Research reveals the full extent of indebtedness — the ‘most urgent issue in international finance’.
The idyllic Indian Ocean archipelago of the Seychelles has been revealed as the world’s most indebted nation, in a list compiled by campaigners.
By including private borrowing from overseas, as well as government debt, the Jubilee Debt Campaign says its data reveal the true scale of the burden on struggling countries around the world.
The Seychelles, which received an International Monetary Fund bailout at the height of the world financial crisis in late 2008, tops the list with net debt worth more than a year and a half’s gross domestic product (GDP). It is followed by four victims of the eurozone crisis: Portugal, Ireland, Greece and Spain.
The United Kingdom is the 98th most indebted country, according to the study. But when gross private debt is taken into account — without offsetting foreign liabilities — the UK shoots up the list.
Foreign debt owed by Britain’s private sector, mainly by banks, amounts to 364% of GDP, Jubilee says, making Britain the fourth most indebted country on those terms. Ireland tops this private-sector league with debt worth 900% of GDP.
Jubilee helped to fight for large-scale cancellation of developing countries’ debt from 2000 onwards, and some beneficiaries such as Liberia and Burundi still have among the lowest government debt payments as a proportion of GDP.
International economy remains vulnerable
But Tim Jones, who compiled the data, said the scale of the criss-crossing IOUs between many of the world’s major countries showed how vulnerable the international economy remained.
“These figures show the huge imbalances which continue to plague the global economy,” he said. “Large debts in some countries are matched by huge lending from the likes of German, British and Swiss banks. This creates a global boom-bust cycle which has been repeated for the last 30 years, from Africa and Latin America to East Asia and Europe, and now India once again.”
The Indian government has had to step in to try to halt a breakneck slide in the rupee in recent weeks, as foreign investors pull out their capital due to fears that the United States Federal Reserve is about to halt its $85-billion-a-month quantitative easing programme.
Jubilee has also revealed the countries most responsible for pouring capital into other economies in the form of loans, often the proceeds of a large trade surplus. Singapore, Switzerland and Saudi Arabia emerge as the largest net creditors to the rest of the world. Singapore has net loans to the rest of the world worth almost three years of its GDP.
Karel Williams, of the Centre for Research on Sociocultural Change at Manchester University, said these creditor countries should be held equally culpable for periodic global debt crises, along with the debtors, who often take much of the blame. “It’s like blaming prostitution on the poor girl ... there’s a punter involved here,” he said. “There’s a problem about trade imbalances which drives countries to recycle them.”
Unless the proceeds are reinvested abroad — as Norway does with much of its oil fund, for example — a large trade surplus can drive up a country’s currency.
In a separate analysis, Jubilee Debt Campaign also lists the countries where repaying government debt swallows up the largest proportion of revenues. Lebanon tops this list, with more than 55% of the money that comes into the treasury going straight back out to creditors. Jamaica, Greece and Ireland all spend more than 25% of revenues on servicing their national debt.
Jan Toporowski, professor of economics and finance at the University of London’s School of Oriental and African studies, said: “This is the untold story behind developments in international banking and finance, a story which shows that these are not just everyday transactions helpfully carried out by international banks as a benefit to the world in general. The data shows the legacy of debt that is the consequence of international transactions carried out without a proper system of debt management. They highlight the most urgent issue in international finance.” — © Guardian News & Media 2013