The debt crisis of the “Global South” is getting worse •

2024-09-02 05:17:16

by Michael Roberts

The overthrow of Sheikh Hasina’s dictatorial regime in Bangladesh by students and residents is a surprising result of economic nightmare that many that so-called developing economies are currently experiencing: stagnant trade, rising interest rate debt and severe austerity imposed by the IMF and private capital in exchange for “financial aid“Bangladesh was considered an economic success story until the fall of the regime, at least in the Western media and among mainstream economists. The IMF predicts that the GDP of Bangladesh will soon surpass that of Denmark or Singapore. Its GDP per capita is already there larger than that of neighboring India. The country’s average GDP growth over the past ten years, according to government statistics, was around 6.6%. In April this year, the World Bank estimated that Bangladesh will grow 5.6% this year, thanks to the successful garment industry, which relies on cheap labor “sweatshops” to gain global market share. Representation more than 80% of foreign countries. The government predicts that by 2025, Bangladeshi companies will produce 10% of world clothes.But beneath the surface, the economy’s rise depends on the faltering profits of Bangladesh capital. The relative recovery in profit after the Great Recession of 2008-9 began to reverse from 2013, leading to the reduction of the pandemic in 2020.
The crisis came quickly this year. Within weeks of the World Bank’s April optimism report, the truth emerged: the economy was deteriorating rapidly. Large infrastructure projects are failing and consuming resources, in addition to corruption. Rising interest costs on loans, inflation and falling export demand have pushed many companies into default with more than $20 billion in “non-performing loans.” The government gives huge grants (billions) to private companies to guarantee the electricity sector in the country. Wealthy shareholders prospered and took the opportunity to move their wealth out of the country; while transfers from Bangladeshis working abroad declined.

Unlike the rich, most of the country’s 170 million people suffer. The majority of Bangladeshi garment workers are women (50-80%), while the highest paid factory supervisors tend to be men. Most women earn the minimum wage: 8,000 taka, or about $80 a month. With rising food prices, that’s not enough. “All the daily products like rice, eggs, vegetables, everything is becoming expensive,” said Taslima Akhter, president of Bangladesh Garment Workers Solidarity, a labor union. “Also the cost of cooking gas [en casa] and electricity [en las fábricas]. So this is a big problem for the workers and the company. “

A BBS study conducted in mid-2023 revealed that around 37.7 million people has experienced moderate to severe food insecurity in the country. More than a quarter of families are receiving loans to cover the cost of daily needs, including food. A study by the South Asian Economic Modeling Network, a think tank, shows that 28% families resort to borrowing to survive. The total amount of loans for families in the country is almost double between 2016 and 2022.

Bangladesh has been recording increases in life expectancy for decades. In 2020, it reached 72.8 years, the highest to date. But since then, the development process has been disrupted. In 2021, the reduction to 72.3 years. The death rate of children under five years, newborns and children under one year is increase.

There has been a fall in the number of students at secondary school level and an increase in NETT (not in employment, education or training) among the young population. According to BSVS-2023, the proportion of children between the ages of five and twenty-four who are not in formal schools has increased since the COVID-19 pandemic. In 2020, at the beginning of the pandemic, 28% were outside educational institutions; by 2023, the share reaches 41%! About 40% are not in school or work, up to 10% in eight years. The student protests that brought down the government were caused by a job quota system that reserved 30% of government jobs for families of 1971 war veterans (mainly government families). Protesters demanded the replacement of quota with a rights-based system.

In June 2024, the IMF accepted that “Higher export prices and international financial stability have increased economic vulnerabilities.” Them Foreign exchange reserves have declined substantially due to interventions to raise the Bangladeshi currency, the taka. Foreign exchange reserves fell from $46 billion in 2021 to $19 billion.

The taka fell more than 20% against the US dollar, reducing external debt service costs. The external balance has entered a deficit of about 4% of GDP annually.

The government was forced to turn to the IMF. The IMF approved a small package $ 3.3 billion at the beginning of 2023. Then this year, raised to $ 4.7 billion, designed to ease the pressure on currency exchanges. And the IMF put 1.1 billion dollars in June.

But now everything is constantly changing. After a brutal attempt to end the conflict with the army and the police that killed more than 300 people, Hasina eventually fled the country. An interim government was formed under the leadership of economist Muhammad Yunus who won the Nobel Peace Prize to lead an interim government. No improvement is expected under his management (see: https://www.cadtm.org/Bangladesh-Who-is-Muhammad-Yunus-the-new-primer-minister). Yunus will once again turn to the IMF for support, in exchange for which the IMF will impose severe austerity measures.

Bangladesh’s economic crisis is being replicated throughout the Global South: in Kenya, where conflict has reversed the IMF-mandated tax reform; in Pakistan, where the government turned to the IMF for funding for the seventh time; in Egypt, which is on the verge of default; and in Nigeria, where famine prevails. And, of course, Argentina.

And the IMF forecloses on any borrower who doesn’t pay on time, which only makes it harder to repay the loans.. The number of countries making annual payments has almost tripled in 5 years, from 8 in 2019 to 23 in 2024. In the last six years, the IMF received an additional $7 billion.

By 2033, CEPR estimates that the IMF will receive up to $13 billion in additions. Argentina alone will have an estimated debt of $6 billion, followed by Ukraine, with a debt of almost $3 billion. In total, the additional costs will account for 26% of all costs and benefits charged to tax paying countries. For some borrowers, such as Costa Rica and Ecuador, the surcharges will be even more.

Source: Michael Roberts blog

Translation: G. Buster / sinpermission