Is Excessive Sovereign Debt a Threat to Peace?

Opening day of the Annual Conference of the European Center for Peace and Development, City Hall, Belgrade, 26 October 2018

By Boudewijn Mohr
BEAUNE, Burgundy, France, Nov 7 2018 (IPS)

Some 30 years ago, the international banks were afloat with petrodollars, deposited by the oil exporting countries. The banks in turn stepped up lending to Latin America, in a big way. The new branch of Société Générale in New York where I was working at the time followed suit rapidly building up its portfolio, as the bank needed to make loans to get its branch off the ground.

Latin America was not my territory; my clients were French companies establishing subsidiaries in the United States. But when in 1982 I witnessed the panic in New York surrounding the implosion of Mexico’s debt, I wondered; and then began to write about it in a renowned Dutch newspaper in Holland, also offering ideas for solving the debt overhang.

I simply failed to grasp why commercial banks, in their eagerness to make loans, would lend so excessively, as they themselves must have known that such loans carried great risks. The banks probably did so willy-nilly, following in the footsteps of the International Monetary Fund (IMF).

At that time, the IMF was trying to help redress large balance of payment deficits of countries in Latin America through imposing stiff austerity measures, curbing inflation and trying to rekindle growth.

Today the IMF does not wince pumping 57 billion dollars into Argentina, a questionable step, and if only for weakening its own capital base in exchange for an excessive sovereign loan.

Given Argentina’s history, a portion of the loan unlikely may never be repaid, would need to be re-phased or simply forgiven. Their president says that chance is “zero”. The IMF now needs a major capital injection that may not be so easy to negotiate this time around, according to the Financial Times.

Has then nothing changed since the 1980s?

Not a whole lot in any case. But in my mind something important did change compared to 30 years ago: the world’s money supply today is unimaginably massive. You could call it a bubble of money in circulation; and that means that all that floating money, like the petrodollars of the past, needs to find a home, ergo loans to those countries that have less of it.

Poverty the ultimate threat facing humanity

Most researchers now agree that poverty is the ultimate threat facing humanity, and not only in the developing world. Everything bad emanates from it. Today poverty has increased to unbearable levels for many, a result of conflicts, climate change and rising food prices.

Today’s poverty reduction strategies now include provisions for the poor. This approach is rooted in UNICEF’s tireless campaign for economic adjustment with a human face in the ‘80s under the leadership of UNICEF’s Richard Jolly and his team of economists, and was enthusiastically endorsed by Jim Grant.

The proposal was to shield the poor and vulnerable from the worst effects of the austerity measures through strong social protection and safety nets. It is encouraging to note that Christine Lagarde pledged for more flexible measures in IMF lending that would include strong provisions to protect the most vulnerable.

This intention should be properly institutionalised and respected by her successors. For now, inequality in every aspect of life continues unabated; you are all familiar with the statistics.

Sovereign debt as a threat to peace

In 2012 the Max Planck Research Institute published a discussion paper with the most telling title “Sovereign debt crises as threats to the peace nations”. Its author, Matthias Goldmann, a senior research fellow, found that more reliable data than before enable researchers to point to a correlation between sovereign debt and the risk of armed conflict or even civil war. I have seen this in West and Southern Africa.

Sovereign debt reduces the ability of the state to adequately provide basic services to the most vulnerable, such as health and education services. I have witnessed in Africa that countries in pre-conflict situations have had declining budget allocations for health and education, far below internationally established norms (10% for health and 25% for education).

Beginning in the 1980s, poverty increased steadily in Côte d’Ivoire. World prices of cacao were steadily declining; and conflict in the form of protests and strikes began to rear its ugly head.

I was stationed in Abidjan when it got worse, with demonstrating university students, the university closed, burnt-out cars and soldiers roaming the streets in hijacked vehicles. It took 10 years for the civil conflict to end. In the end the country was exhausted and essentially bankrupt.

After the peace accords of 1992 Mozambique had no trouble finding loans and grants. At the 1995 Consultative Group Meeting in Paris, over 1 billion dollars was raised, a huge sum for its time. In the late 1990s Mozambique’s south developed fast with several huge investments from South Africa, for example a gigantic aluminum smelter near Maputo and upgrading of road and rail network. It was double-digit growth.

But the north, traditionally marginalised, stayed further behind. Not surprisingly, many years later the conflict flared up again between Frelimo and Renamo in the centre and north of the country.

In Rwanda, sovereign debt increased massively in the early 1990s. A structural adjustment programme imposed harsh austerity measures, but military expenditures were exempted. Public services collapsed with cuts in health and education expenditures. Development aid and foreign loans were channelled towards financing the military.

The army swelled to 40,000 troops. Clearly something bad was at hand. But nobody wanted to know. Ethnic tensions, already high in this small and overpopulated country, rose significantly, and then imploded into genocide. Rwanda’s sovereign debt was the worst debt trap the world had ever seen.

When Michel Camdessus retired from the IMF, he warned that poverty would “undermine societies through confrontation, violence and civil disorder”. This, I believe has always been so throughout history, but we paid lip service to change.

With all the problems our planet faces, inequality and poverty should not be the most difficult problems to solve once and for all. After all, states have the responsibility to protect its citizens in a human way, as adopted in 2006 in a unanimous resolution, R2P for short.

To note that R2P does not deny the right to use the military option as a last resort. What is new though is that the UN Security Council in case of a grave violation of this responsibility to protect its citizens, for example genocide, may decide to move into a sovereign nation.

Now if a sovereign debt crisis can be proven to threaten essential social and economic rights of populations and thus might constitute a threat to peace in that country and the sub-region, can the Security Council intervene on the basis of R2P?

What is the correct point to intervene? When there are signs that excessive debt is threatening peace, could the Security Council intervene pre-emptively? Goldmann argues that the Security Council might decide to intervene if there are additional factors, such as ethnical, racial, or structural inequality. These factors usually deteriorate as a result of economic hardship.

And lastly, how would the Security Council relate to and work with the major sovereign debt lender, the IMF, in pre-empting these threats to peace? Intriguing questions which beg for urgent answers.

*Prior to his stint with UNICEF, Boudewijn Mohr was a senior international corporate banker in New York, first with Chase Manhattan Bank in Wall Street and later at Societe Generale branch in New York City. This article is based on an address to the annual conference of the European Centre for Peace & Development in Belgrade last month. The theme of the conference was “A New Concept of Human Security.”

Alert! Hunger and Obesity on the Rise in Latin America for Third Year in a Row

Julio Berdegué, FAO representative for Latin America and the Caribbean, presents the region's Panorama of Food and Nutrition 2018 in Santiago, which has bad news due to the increase in hunger, malnutrition, overweight and obesity for the third consecutive year. Credit: Orlando Milesi/IPS

Julio Berdegué, FAO representative for Latin America and the Caribbean, presents the region’s Panorama of Food and Nutrition 2018 in Santiago, which has bad news due to the increase in hunger, malnutrition, overweight and obesity for the third consecutive year. Credit: Orlando Milesi/IPS

By Orlando Milesi
SANTIAGO, Nov 7 2018 (IPS)

“For the third consecutive year there is bad news” for Latin America and the Caribbean, where the numbers of hungry people have increased to “39.3 million people,” or 6.1 percent of the population, Julio Berdegué, FAO’s regional representative, said Wednesday.

At the regional headquarters of the United Nations agency in Santiago, Berdegué presented the conclusions of the Panorama of Food and Nutrition Security 2018, which brings more bad news: malnutrition and obesity also increased, in a situation closely linked to the persistence of inequality in the countries of the region.

The report was prepared jointly by the regional division of four U.N. agencies: FAO (Food and Agriculture Organisation), the Pan American Health Organisation (PAHO), the United Nations Children’s Fund (UNICEF), and the World Food Programme (WFP).

The four organisations called on governments in the region to implement public policies that combat inequality and promote healthy and sustainable food systems.”There is no material or scientific reason to justify hunger…We are issuing a wake-up call to governments and societies.” — Julio Berdegué

“There is no material or scientific reason to justify hunger,” Berdegué said during the presentation, pointing out that for the past five years, no progress has been made in the region, and that it has in fact slid backwards for the past three years.

“We are issuing a wake-up call to governments and societies,” he said.

The regional representative highlighted the case of Colombia where “peace has begun to pay dividends in the eradication of hunger,” referring to the positive effects of the peace deal reached by the government and the FARC guerrillas in 2016.

At the other extreme, Venezuela became one of the countries with the greatest number of hungry people: 3.7 million – 11.7 percent of the population.

Since 2014, the number of undernourished people has grown in Argentina, Bolivia and Venezuela. The largest rise occurred in Venezuela, with an increase of 600,000 people from 2014 to 2017, according to the Panorama.

Other countries severely affected by hunger are Haiti – five million people, equivalent to 45.7 percent of the population – and Mexico – 4.8 million people, representing 3.8 percent of the population.

However, in both Haiti and Mexico, hunger has declined in the last three years. The same is true in Colombia and the Dominican Republic. But these are the only four countries in the region that managed to reduce hunger since 2014.

“If Haiti can do it (reduce hunger), all of the other countries can, too,” Berdegué said emphatically.

According to the Panorama, the rate at which the number of hungry people in the region grew accelerated: between 2015 and 2016 the number of undernourished increased by 200,000, but between 2016 and 2017, it grew by twice that number: 400,000 people.

For Berdegué, the numbers are dramatic because “it’s not about being closer to the goal of zero hunger (by 2030). The goal is not a few less hungry people,” he said, noting that this is a food-producing and -exporting region, where “there is no lack of food, what is missing is money to buy it.”

He added that serious food insecurity affects 47.1 million people in Latin America and the Caribbean, and said “the worst thing is that most of them live in South America, the richest part of the region. How is it possible that 62 percent of the hungry are in South America?”

The report establishes a close link between economic and social inequality and higher levels of hunger, obesity and malnutrition.

Five million children suffer from hunger, children in the poorest segment of the population, who are “condemned to a very limited life,” Berdegué said.

He pointed out that the four U.N. agencies found a correlation between hunger and belonging to some ethnic groups.

Referring to indigenous groups, he noted that “In Peru, 25 percent of Quechua children and 23 percent of Aymara children suffer from chronic malnutrition, while at the national level the proportion is 16 percent.”

At the same time, the number of obese people is growing by 3.6 million each year, and today one in four adults in the region are obese. And some 250 million people are overweight: 60 percent of the regional population.

Overweight affects 3.9 million children under the age of five, more than the global average of 5.6 per cent, the report says.

“It’s a rampant and out of control epidemic. We have never eaten so badly. We have to make a shift towards a healthy and nutritious diet,” Berdegué said.

He added that 18 countries in the region produce fruits and vegetables, but export most of them.

“It is essential to regulate fats and salt content in food. There are many people who can’t afford to eat healthy. School curricula should include healthy eating,” Berdegué said, suggesting possible solutions to deal with the epidemic.

Carissa F. Etienne, director of PAHO, said that “although malnutrition persists in the region, particularly in vulnerable populations, obesity and overweight also particularly affect these groups.”

“A multisectoral approach is needed, ranging from ensuring access to balanced and healthy food to addressing other social factors that also impact on these forms of malnutrition, such as access to education, water and sanitation, and health services,” she said in a connection from the organisation’s Washington headquarters.

In her view, “we must make progress in access to universal health so that all people can receive the care and prevention measures they need with regard to malnutrition and its long-term consequences.”

The Panorama states that hunger, malnutrition, micronutrient deficiencies, overweight and obesity especially affect lower-income people, women, indigenous people, blacks and rural families in the region.

In Latin America, 8.4 percent of women face severe food insecurity, compared to 6.9 percent of men, and indigenous populations are more food insecure than non-indigenous populations.

In 10 countries, children from the poorest 20 percent of households suffer three times more stunting than the richest 20 percent.

According to the report, one of the main causes of the rise in malnutrition among particularly vulnerable population groups is changes in the region’s food systems and food cycle from production to consumption.

The greatest effects occur in the most excluded sectors which, although they have increased their consumption of healthy foods such as milk and meat, often have to opt for products high in fats, sugar and salt because they are cheaper.

With respect to the gender divide, the Panorama reports that 19 million women suffer from severe food insecurity, compared to 15 million men.

In all of the countries, the obesity rate for adult women is higher than for men; in 19 countries, the obesity rate for women is at least 10 percentage points higher than for men.

“Gender equity is a valuable policy instrument to reduce inequalities. We need to strengthen it in practice, which involves promoting equality in access to and control of household resources, as well as in decisions to empower women,” said Miguel Barreto, WFP regional director, from Panama City.