The global debt crisis can no longer be ignored.
Countries across the Global South are increasingly being saddled with unaffordable debts, often on highly exploitative terms. The number of impoverished countries in debt distress, or at high risk of becoming so, has more than doubled from 15 in 2013 to 32 by the end of 2018.
Paying off these debts takes money away from vital public services such as schools and hospitals, meaning this new debt crisis poses a real threat to tackling global poverty.
Many of these loans were made in secret and have a connection to the UK, either because they were made by lenders based in the UK or because they were made using UK law. That’s where our government could make a real difference.
Last month campaigners from the Mozambique Budget Monitoring Forum and the Jubilee Debt Campaign visited Parliament. They told us that Mozambique faces a $2billion debt burden after two London-based banks – Credit Suisse and VTB Capital – issued secretive loans to three state-owned companies. These loans were agreed without the approval of Mozambique’s parliament. The subsequent debt crisis triggered an economic catastrophe in the country leading to rising inflation, higher food prices and increased rural poverty. And Mozambique has since defaulted on these loans.
These campaigners made the journey from Mozambique to London because they want to see action from UK politicians. Bankers at the heart of the Mozambique case are being prosecuted in the US courts. But the campaigners want the UK to take responsibility as well given that the loans were made by lenders based in the UK.
Last week Labour’s shadow international development and Treasury teams worked together to heed the campaigners’ call. Our plan is simple: in government we will pass an Overseas Loan Transparency Act. That Act will set up a public register. Any loans made to foreign governments, including state-owned enterprises, that are not disclosed on that register within 30 days would be unenforceable in British courts. We will consult on how to catch loans made indirectly through intermediaries to stamp out the scourge of secret loans.
We believe lenders wanting the benefit of British law should live up to those standards of transparency. Our plan is to discourage secret loans. And by creating a public register we will encourage more scrutiny and accountability for lenders.
Last weekend the G20 finance ministers held their annual meeting in Japan. The communique coming out of the meeting expressed support for “the work of the Institute of International Finance on the Voluntary Principles for Debt Transparency” and said that the ministers would “look forward to follow up”.
But voluntary principles are not enough. Loans to foreign governments that have a connection to the UK should not be made in secret.
This is a matter of loan justice. And it is vital to avoiding a repeat of the debt crisis that crippled countries across the global south in the late 1990s and early 2000s. It was only after a major decade long campaign, led by the then UK Labour Government, for debt relief that the G7 finance ministers in 2005 agreed to cancel some $130billion of debt for 36 low-income countries.
Fourteen years later we are in danger of history repeating itself. Now is the time for the UK Government to act – or to make way for a Labour Government that will put justice and solidarity at the heart of everything we do, at home and abroad.
John McDonnell is shadow chancellor of the exchequer and Labour MP for Hayes and Harlington
Dan Carden is acting shadow Secretary of State for International Development and MP for Liverpool Walton