• Thursday, Jan 27, 2022
  • Last Update : 03:32 am

OP-ED: Austerity, economic recovery, and the debt trap

  • Published at 01:24 am December 8th, 2020
money bag sack economy bank coin bigstock

Why developing nations such as Bangladesh must be especially wary of how they seek to recover from the Covid-19 fallout

Development economists and civil society organizations (CSOs) argue that austerity measures adopted by the governments of third-world countries are not a solution during the coronavirus crisis.

They raise questions about austerity, gradually imposed after the Covid-19 crisis due to the massive debt contract. Immediate suspension of debt  payments and better still, cancellation of debt, must take priority.

Instead, they advise governments to opt for economic recovery. The economic recovery will only be possible from “debt relief” and “debt justice.”

Bangladesh and other developing countries have given special attention in the wake of the coronavirus crisis and engaged in servicing external debts to international financial institutions.

The governments are deliberately diverting funds from education, human development, and infrastructure development sectors, whereas the health and safety net programs are implemented under a shoe-string budget.

According to the United Nations Conference on Trade and Development (UNCTAD), the pandemic has pushed another 32 million people in poor countries into abject poverty.

Another report by the International Finance Institute highlights the $272 trillion global debt, a new high, in the third quarter of 2020 and warns us about the “attack of the debt tsunami.”

There are issues in which countries, while seeking assistance from international financial institutions, are often imposed conditionalities that have not necessarily been negotiated with borrower states. These conditionalities are even seen in the context of the Covid-19 pandemic.

The government deliberately does not involve the citizens to participate in consultations, discussions, or negotiations. Such conditionalities increase the country's chances of falling into a “debt-trap.”

Ultimately, it is the people that have to foot the debt repayment after authorities impose additional taxes and levies to recover from the vicious cycle of debt.

According to standards of international law, international financial institutions should be held responsible for complicity in the imposition of economic reforms that violate human rights, which is well documented.

Governments and major multilateral institutions like the World Bank, the IMF, and regional development banks have used repayment of public debt to generalize policies that have damaged public health systems.

This has meant job cuts in the health sector, job instability, reduced numbers of hospital beds, closing down neighbourhood health services, increased medical costs both for care and medicines, under-investment in infrastructure and equipment, and privatization of various sections of the health sector along with public under-investment in research and development for treatment, which is to the advantage of big private pharmaceutical groups and companies. 

Even before the Covid-19 pandemic broke out, these policies had already led to enormous loss of human lives, and all around the world, health personnel were organizing protests.

Neither the World Bank nor the IMF have cancelled any debts since the beginning of the coronavirus pandemic. 

Although they have made endless calculated declarations to give the impression that they are taking very strong measures. This is completely false.

Worse still, since March 2020, the IMF has extended the loan agreements that entail continuing with the structural measures enumerated above. As for the World Bank, since March 2020 it has received more in debt repayments from developing countries than it has paid out to finance either donations or loans.

Eminent development economist, Dr Atiur Rahman states that, “We want to fight the coronavirus and, beyond that, improve the health and living conditions of populations, [for which] emergency measures must be taken.”

Immediate suspension of debt payments and cancellation of debt must take priority, suggests former Bangladesh Bank’s governor Dr Rahman.

The austerity measures do not contribute to economic recovery, but instead have negative consequences in terms of economic growth, debt ratios, and equality, and routinely result in a series of negative human rights impacts.

Saleem Samad is an independent journalist, media rights defender, recipient of Ashoka Fellowship and Hellman-Hammett Award. He can be reached at [email protected]; Twitter @saleemsamad.

Facebook 288
blogger sharing button blogger
buffer sharing button buffer
diaspora sharing button diaspora
digg sharing button digg
douban sharing button douban
email sharing button email
evernote sharing button evernote
flipboard sharing button flipboard
pocket sharing button getpocket
github sharing button github
gmail sharing button gmail
googlebookmarks sharing button googlebookmarks
hackernews sharing button hackernews
instapaper sharing button instapaper
line sharing button line
linkedin sharing button linkedin
livejournal sharing button livejournal
mailru sharing button mailru
medium sharing button medium
meneame sharing button meneame
messenger sharing button messenger
odnoklassniki sharing button odnoklassniki
pinterest sharing button pinterest
print sharing button print
qzone sharing button qzone
reddit sharing button reddit
refind sharing button refind
renren sharing button renren
skype sharing button skype
snapchat sharing button snapchat
surfingbird sharing button surfingbird
telegram sharing button telegram
tumblr sharing button tumblr
twitter sharing button twitter
vk sharing button vk
wechat sharing button wechat
weibo sharing button weibo
whatsapp sharing button whatsapp
wordpress sharing button wordpress
xing sharing button xing
yahoomail sharing button yahoomail