The COVID19 pandemic has once again revealed a too often ignored feature of global financial system—that sovereign debt has been a mode of colonial governance and subsequently of sovereign control for more than a century. This history of sovereign debt as a mode of colonial governance informs my proposals for the types of reforms that must be prioritized to meet the challenges sovereign debt poses today.

First, we have to recognize sovereign debt as a modality of colonial governance. Only then is it possible to see how the COVID19 pandemic has once again provided an opportunity for those who benefit most from the current global debt architecture to consolidate their control over it with a view to maximizing their personal gains. This commitment to the status quo comes into view most clearly when sovereign debt is viewed through the history of the global financial and sovereign debt system. At independence from colonial rule, the economic sovereignty of formerly colonized countries was already compromised even before it commenced. Sovereign debt was one of the tools that blunted the practical conditions for establishing financially viable independent states then and now.

Some formerly colonized countries inherited colonial-era debt despite having no say in the borrowing and no benefit from the proceeds; yet others were hamstrung with debt obligations billed to them by departing colonists as a price of independence. For example, a debt of $150 million, imposed on Haiti after independence, was justified as necessary to compensate French colonists for property they had claimed as their own—enslaved people and conquered lands—that they argued were expropriated by the fact of independence.^[1] In today’s dollars, that debt is approximately 21 billion dollars. The amounts billed to Haiti were pegged to the future expected revenues that these colonists would have made had Haiti not become independent. This colonial era debt to France and French slaveowners, which was imposed in return for Haitian sovereignty, took 122 years to repay. Haiti had to borrow money from French banks to repay this debt for independence. Thomas Picketty has argued that this debt hobbled Haiti’s economic prospects to date.

Another lineage of the origins of the modern sovereign debt market can be found in the banking legislation in the United States at the beginning of the 20th century, which enabled North American financial institutions to consolidate their dominance in sovereign debt financing and in the marketing of corporate bonds. American institutions did this initially in the Caribbean and subsequently more broadly around the world.^[2] The imperial internationalization mood prevailed in the early 20th century United States, supporting the incorporation of the perpetually indebted Puerto Rico and the Philippines, accompanied by an “activist entrepreneurial aggressive strategy of expansion and growth.”^[3] This strategy in turn buoyed the emergence of a global finance industry in the United States that continues to date.

From its beginnings, the global finance industry was justified by its creators as necessary to civilize the natives. For example, Haitian backwardness and stereotypes were mobilized to legitimate U.S. intervention and confiscation of its gold by U.S. marines to satisfy U.S. creditors. The invocation of Haitian backwardness and inferiority to legitimize imposition of draconian policies to collect sovereign debt payments is a familiar experience for Global South countries to date.

To satisfy their creditors, many highly indebted countries of the Global South are spending more than 50% of the budgets to service sovereign debt. When countries give priority to debt repayments, they have much less to spend on basic needs like public education and health, even in a global pandemic. This is not new. In the early twentieth century the New York based Santo Domingo Improvement Corporation mortgaged the Dominican Republic’s customs receipts as security for loans owed to it.^[4] As Peter James Hudson writes, this was justified by the Rooselvelt Collorary, under which the United States assumed “fiscal control of the country, taking over the collection and distribution of the republic’s customs revenue while reserving the right of military intervention and the seizure of customs houses in the case of default.”^[5]

Haiti and the Dominican Republic are only two examples of how independence from colonial rule came with many continuities of colonial era control. Similar accounts of colonial era debt being assumed by post-independence governments elsewhere including in countries that did not go under former colonial rule like Liberia are well known. Similarly, Tunisia in the last part of the 19th century was saddled with debt owed to French creditors. This debt required increased taxes that in turn sparked protests that were in turn put down by armed force. Tunisian leaders indebted the country further to repay their external creditors when they could not raise sufficient revenue domestically.

It follows that it is a mistake to evaluate the indebtedness of the countries of the Global South as if political independence came on a clean slate.

Today, private creditors hold African governments at ransom for non-payment of their principal and interest when they are due as happened recently when Zambia defaulted at the end of 2020. In November 2020, Zambia defaulted on a $ 4.5 million Eurobond interest payment. That default came on the heels of extremely high borrowing not only from the traditional Paris Club lenders, but also from China and a whole range of private creditors. Bondholders rejected Zambia’s offer to restructure the debt in part because Zambia declined to disclose the terms upon which it had borrowed from other creditors – especially Chinese lenders. It was not until a newly elected government was in place in Zambia that creditors were mollified. In the meantime, Zambia committed to a stringent fiscal consolidation program with the International Monetary Fund that included a $ 1.4 billion loan over three years. The Jubilee Debt Campaign has warned that these loans are at risk of being used to pay creditors while Zambian citizens are subjected to austerity. Indeed tough austerity measures are some of the costs that ruling elites commit their countries in return to accessing capital through increased external borrowing from the Global North. In early 2021, Zambia assumed more debt when it acquired majority stakes in a Glencore owned mine that would otherwise have been closed. In another transaction resulting in more debt for an African country disclosed in April 2022, the government of Zimbabwe’s state-run Kuvimba Mining House will pay Trafigura Group, one of the biggest oil and metal traders in the world, $ 226.6 million for fuel bills owed by Zimbabwe on contracts dating back to 2016. Under the agreement, Zimbabwe agreed to pay Trafigura $ 6 million a month and for Trafigura to retain 40% of payments from nickel and gold mines controlled by subsidiaries of Kuvimba. The deal gives Trafigura the right to approve buyers of the metal and the right of first refusal.

Thus, sovereign indebtedness at end of the first quarter of the twenty-first century is very reminiscent of the immediate post-colonial moments. Then and now, sovereign debt indentures and contracts are often construed to require countries in the Global South to prioritize payments to creditors ahead of funding their public education, public health or other basic needs. Further, this prioritization of sovereign debt payments to creditors is made possible by a whole range of ‘disciplinary’ forces that keep these countries on a short leash. These forces include credit rating agencies that downgrade the credit ratings of countries that dare to consider restructuring. These disciplinary forces, that include the International Monetary Fund, stand between defaulting countries or countries that do not follow its stringent fiscal consolidation programs from accessing funding from it or from catalyzing access to credit from private creditors. Further, collateralized loan transactions come with risks especially where they fail to produce a revenue stream to guarantee repayment. Indeed, increased collateralization creates safety nets for investors in development assets even where the collateralized assets fail to produce public benefits.

The IMF’s fiscal consolidation programs require countries to increase taxes and tax collection and to cut social spending. These unforgiving disciplinary forces have only tangentially been modified to accommodate the economic pressures indebted countries in the Global South have been exposed to as a result of the COVID19 pandemic. For example, the G20’s short-lived Debt Service Suspension Initiative, (DSSI), expired at the end of 2021. The G20 Common Framework for Debt Treatments beyond the DSSI has so far failed to gain meaningful participation from China and shows no sign of eliciting concessions from private creditors, casting doubt on its viability. Further, many African countries experienced loan payment spikes after the expiry of the DSSI which is certain to exacerbate the cuts in social spending required by IMF austerity programs.

My claim is straightforward. Anti-debt futures cannot be predicated on terms dictated by the interests of creditors alone. For example, by only focusing on the risks of excessive sovereign borrowing and debt accumulation or only focusing on the contractual obligations between borrowers and creditors is to narrow the possible scope of possible reforms. To do so is to presume the sanctity and unimpeachability of these contractual obligations that are the foundations of the global debt architecture. Proceeding from this framework and its assumptions elides examining the structural foundations of this architecture that date more than a century.

Further, it seems foolhardy to place hopes in modest reforms such as those aimed at designing better restructuring mechanisms. Restructuring, even if for a moment we lived in a world where the 2002 proposal for a Sovereign Debt Restructuring Mechanism was in place, does not begin to resolve the underlying problem of unrepayable debt. This is because restructuring merely postpones into the future when those debts would be paid. Without fundamental changes in the governance of the international financial system and the accompanying debt architecture, the predicament for indebted countries of the Global South remains unfortunately bleak for the foreseeable future. That is why, for example, IMF quota reform to take into account the emergence of the BRICS, and to make sure African countries have a voice and vote commensurate with their 25% membership in the Bretton Woods Institutions is long overdue. After all, the Bretton Woods are post-Second World War institutions whose reform as US Treasury Secretary Janet Yellen recently noted that “we should gather to take counsel with one another respecting the shape of the future which we are to win.” Without fundamental reforms of the sovereign debt and global financial architecture, the meagre efforts like the G20’s Common Framework for Debt Treatments beyond the DSSI will merely continue the consolidation and retrenchment of the coloniality of debt.