In a world where anyone with a smartphone can uncover the staggering reality of developed nations ensnared in a multi-trillion-dollar debt cycle, the quest for truth is often obscured. The internet serves as an ocean of information, yet financial institutions like the International Monetary Fund (IMF) and the World Bank exert considerable effort to obscure this reality, framing the narrative around debt-to-GDP ratios that mislead the uninformed and cast the innocent as nefarious culprits.
The relentless pursuit of constant economic growth in developed nations is underpinned by extravagant spending aimed at ensuring stability and satisfying domestic expectations, all the while pursuing unsustainable growth trajectories. This strategy, while initially appearing robust, is increasingly revealing the fragility of these economies, as soaring debt levels expose their structural vulnerabilities.
In stark contrast, developing nations, often relegated to the scornful label of “Third World”, navigate a much harsher landscape, stripped of the sophisticated financial mechanisms that wealthier countries exploit. This disparity underscores a pressing need to confront global economic inequalities, which are fundamentally rooted in systemic injustices.
The crux of the problem transcends mere debt; it lies in the institutional mechanisms that perpetuate an inequitable world order, where resources and financial tools are monopolized by a privileged few, leaving the global majority grappling with limited schemes and tools to escape a cyclical quagmire.
An innovative global debt reduction strategy is imperative, especially given that collective debt has skyrocketed to an astounding $95.5 trillion across 196 countries. In contrast to previous disheartening initiatives, such as total debt cancellation or the Heavily Indebted Poor Countries (HIPC) initiative, my framework eschews charitable or paternalistic notions. It firmly dismisses the idea of reparative payments and any simplistic punitive solutions, advocating instead for a more nuanced approach.
Two strategies emerge
The “Nation-Centered Credit Allocation” proposes distributing $1 trillion to every country, regardless of size or economic status, to address global disparities in resources. Currently, twelve countries hold debts exceeding $1 trillion, totaling approximately $79.4 trillion, while the rest of the world carries about $16 trillion in debt.
If the 77 nations with debts under $10 billion each receive $1 trillion, their collective surplus would amount to $77 trillion. Conversely, the twelve heavily indebted nations would face a net deficit of $67 trillion after the allocation. This results in a $9 trillion gap needed to support 107 countries that lie between these two groups.
However, these figures reveal another financial imbalance. The question arises: is it fair to award a country like Nigeria, which is larger than Burundi in terms of area and population, the same amount? The same could be said of Russia and Kosovo. Is it fair to award a trillion dollars to both Burundi and Denmark, which, although both are small nations in terms of geography and population, have very low levels of national debt, while Denmark benefits from another form of cheating: high household debt?
The second scenario, titled “Per Capita Credit Distribution,” proposes distributing $10,000 to every individual worldwide, irrespective of age or nationality. Each nation’s allocation would be based on its population size, thereby crediting its national account proportionally.
Currently, among the 196 countries with a global population of approximately 8.15 billion, 50 nations have a per capita debt exceeding $10,000, representing a combined population of about 1.16 billion and a staggering cumulative debt of $69 trillion. In contrast, the remaining countries, with a population of around 6.98 billion, bear a total debt of $26 trillion.
Of these, 120 countries possess a per capita debt of less than $5,000, encompassing a population of roughly 4.76 billion and totaling $39 trillion in surplus. The 50 most indebted nations, with debts surpassing $10,000 per capita, face a massive deficit of $58 trillion, creating a shortfall of $19 trillion that cannot be addressed by 26 countries that lie between these two groups.
While this distribution the second scenario aims to address global inequalities, it has a lesser impact on reducing the global debt burden. Moreover, it raises critical questions about fairness—specifically, whether it is equitable to relieve the only a tenth of the United States debts while simultaneously enabling China to eliminate it national debts which less than $10,000 per capita.
Helicopter Money: A Recurring Practice
The International Monetary Fund’s (IMF) allocation of Special Drawing Rights (SDRs) encapsulates the essence of both the “Nation-Centered Credit Allocation” and “Per Capita Credit Distribution” strategies, yet it often resembles a rigged fairground game. Wealthier nations receive a disproportionately larger share of SDRs based on their contributions, while poorer countries—those that would benefit most from these resources—are left with a paltry allocation. For instance, during the 2021 SDR allocation, the United Kingdom, a prosperous nation, received approximately $19.32 billion, whereas Tanzania, its former colony and a much poorer country, was allotted only about $0.38 billion.
In response to the economic fallout from the COVID-19 pandemic, developed nations have gone beyond the IMF’s measures. The United States, for example, issued Economic Impact Payments of up to $1,400 for eligible individuals, or $2,800 for married couples filing jointly, with an additional $1,400 for each dependent, including adult dependents. Similarly, the Japanese government provided a one-time payment of approximately $930 to all residents, including foreign nationals. Australia also offered one-time payments of $520 to low-income households and retirees.
While many developed countries have adopted these forms of “helicopter money,” developing nations have not been similarly advised or incentivized to implement such measures, highlighting a significant disparity in economic responses and schemes authorized to address crises.
Guardrail: A Framework for Sustainable Development
In envisioning a scenario where a nation, certainly all the developing ones, experience a favorable balance, a quarter of their surpluses will be designated for infrastructure enhancement. This initiative would bolster the country’s economic foundations, fostering sustainable development and innovation while helping to mitigate the impacts of climate change.
Another quarter of these surpluses would be dedicated to expanding social programs aimed at reducing inequalities and improving the overall well-being of the population. Such investments in human and material capital are crucial for cultivating a more prosperous and inclusive future.
The remaining funds would be directed toward raising the universal minimum wage to $2 per hour. This measure is designed to guarantee a decent standard of living for all citizens while simultaneously stimulating local consumption and invigorating the economy.
To ensure effective implementation, this allocation should unfold over a five-year period, accompanied by rigorous monitoring and oversight from the country’s legislative body and the IMF. Such a structured approach will enhance transparency, fairness, and accountability, thereby reinforcing public trust in the economic decisions made by the government. This guardrail framework serves not only as a pathway to economic resilience but also as a commitment to social equity and environmental sustainability.
Paranoia Among Economic Rivals
China and Russia could view this initiative as a strategy by the United States to strengthen the dollar’s dominance as the premier reserve currency globally. In an increasingly multipolar economic landscape, where power dynamics are shifting, the existing framework of Special Drawing Rights (SDRs)—which is based on a basket of five currencies—offers a potential model for fostering a fairer and more balanced financial system.
To mitigate geopolitical tensions among heavily indebted developed nations vying for the financial resources of developing countries, the IMF is going to assume the role of a vigilant overseer. This responsibility includes closely monitoring national account balances, facilitating external debt payments, and managing domestic financial obligations.
Such proactive governance would not only enhance global financial stability but also help alleviate the apprehensions of emerging powers regarding the overwhelming influence of Western currencies.
Universal Benefits
The primary objective of this initiative is to address the deeply entrenched injustices inherent in the strategies employed by developed nations to uphold their citizens’ living standards in an evolving global landscape. For the most heavily indebted countries, reducing debt burdens will alleviate pressure on social programs and decrease the necessity for tax increases. Meanwhile, nations with lower debt levels will gain access to surplus funds, enabling them to enhance their socio-economic conditions and avert potential civil unrest.
Least developed countries receiving this financial liquidity are likely to pursue rapid modernization rather than merely focusing on industrialization. This approach stands to benefit the most indebted nations, which already possess the requisite knowledge and expertise. Furthermore, this transformation can help reduce the migration of impoverished individuals seeking better opportunities elsewhere.
While there may be instances of fund misallocation, the overarching effect is expected to be an elevation in living standards, thereby contributing to alleviating the alarming levels of global poverty. This initiative, therefore, holds the potential to foster a more equitable and sustainable future for all nations involved.
Jo M. Sekimonyo
Writer, theorist, human rights activist, and political economist – read more about Jo here
www.sekimonyo.com
