A train hurtles towards the buffer stop without braking, there are many people standing around the crucial switch, but no one moves it in order to avert the catastrophic crash. This image is a fairly accurate reflection of the current approach to the sovereign debt of the poorest countries.
According to the United Nations Development Programme (UNDP), at least 54 countries in the Global South are suffering from serious debt problems. Most of them are in sub-Saharan Africa (24 countries), followed by Latin America and the Caribbean (10 countries). They are home to more than 50 per cent of the people living in extreme poverty. Twenty-eight of these countries are among the 50 States most vulnerable to climate change in the world. The UNDP is calling for a "haircut" – a 30 per cent debt reduction.
Yet there is no lack of warning voices. The chief economics commentator of the Financial Times recently wrote that we were facing the threat of a "lost decade". It was a reference to the Latin American debt crisis of the 1980s and its dramatic consequences for those it affected. Although now, as then, interest rate hikes in the North are causing capital outflows from the South, there is one major difference: instead of banks, which were lending directly to countries back then, it is now investment funds like Blackrock that are investing money from pension funds and private investors in government bonds issued by countries in the Global South.
And there is also a major new player in the game: China. The world power holds the same amount of debt as all other lending countries combined (about 10%). However, this is less than a quarter of the debt owed to private creditors (the rest is held by multilateral institutions like the World Bank).
The upshot is that in the negotiations, all the parties are blaming each other. The West deplores the lack of cooperation from China, which in turn points to the fact that private lenders are unwilling to cut their debts, and that the multilateral agencies, too, with their privileged status, are also not participating.
And what is Switzerland’s role? We do not know. There is no transparency about the role of Swiss investors in the Global South. The only thing that is clear is that – besides China – there is yet another new protagonist on the scene: Swiss commodity traders. Here, too, the veil is rarely lifted. For example, the International Monetary Fund (IMF) has revealed that Chad’s debt to Glencore surpasses a billion dollars – more than a third of the country's total debt. The commodities multinational, which is based in the Swiss low-tax canton of Zug and has just tripled its annual earnings on the back of war profiteering, steadfastly refuses to agree to a debt reduction. It is therefore incumbent on Switzerland to create transparency and ensure that its multinationals go to the hairdresser and agree to a "haircut".