Getting out of the debt trap


Eric Toussaint is spokesperson for the Committee for the Abolition of Illegitimate Debts (CADTM), based in Belgium. The committee’s website ( provides a compendium of important information about the problem of debt. Toussaint’s previous book was Bankocracy (Resistance Books, 2015).

In this book, Toussaint aims to explain the history of international development loans between the imperialist countries of the global North and the (neo)colonies of the South. In the first seven chapters, Toussaint describes example after example “from Latin America to China, Greece, Tunisia, Egypt and the Ottoman Empire”. [where] the ruling classes in the North used debt as a means of accumulating wealth and as a weapon of domination. In short, you understand that the imperial power always benefits from a loan to a colony.

Toussaint tells colorful stories from the discs with a familiar motif. The colonial collaborationist regime runs to European power with a plea for a loan to wage war on a regional rival, or simply to keep the government going. European bankers come to the rescue, but at a interest
Amount paid as remuneration for an investment or received by a lender. Interest is calculated on the amount of capital invested or borrowed, the duration of the operation and the rate that has been set.
rate that the colony will never be able to afford. But hey, there’s more money to borrow where it came from.

The cycle keeps repeating itself. That is, unless/until the debt is repudiated—which is the second theme of this book.

Think of Emile Erlanger. Toussaint describes him as “one of the most prominent bankers in the financial centers of Paris and London in the second half of the 19and century.” He presented himself in 1863 with a stack of money for the bey (king) of Tunis, in order to help the bey pay for the consular buildings for France and Great Britain, not to mention the French rifles which he needed to replace a batch of useless weapons from Belgium.

“Real scam”

Erlanger sold Tunisian bonds worth 500 French francs for a windfall rate of 480 francs, with annual interest of 35 francs for 15 years. In turn, the Tunisian government received 415 francs for every 500 francs bind
A bond is an equity interest in debt issued by a company or government agency. The bondholder, the creditor, is entitled to interest and repayment of the principal. If the company is listed, the holder can also sell the bond on the stock exchange.
sold, and had to reimburse investors 1025 francs for the same bond.

During this time, Erlanger pockets a little more than five million francs in commissions. Ten years later, a French Treasury inspector described this loan as a “real scam”.

The bey and his prime minister were paid in cash and deposited the funds in a special account, which was never paid into the public treasury. Presumably, the bey and his ministers pocketed all the money.

During this time, the various creditors put pressure on the Bey to reimburse. No worries, the Bey has doubled the annual tax on every person in Tunis! This “provoked a general rebellion in the country.” It took nearly a year for the bey to put down the uprising.

Erlanger came to the rescue a second time, offering 36.87 million French francs. Tunisia received only 20 million, but had to repay 75.4 million francs!

The cycle continued until the French invaded Tunisia in 1881 to enforce debt collection.

Another series of events following the same general pattern led to the military occupation of Egypt by the British in 1882.

Debt crises yesterday and today

The book lives in the shadow of the Greek debt crisis over the past decade, and Toussaint reminds us that “Greek life has been blighted by major debt crises no less than four times since 1826”. (59)

The first, in 1830, resulted in the overthrow of the Hellenic Republic in favor of a monarchy at the request of a troika
Troika: IMF, European Commission and European Central Bank, which together impose austerity measures through the conditions attached to loans to countries in difficulty.

IMF: British, French and Russian monarchies.

When even the Greek king could no longer find the money in the treasury to service the debt, he suspended payments in 1843. Despite a series of popular rebellions, the troika tried to impose another plan of debt necessitating massive public sector layoffs (including all but 26). university professors), pay cuts and canceled public works programs.

When even these efforts failed to secure sufficient revenue for the troika, the British and French navies seized the port of Piraeus in 1854 and collected all customs revenue for two years. Again, the troika insisted that the original 1824-25 loan had not been fully repaid.

Greek debt was restructured once more in 1878. Noting that Greek budgets ran into a surplus every year except two in the period 1837-1877 before the debt servicing
Debt servicing
The sum of interest and amortization of the capital borrowed.
was paid, Toussaint concludes that “once debt repayment comes into play, it becomes clear that it (debt servicing) was the sole cause of the unsustainable debt burden”.

Toussaint reviews several Latin American debt crises in the 19and and early 20and centuries. Even the continent’s “liberator”, Simon Bolivar, was forced to agree to borrow from the former colonial powers in the 1820s.

Toussaint includes a helpful timeline as an appendix, offering brief descriptions of debt crises. These include several not covered in the main text, from 1815 to 1992.

Successful debt repudiation

Sometimes debtor countries manage to score small victories against crippling debt. Toussaint explains in detail how 20and the revolutionaries of the century in Mexico and Russia succeeded in repudiating the debts contracted by their respective former regimes.

Toussaint describes the aftermath of the 1910 revolution in Mexico, which led to the creation of what would become the Institutional Revolutionary Party (PRI) that dominated Mexican politics for a century. In February 1919, a cartel of bankers from creditor countries formed to bring Mexico to the negotiating table to settle its debts.

Three years later, Mexican President Alvaro Obregon acknowledged a public debt of $500 million. Toussaint argues that this figure was double what was actually owed ($220 million from Porfirio Diaz’s previous dictatorship, plus an additional $30 million from 1910 to 1922). “On top of that,” wrote Toussaint, “he agreed to add $200 million as default interest.”

Mexico began repaying this doubled debt, but suspended debt payment on June 30, 1924 after the budget deficit grew too deep. After several cycles of resuming and suspending payments, the Mexican Congress canceled the last agreement between the government and the bankers in January 1932, at the height of the world depression.

In 1941, just before the United States entered World War II, President Franklin Roosevelt insisted that the banking cartel give up trying to enforce debt payments from Mexico and Brazil. The cartel reduced the $510 million bill it was trying to steal from Mexico and agreed to accept only $50 million (principal and interest).

The post-revolutionary debt situation in Russia was more complicated, but just as decisively settled. The Soviet government suspended the payment of all international debts only a few months after the October Revolution of 1917, and all Tsarist debts were repudiated in February 1918. [Eric Toussaint describes the subsequent struggle in detail in ATC 195, “The Soviets and Tsarist Debt,” online at — ed.]

Soviet debt repudiation was one of the reasons 13 countries invaded Russia to support counter-revolutionary White forces in the civil war that followed the 1917 revolution. In April 1922, Britain, France, Belgium, Japan and Italy organized a conference to force the Russians to once again recognize the repudiated debt and stop demanding world revolution.

“Western capitals believed that the Soviet government was on its knees and were convinced that they would get what they wanted by making new loans and investments that Russia needed conditional on acknowledgment of past debts and indemnification of Western companies. expropriated.” (194)

The Bolshevik government offered to resume partial payment of the Tsarist debt if three conditions were met by the Western powers. (195) These were:

  • Diplomatic recognition of the Soviet government
  • Bilateral loans
  • Encouragement of private companies that demanded payment for expropriation to accept concessions to exploit natural resources in Siberia and elsewhere as compensation.

Five weeks after the start of these negotiations, Russia gave up, with Foreign Minister George Chicherin declaring that “governments and administrations created by revolutions are not bound to respect the obligations of governments that have been overthrown”. (203)

Aside from a brief reference to Argentina’s debt suspension from late 2001 to March 2005, The Debt System does not discuss current international debt. Readers interested in current affairs should carefully follow the CADTM website.

Odious debt theories

Chicherin’s statement is an excellent summary of the “odious debt” theory. Toussaint becomes more theoretical in chapter 8, where he describes the “odious debt” theory that Chicherin sums up so well. The phrase comes up frequently in earlier historical chapters, but he offers a more in-depth explanation of the concept here and in the next chapter.

Alexander Nahum Sack is considered the originator of this concept, which suggests that in exceptional cases debts can be canceled by new regimes: Sack wrote:

“If a despotic power contracts a debt, not for the needs and the interest of the State, but to reinforce its despotic regime, to oppress the population which fights it, this debt is odious for all the State. The debt does not need to be recognized by the Nation: it is a debt of the regime, a personal debt of the power which contracted it and consequently falls on the power which contracted it. The Effects of State Transformations on their public debts and other financial obligations: legal and financial treatyCollection Sirey, Paris, 1927, 157, quoted in Toussaint, 131

Since 2008, the CADTM has been campaigning for the cancellation of “a new doctrine of illegitimate, illegal, odious and unsustainable debt”. This doctrine includes considerations of whether the debtor state is democratic, respects human rights, whether the debt is incurred as part of “structural adjustments” (forced austerity), and includes all debts contracted to repay previous odious debts.

For reasons of global social justice, The Debt System pleads in favor of this new doctrine.

(Source: Europe Solidaire Sans Frontières


Comments are closed.