Creditors have many clubs and sovereign and non-sovereign mechanisms to secure their interests, especially during debt restructuring. International organizations such as the International Monetary Fund (IMF), the World Bank (WB) and the Inter-American Development Bank (IADB) continue the collective practice of cross-conditionality. When it is time to lobby for debt restructuring, commercial and investment banks activate the International Institute of Finance (IIF) and the London Group. At the time of restructuring, official lenders organize in the Paris Group while the world’s largest asset managers organize in specific bond creditor groups. Conversely, smaller debtor states —facing similar situations vis-à-vis their creditors— have been unable to coordinate their actions and develop tools to strengthen their position.
At a moment of post-pandemic debt distress and in the context of currency depreciation and rising interest rates, a sovereign and subnational debt crisis is looming in the Global South. African and Latin American countries are particularly exposed. Without an explicit effort to coordinate collective action among debtors, each country is acting individually with suboptimal results.
The debt problem exacerbates the lack of fiscal space and the lack of adequate financing for issues of vital importance to the countries of the Global South and the planet as a whole. The responsibility of the Global North for the climate emergency has been a terrible failure, especially in lack of financing and technology transfer to the Global South. A common and strong position on debt and climate finance will give the Global South the moral high ground and allow it to have a real impact on transforming the current economic system, and beyond solving cash-flow constraints.
Therefore, sovereign decisions and strategies, backed by collective, united action from the Global South are justified and urgent. Sovereign debt restructuring – owed to the Global North – that opens up fiscal space for investment in the climate emergency is a clear opportunity and a way forward.
We must also understand that the debt crisis is not something isolated. It is part of the current economic architecture that has created and deepened the structural problems of the Global South. Therefore, collective action of public actors and civil society from the South is not only essential to address the debt and other issues, but also to ensure that these collective resources and capacities create the conditions for a just transition.
In this sense, the project is devoted to promoting a united front from the Global South on debt restructuring. We have ongoing research on the issue and we are already moving forward in building a positive agenda and coalitions of debtor governments, debt justice groups and other civil society organizations, and experts in Africa, Latin America and Asia.