to be the basis for citizenship. We must now earn this inheritance from Pak Ungku’s invaluable legacy.

World Bank Enables Private Capture of Profits, Public Resources

World Bank Enables Private Capture of Profits, Public Resources

By Jomo Kwame Sundaram

KUALA LUMPUR, Malaysia, Dec 20 2023 (IPS) - The World Bank insists commercial finance is necessary for achieving economic recovery and the Sustainable Development Goals (SDGs), but does little to ensure profit-hungry commercial finance serves the public interest.

By failing to address pressing challenges within their purview, the second-ever Bretton Woods institutions’ (BWIs) annual meetings on the African continent, in Marrakech in October 2023, set the developing world even further back.

The International Monetary and Financial Committee, which oversees the International Monetary Fund (IMF), could not agree, by consensus, on the usual end-of-meeting ministerial communique for ‘geopolitical’ reasons. The Development Committee, which governs the World Bank Group, fared little better.

New World Bank playbook

Little was achieved on crucial outstanding issues of governance reform and sovereign debt. Implicitly acknowledging past failure, World Bank Governors endorsed a “new vision to create a world free of poverty on a livable planet”.

After all, even the World Bank now acknowledges recent increases in global poverty have been the worst since the Second World War as economic stagnation, debt distress and inflation spread across the developing world.

The Bank’s new Evolution Roadmap proposes a just energy transition plan to mobilise private capital to scale up, secure and deploy climate finance. This is mainly for mitigation, rather than adaptation, let alone losses and damages.

The blueprint wants international financial institutions to help developing country governments de-risk private investments. For Muchhala, this reflects “the failure of the Bank’s wealthy shareholders to help ensure a more equitable multilateral system that is truly fit for purpose to meet the challenges of the 21st century”.

Blending finance for private profitsThe strategy proposes ‘de-risking’ foreign investment with various types of ‘blended finance’ – such as co-financing, loan guarantees, political risk insurance or public equity co-investments – as well as complementary legal and other reforms.

The Bank and its allies have been promoting ‘blended finance’ for development, the environment and global warming since before the 2008 global financial crisis. Their main recommendation has been to induce profit-seeking private capital to fill growing financing gaps.

Undoubtedly, most poor developing countries have limited public resources to make needed social and environmental, including climate investments. In such arrangements, public funds are used to ‘de-risk’ or otherwise subsidise commercial finance, ostensibly to serve public policy priorities.

However, private commercial involvement in public services and infrastructure is costly and risky for the public sector and citizens, by deploying limited public resources for private gain. Civil society and other critics have already expressed grave concerns about the new Roadmap.

The World Bank Group also set up a Private Sector Investment Lab to scale up private finance in developing economies. It claims to be creating a “business enabling environment that unleashes private financing”.

Billions to trillionsThe World Bank’s ‘billions to trillions’ slogan has been the pretext for privileging commercial finance as supposedly necessary to achieve the SDGs. But it has done little to ensure that such profit-seeking private investments will help achieve the SDGs or otherwise serve the public purpose.

The Bank does not consider that profit-seeking private investments expecting attractive returns may not serve the public interest and priorities. Nor do they necessarily support desirable transformations. Worse, their economic, social and environmental consequences may be for the worse.

The privatisation of previously public social services and infrastructure has worsened development and distribution. Unequal access to public services – increasingly linked to affordability and ability to pay – threatens hundreds of millions.

Such blended finance arrangements have also contributed to the debt explosion in the Global South – exacerbating, rather than alleviating developmental, environmental and humanitarian crises.

Debt distress spreadingDeveloping countries are in their worst-ever debt crises, with debt service obligations higher than ever before. Current debt-to-GDP ratios are more than twice those of LICs before the 1996 HIPCs’ debt relief came into effect, and even higher than for Latin American nations before the 1989 Brady plan.

Unlike the 1980s’ sovereign debt crises, market finance is now more important. Much more government debt from commercial sources involves relying on bond markets, rather than commercial bank borrowings.

With official credit much less important, commercial finance has become much more important compared to the 1980s. Unlike official creditors, most private creditors typically refuse to participate in debt restructuring negotiations, making resolution impossible.

Debt servicing costs equal the combined expenditure for education, health, social protection and climate. In Africa, debt servicing has risen by half. Debt service levels of the 139 World Bank borrowers are higher than during the heavily indebted poor countries’ (HIPCs) and Latin American debt crises peaks.

Debt service is absorbing 38% of budget revenue and 30% of spending on average by developing country governments. In Africa, the levels are much higher, at 54% of revenue and 40% of spending!

The BWIs’ joint debt sustainability framework insists debt-distressed economies must have lower debt-to-GDP ratios than other countries, limiting this LICs’ external ratio to 30% or 40%. This BWI policy effectively penalises the poorer and more vulnerable nations.

In 38 countries with over a billion people, loan conditionalities during 2020-22 resulted in regressive tax reforms and public spending cuts. Less expenditure has hit fuel or electricity subsidies and public wage bills, deepening economic stagnation.

Despite severe debt distress in many developing countries, no meaningful debt relief has been available for most. The most recent debt restructuring deals have left debt service levels averaging at least 48% of revenue over the next three to five years.

Debt distress limits government spending capacity, desperately needed to address social and environmental crises. Hence, overcoming stagnation and achieving the SDGs will require much more debt cancellation, relief and borrowing cost cuts.

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