The Debt Trap: Colonialism, Hurricanes, and Predatory Lenders

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Forty-four nations meeting in July 1944 in Bretton Woods, New Hampshire, established the International Monetary Fund (IMF) as part of a plan to promote international cooperation after World War II. The IMF quickly became the go-to institution for former colonies seeking financial assistance – and was quickly exposed as imposing predatory conditions on the review of loan applications from banks and private lenders.

The terms included gross domestic product (GDP) targets that many states cannot meet without laying off thousands of public sector workers — usually the main employer — and privatizing state assets. The aim is to rein in supposedly reckless spending, but the effect has been to dictate policy to borrowing countries. The terms often spark widespread popular unrest, regime change and dictatorships. Some borrowers find themselves trapped in perpetual debt, sometimes having to borrow more just to pay interest on loans. This leaves them with few resources for economic development as they still struggle to emerge from the trauma of colonialism and, more recently, deal with the impact of natural disasters such as major hurricanes.

Mia Mottley, Prime Minister of Barbados, decided four years ago to make her country of 166 square miles and just 290,000 people the poster child for this new form of exploitation. Al Jazeera’s senior environmental reporter Abrahm Lustgarten tells the story in a 10,500-word article published July 27 in partnership with The New York Times Magazine. It started in 2013, when Barbados owed $8 billion and couldn’t qualify for further loans. Mottley decided not to repay and to force the lenders to change their terms. She looked for an ally in IMF Managing Director Christine Lagarde, who responded to a May 31, 2018 call from Mottley and expressed sympathy for her views.

This was a good sign because banks and private lenders would only listen to Mottley if Barbados participated in a formal IMF economic reform program. Mottley wanted Lagarde to approve “an economic program that would allow him to further raise the salaries of civil servants, build schools, and improve piping and wiring for water and electricity,” Lustgarten reports, and said to Legarde, “Before transporting people on a long journey, they must be given breakfast.

Mottley argued for the terms of the loan to include a catastrophe clause recognizing the economic damage caused by the hurricanes. The IMF had already noted that about two-thirds of the 511 disasters suffered by small countries since

1950 had taken place in the Caribbean, disrupting economic development and killing more than 250,000 people, Lustgarten notes. The islands “carry more debt, relative to the size of their economies, than almost anywhere else on the planet, a tax burden that virtually prevents them from paying for the infrastructure needed to protect them from future climate disruption.”

Barbados itself had the third-highest debt per capita in the world in 2017 and spent 55% of its GDP a year just to repay loans, “much of it to foreign banks and investors, while spending less than 5% for environmental programs and health care,” writes Lustgarten. Overall, since 1980, the hurricane recovery has absorbed more than six months of economic activity in 14 Caribbean states and more than the average annual GDP growth of five of them.

Mottley secured an agreement in 2019 to include a catastrophe clause for a loan that made the country “the largest issuer of bonds with hurricane clauses in the world”, writes Lustgarten. But the plan hinged on GDP growth of 6% per year. Then COVID-19 hit, as did Hurricane Elsa on July 2, 2021, which at Category 1 was just below the magnitude needed to trigger the catastrophe clause. The result was that instead of being in surplus, Barbados’ GDP recorded a deficit of 2%. The IMF, however, has insisted that Barbados is still expected to produce a six percent surplus.

Mottley’s office said she was unavailable for media interviews until the end of August, but Lustgarten writes that she believes the international financial system is “as fundamentally unjust” as slavery. and colonialism and that “just as foreigners once plundered the Caribbean for the wealth created by the in the hands of slaves, investors from these former imperial powers have now pressed former territories for their assets, for access to markets, for interest on loans.

Lustgarten does not say whether Mottley plans to push for the legacy of colonialism to be considered for IMF-sanctioned loans. If she does, she will have a strong case. Britain started the slave plantation system on the island almost 400 years ago. Between 1627 and 1833, some 600,000 enslaved Africans were taken to the island. Their life expectancy was less than 10 years and eventually 250,000 Barbadians perished. The British government abolished slavery in 1833 and paid slave owners about $17 billion in today’s currency, but nothing to former slaves. They were required to continue working for free as “apprentices” for decades or were forbidden to live on the plantations, which occupied most of the island. Mottley told Lustgarten, in his own words, that “it extended the sugar and mining system that fueled Britain’s modernization and its boom in banking, shipping and insurance” .

But if Mottley tries to push for a repair clause for the loans, she will be faced with the reality that lenders are interested in making profits, not fixing past wrongs. But she is not the only one to point the finger at the exploitation of the past. The Caribbean Community (CARICOM), which includes Barbados, established a CARICOM Reparations Commission (CRC) in 2013 and others have taken over, including in Africa and the United States. Mottley believes, writes Lustgarten, that “the impoverished islands of the Caribbean have provided wealth to greater powers for centuries and today is no exception. It used to be risky commodity companies that made big fortunes. Now it is more and more the risk itself. Indebted traffickers offer desperately needed money.

“By taking the risk of these smaller countries defaulting, they profit handsomely – and if the risk gets too high, they can pass the debt on at a discount to more adventurous investors. This is the nature of finance. But the climate crisis dramatically increases the risks and, in doing so, reties the fate of these fragile nations to the speculative will of distant powers. Post-colonialism barely had a chance to take hold before giving way to climate colonialism.

“We’re unevenly hitched,” Mottley told Lustgarten.

This inequality can be significantly reduced if former colonial powers pay reparations for slavery and colonialism. This is a decades-old global demand and the total could reach tens of trillions of dollars. But if only part of that sum is paid, it could change the economic dynamics of Barbados and other former colonies and help them escape the debt trap. But they shouldn’t hold their breath waiting for that to happen.


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