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

  • Published at 01:24 am December 8th, 2020
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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.

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