For centuries, debt has been more than a mere financial transaction; it has been a cunning instrument of power and control, shaping nations' destinies and perpetuating cycles of exploitation. From the earliest forms of economic exchange to the complex global financial system of today, the act of lending and borrowing has frequently been weaponized, leading to devastating consequences for ordinary people and undermining the very sovereignty of nations.
A Shadow from the Past: Debt's Colonial Roots
The story of global debt is tragically intertwined with the brutal history of colonialism. European powers, in their relentless pursuit of wealth and resources, imposed their rule across vast swathes of the Americas, Africa, and Asia, devastating indigenous communities and plundering their lands. They transformed economies into supply chains for their own industrial growth, focusing on the export of raw materials like fossil fuels, metals, and cash crops. This left former colonies with distorted economies, ill-equipped to provide for their citizens or withstand economic shocks.
Even after decades of struggle and hard-won independence, many nations found themselves entrapped from the very beginning. They were often forced to inherit debts accumulated by their colonial masters during their rule, or worse, compelled to pay crippling compensation to their former colonizers.
Haiti's Tragic Price for Freedom: The world's first Black post-colonial republic, Haiti, achieved independence in 1804 after a successful slave revolution. Yet, France, aided by other colonial powers, sought to punish Haiti for its audacity, imposing an economic blockade and threatening further invasion. Haiti was then forced to agree to pay France an astronomical 150 million gold francs – equivalent to approximately $21 billion in today's terms – to compensate for France's "loss of income" from slavery. This cruel repayment drained Haiti's resources for over a century, crippling investment in education, healthcare, and infrastructure until the debt was finally paid off in 1947. It stands as a stark testament to how debt can be used to pay for one's own exploitation.
The Democratic Republic of Congo's Inherited Burden: In a similar vein, the Democratic Republic of Congo, after enduring King Leopold II's brutal regime and vast exploitation, gained independence in 1960. However, it was forced to take on the massive debts accrued by Belgium during its colonial rule, including a $120 million loan from the World Bank primarily used to buy products from Belgium. This tragic legacy meant the Congo effectively paid for its own past exploitation, severely hindering its ability to fund vital public services.
As Thomas Sankara, the former President of Burkina Faso, poignantly stated in 1987, "Debt’s origins come from colonialism’s origins. Those who lend us money are those who colonized us. They are the same ones who used to manage our states and economies. These are the colonizers who indebted Africa". This sentiment underscores how debt became a continuous tool for rich countries and corporations to maintain control and extract wealth.
Understanding the Web: How Debt Works (and Traps)
The question of how nearly every country in the world can be in debt, and to whom, often puzzles people. At its core, money itself is often created as debt. When a bank lends money, it doesn't always have the full amount on hand; instead, new money is effectively created through the lending process, and this new money comes with interest attached. This means that the total amount of debt in the system will always be greater than the initial money supply, as interest must also be paid. This concept leads some to view the global monetary system as akin to a "pyramid scheme" or "Ponzi scheme" that relies on continuous economic expansion to sustain itself.
Who is Owed? The Invisible Creditors: While it might seem that countries primarily owe each other, the reality is far more complex. For the most part, countries are in debt to their own citizens and various banks. Governments issue bonds or treasury bills, which are essentially IOUs, and these are bought by individuals, pension funds, corporations, and financial institutions, both domestically and internationally. For instance, a significant portion of the United States' government debt is owed to American citizens. Other countries, like Japan, also have a high savings rate among their citizens, which helps fund their national debt domestically.
The Illusion of Circular Payment: The idea that countries could simply "go back around the circle" and cancel out their debts to each other sounds logical in theory, but it's impractical and impossible in reality. The existence of interest, fixed maturity dates on bonds, and the fact that debt is owed to a multitude of non-governmental entities makes such a simple cancellation unfeasible without causing systemic collapse.
Debt as Leverage: In the world of international finance, debt acts as a powerful lever. When one country lends to another, it creates a vested interest in the borrower's stability and cooperation. This can manifest in various ways, from "military favors" allowing the construction of naval bases to "political favors" influencing votes in the UN or trade concessions. This demonstrates how debt, as a financial tool, readily transforms into a political weapon.
As economist David Graeber argued in his influential book Debt: The First 5,000 Years, the current financial crisis might signal a fundamental shift on a "broadest possible historical scale". He delves into how "debt and money and the relationship of debt and money to violence and morality has played out across time," emphasizing that our current economic thinking is often too confined to the 20th century. Graeber suggests that the enforcement of debt is often a moral statement, prioritizing the repayment of loans over the well-being of populations, even when the original debt was incurred by unelected dictators for personal gain. He highlights that decisions about "whose debts have to be harshly enforced whose debts are let go" profoundly shape resource flow and the moral fabric of the economic system.
The Modern Debt Crisis: A Vicious Cycle of Vulnerability
The current era has seen debt levels across the globe skyrocket, putting immense pressure on low-income countries. The external debt of non-G20 countries has doubled since 2009, with Sub-Saharan Africa seeing a 27% increase in public debt-to-GDP ratios between 2011 and 2019, further compounded by a 13% surge in 2020 due to the COVID-19 pandemic. Today, a heartbreaking 60% of low-income nations are either drowning in a debt crisis or precariously close to the edge.
This modern debt crisis is distinct from past ones due to the fragmented and opaque web of creditors. The landscape is no longer dominated by traditional lenders like the Paris Club; instead, a diverse array of private creditors (banks, hedge funds) and China, which has become the world's largest sovereign creditor, hold significant sway. This complexity is exacerbated by a profound lack of transparency, with Chinese loan contracts frequently containing secrecy clauses that prevent borrowing countries from disclosing the terms even to international institutions or their own citizens. This "hidden debt" fuels mistrust and makes debt restructuring a nightmarish tangle.
Furthermore, the very vulnerability of these climate-impacted nations leads to higher interest rates, making it even harder for them to escape the debt trap. Climate risk alone has already cost vulnerable nations over $40 billion in additional interest payments in the last decade.
Politicians, Technocrats, and the Perilous Path of "Bad Debts"
A truly infuriating aspect of this crisis is the way politicians and technocrats often seem to waste precious time chasing after bad debts and ignoring the urgent need for sustainable solutions. In the global south, it’s not uncommon to witness:
A finance minister who signs off on a billion-dollar loan for a flashy six-lane highway to nowhere, even though it’s destined to be a financial black hole. Why? Because a ribbon-cutting ceremony looks good for an election. The real cost? Generations of citizens saddled with back-breaking repayments.
A president who secures a foreign loan for a luxurious new airport terminal, not for much-needed silos to store grain. Why? Because glossy photos impress investors. Meanwhile, small-time farmers watch helplessly as 30% of their harvests rot because there’s nowhere to store them.
A technocrat, who desperate to appease foreign creditors, agrees to borrow for a grandiose sports stadium while hospitals run out of basic, life-saving drugs. The spectacle of a football game is bought with the silent suffering of untreated malaria patients.
This ultimately leads to:
Loans for Non-Viable Projects: Far too often, loans are directed towards projects that are economically unsound or serve the lender's interests more than the borrower's. For example, Montenegro secured Chinese financing for a highway project in 2014 despite two feasibility studies deeming it economically unviable. Similarly, the Philippines was left with over $1 billion in debt for a US-built nuclear power plant that never generated any electricity but left its people repaying the loans for decades. These examples highlight how leaders, influenced by financial elites or political considerations, can prioritize deals that ultimately burden their citizens with "pointless projects for profit".
The "Debt-Trap Diplomacy" Threat: When countries struggle to repay, powerful creditors can demand "concessions or advantages in exchange for debt relief". This chilling practice, often termed "debt-trap diplomacy," allows creditors to gain influence and access to strategic resources. Sri Lanka's Hambantota port, financed by a massive Chinese loan, was ultimately leased to a Chinese state-owned firm for 99 years after Sri Lanka couldn't meet its revenue projections. In Zambia, a default on Chinese loans ignited fears of handing over strategic assets like the national airport or electricity supplier to China. These land deals, sometimes involving large agricultural projects, are seen by labor groups as a direct infringement on sovereignty and national identity, leading to fears of economic disadvantage and foreign control, especially when they involve foreign labor.
Austerity's Crushing Blow: The alternative to defaulting or ceding assets is often the imposition of brutal austerity measures. These policies, frequently demanded by international financial institutions like the IMF and World Bank as conditions for loans, involve deep cuts to government spending, privatization, and trade liberalization. While presented as a path to economic stability, these "structural adjustment programs" have historically failed to deliver prosperity, instead increasing poverty and inequality, and devastating social services like healthcare and education. A staggering 85% of COVID-19 loans to Global South governments even included plans for similar economic reforms once the pandemic subsides. These institutions, often criticized for being dominated by Global North powers, effectively use debt as leverage to steer policies in recipient countries. This leaves governments struggling to serve their citizens, caught in a cycle where they must choose between economic collapse, painful cuts, or ceding control over national assets.
The slow, contentious process of debt restructuring, particularly under initiatives like the G20 Common Framework, often leaves countries in an "untenable limbo". This delay means critical investments in their future, especially for climate resilience, are further postponed, trapping them in a vicious cycle between debt and climate crises.
The Stark Divide: American Might vs. African Vulnerability
The contrasting realities for a country like the United States versus many African nations in the face of debt are staggering. The US government primarily owes its debt to its own citizens and domestic institutions in the form of bonds, which are generally considered stable investments. Crucially, the US government can theoretically raise taxes or even print more money to cover its debt, making it "incapable of running out of money, unless it lets itself". Its bonds have fixed maturity dates, meaning creditors cannot simply demand repayment at will.
For African countries and much of the Global South, the reality is a cruel mirror image. Their debt is largely external, owed to a diverse mix of foreign governments and private creditors, often on less favorable and more opaque terms. This exposure leads directly to demands for control over strategic assets in cases of default, as seen in Sri Lanka and feared in Zambia. Governments are pressured into painful austerity measures that gut public services and directly harm their citizens. The constant pressure to choose between economic collapse, painful cuts, or surrendering national assets fundamentally erodes a government's ability to govern and maintain true political sovereignty.
Forging a Path Towards a More Just Future
The journey out of this debt-and-resilience crisis requires clear roadmaps and transition plans that prioritize sustainable development, integrate climate resilience, and maximize the use of domestic resources and donor grants. It demands a courageous shift from a system where debt is a tool of exploitation to one built on genuine partnership, ensuring that the promise of true independence for all nations is not merely a distant dream, but a tangible reality. This is the dream and reality that we want to participate in at Ubuntu Think Tank.