Episode 1

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Published on:

16th Oct 2024

The Global Debt Crisis

Almost half the global population is affected by the current global debt crisis. Some Global South countries are now spending more on debt servicing than health, education and social protection combined. Development economists Jayati Ghosh and Charles Abugre explore its root causes and consequences. And a Kenyan barber tells us how tax increases there are affecting his business and family life - and why he took to the streets in protest.

From the International Development Economics Associates - a network of progressive economists who centre the perspectives and needs of the Global South.

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Transcript
Julians Amboko:

Hi there.

Julians Amboko:

Welcome to Economics from the South, where we rethink economics, give a voice

Julians Amboko:

to marginalized communities, and come up with lasting solutions to ensure a fairer,

Julians Amboko:

more sustainable future for all of us.

Julians Amboko:

I'm your host, Julians Amboko, a Kenyan business journalist.

Julians Amboko:

Karibu sana.

Julians Amboko:

It's great to have you on board this six part series from the International

Julians Amboko:

Development Economics Associates.

Julians Amboko:

IDEAS is a network of progressive economists from Latin America, Asia,

Julians Amboko:

and Africa who challenge the way the world is run and put forward viable

Julians Amboko:

alternatives that center the perspectives and needs of the global south.

Julians Amboko:

Our main focus this series will be on two really important research areas for IDEAS.

Julians Amboko:

How to break the endless cycle of debt distress and rethinking how the

Julians Amboko:

international financial institutions are structured, governed, and operate.

Julians Amboko:

I'll be speaking to world renowned economists, academics, and development

Julians Amboko:

experts, and we'll also hear some personal stories of ordinary people trying to

Julians Amboko:

cope in very difficult situations.

Julians Amboko:

I'm delighted to be joined by two development economists who are at

Julians Amboko:

the forefront of the IDEAs network.

Julians Amboko:

Jayati Ghosh from India and Charles Abugre from Ghana.

Julians Amboko:

Jayati is a founding member of its executive committee and Charles

Julians Amboko:

is the current executive director.

Jayati Ghosh:

I'm Jayati Ghosh.

Jayati Ghosh:

I teach economics at the UMass Amherst in the US at the moment, but I have

Jayati Ghosh:

been teaching in India at the Jawaharlal Nehru University for 35 years.

Charles Abugre:

I am Charles Abugre.

Charles Abugre:

I am currently the executive director for IDEAs and I have

Charles Abugre:

been in the UN for some time and a lot of my time in the NGO world.

Julians Amboko:

Thank you very much both for joining us.

Julians Amboko:

Welcome and delighted to have you on this conversation.

Julians Amboko:

So firstly, Are we in another debt crisis?

Julians Amboko:

Let me start with you, Jayati.

Jayati Ghosh:

Yes, I think we are in another global debt crisis.

Jayati Ghosh:

Certainly, it is a major debt crisis if you consider that hundreds of millions

Jayati Ghosh:

of people across the developing world are affected by it and that their

Jayati Ghosh:

standards of living have been forced to be cut, that governments are spending

Jayati Ghosh:

more on debt service than they're spending on health, education and social

Jayati Ghosh:

protection put together, that many countries are on the verge of default

Jayati Ghosh:

or really facing major difficulties in meeting their debt service repayments.

Jayati Ghosh:

So yes, we are in a global debt crisis.

Jayati Ghosh:

Unfortunately, the leaders of the World economy don't really see it that way.

Jayati Ghosh:

They don't see this as a systemic problem.

Jayati Ghosh:

They don't think that this is something that is fundamentally going to

Jayati Ghosh:

alter the global financial system.

Jayati Ghosh:

These countries individually hold relatively small amounts of

Jayati Ghosh:

debt, if you compare it to the portfolios of the big creditors.

Jayati Ghosh:

And so if they default, it's not really a big crisis for them.

Jayati Ghosh:

It doesn't matter that people are suffering.

Jayati Ghosh:

It doesn't matter that that country's growth prospects are

Jayati Ghosh:

destroyed for a generation or more.

Jayati Ghosh:

It doesn't matter that the human rights, the social and economic

Jayati Ghosh:

rights of people are damaged.

Jayati Ghosh:

It doesn't matter that, you know, women's unpaid labor increases dramatically and

Jayati Ghosh:

food and basic needs all get undermined.

Jayati Ghosh:

All of that doesn't matter.

Jayati Ghosh:

What matters is that it doesn't affect the international financial system so much.

Jayati Ghosh:

And that's why they have allowed this to fester for so long.

Jayati Ghosh:

So we have a global debt crisis that is Actually impacting around half of

Jayati Ghosh:

the global population actually, and yet it is one that is not really seen as

Jayati Ghosh:

significant enough for immediate relief or for emergency action by those who

Jayati Ghosh:

control the global financial architecture.

Julians Amboko:

Charles, what's your assessment?

Julians Amboko:

Are we in a global debt crisis and has it been allowed to fester?

Charles Abugre:

Yes, for many countries in the global south and low and middle

Charles Abugre:

income countries, they are suffering severe resource constraints and the

Charles Abugre:

proportions of their incomes that they are spending to service debt.

Charles Abugre:

In some countries exceed the amount of money that they

Charles Abugre:

spend on health and education.

Charles Abugre:

This has become quite critical in Africa, in particular, where more than half

Charles Abugre:

the countries are either in distress, teetering on the border of debt distress

Charles Abugre:

and those that have not declared debt distress and have no program with the

Charles Abugre:

IMF are taking very expensive steps to avoid it meaning that they are either

Charles Abugre:

starving their economies and their societies with the basic expenditure

Charles Abugre:

the need to provide health education public services, or they are taxing the

Charles Abugre:

poor to, um, even greater poverty and they're squeezing their economies in

Charles Abugre:

order to avoid formally declaring debt distress and taking up an IMF program.

Charles Abugre:

This is growing.

Charles Abugre:

The number of countries in this situation is growing across the African

Charles Abugre:

continent, but it is also obvious in Latin America and in Asia as well.

Charles Abugre:

So for the majority, of people in the world and the countries.

Charles Abugre:

There is a serious debt problem.

Charles Abugre:

There is a debt crisis.

Charles Abugre:

But as Jayati says, it doesn't threaten the banks, the international banks,

Charles Abugre:

the large American and European banks.

Charles Abugre:

And so they are able to turn a blind eye.

Julians Amboko:

Thank you so much, Charles, for that context setting.

Julians Amboko:

What triggered the present debt crisis?

Jayati Ghosh:

Well, in fact, this is something that, uh, was almost going to

Jayati Ghosh:

happen like a bit of a Greek tragedy.

Jayati Ghosh:

Everybody assumes that it's the result of the COVID 19 pandemic.

Jayati Ghosh:

And certainly the pandemic had a role, the pandemic, and then the big increase

Jayati Ghosh:

in food and fuel prices afterwards, uh, because of the Ukraine war and the

Jayati Ghosh:

subsequent profiteering, all of that had an impact, but this was a crisis waiting

Jayati Ghosh:

to happen for a whole bunch of countries.

Jayati Ghosh:

Because, uh, It's one of the changes that occurred after the

Jayati Ghosh:

global financial crisis of 2008.

Jayati Ghosh:

So here I want to step back a little bit and say why I'm saying this is

Jayati Ghosh:

a crisis that has been allowed to fester, because we know that when

Jayati Ghosh:

there is really something that, shall we say, the lords of the universe

Jayati Ghosh:

think is going to affect the global financial system, they act promptly.

Jayati Ghosh:

They act in a very massive manner and they make sure.

Jayati Ghosh:

that the system survives.

Jayati Ghosh:

So we saw this in the global financial crisis.

Jayati Ghosh:

There was a massive move from the rich countries in terms of a fiscal expansion,

Jayati Ghosh:

but most of all, a monetary expansion and really bailing out the large banks,

Jayati Ghosh:

which would have gone under many of them.

Jayati Ghosh:

And bailing out their own economies as a result.

Jayati Ghosh:

We've also seen them more recently bailing out Syndicate Bank, Silicon Valley Bank,

Jayati Ghosh:

California, Credit Suisse in Switzerland.

Jayati Ghosh:

They do everything that they promised they would never do.

Jayati Ghosh:

They bend all of the rules and regulations to ensure that these survive.

Jayati Ghosh:

And that's because these are seen as systemically important.

Jayati Ghosh:

Now, what happened in 2008, that big global financial crisis, after

Jayati Ghosh:

that, what happened is that the rich countries went in for very

Jayati Ghosh:

expansionary monetary policies.

Jayati Ghosh:

Very low interest rates, huge increases in liquidity, trillions and

Jayati Ghosh:

trillions of dollars and euros and yen released into the economies of their

Jayati Ghosh:

own economies and other countries as well, just to keep banks afloat.

Jayati Ghosh:

So banks basically had all this massive increase in the money that they had.

Jayati Ghosh:

And so they were really encouraged to go out there and do all kinds

Jayati Ghosh:

of lending, including what used to earlier be seen as risky lending.

Jayati Ghosh:

So for example, you know, this phenomenon of emerging markets, which is really

Jayati Ghosh:

middle income countries that were getting integrated with global finance.

Jayati Ghosh:

This had already started in the 2000s.

Jayati Ghosh:

But from the 2010s, we see this new phenomenon of frontier markets.

Jayati Ghosh:

Now, what are frontier markets?

Jayati Ghosh:

They are countries that previously didn't get access to private credit,

Jayati Ghosh:

to the private bond market, to private loans, because they were seen

Jayati Ghosh:

as risky or, you know, because the returns were not seen as high enough.

Jayati Ghosh:

Basically, banks were so flush with funds and all these financial institutions

Jayati Ghosh:

were, because of monetary policy, they were so full of huge amounts

Jayati Ghosh:

of resources that they had to spend somewhere, that they were willing

Jayati Ghosh:

to take up all kinds of new loans.

Jayati Ghosh:

and buy all kinds of bonds.

Jayati Ghosh:

So a whole range of low and middle income countries got access to these markets.

Jayati Ghosh:

And this was encouraged by the IMF, by the World Bank, by the Davos crowd.

Jayati Ghosh:

It was actively encouraged.

Jayati Ghosh:

So countries were really encouraged to float bonds in the

Jayati Ghosh:

global sovereign bond market.

Jayati Ghosh:

They were encouraged to borrow.

Jayati Ghosh:

They were encouraged to allow their private players to borrow in global

Jayati Ghosh:

financial markets and guarantee that debt.

Jayati Ghosh:

So all of them ran up.

Jayati Ghosh:

Fairly high debts in a very short time.

Jayati Ghosh:

And this is something that was inevitable, that at some point

Jayati Ghosh:

there would be repayment problems.

Jayati Ghosh:

Because these are economies that are structurally in deficit.

Jayati Ghosh:

They are not economies that can immediately or in five or six years

Jayati Ghosh:

generate dollar or foreign exchange that will allow them to repay the debt.

Jayati Ghosh:

So that by 2022, we had more and more countries getting into this debt stress.

Jayati Ghosh:

And by 2023, we've had, as Charles mentioned, even the countries that

Jayati Ghosh:

are not identified as debt stressed.

Jayati Ghosh:

There are more than 70 of them to take.

Jayati Ghosh:

But even other countries are spending much more on debt service than

Jayati Ghosh:

they are on health, education, and all forms of social protection.

Julians Amboko:

Interesting take there, um, Jayati.

Julians Amboko:

Let me come to Charles.

Charles Abugre:

Let me also back up a little bit and um, just say a few

Charles Abugre:

things about the recent character of the debt crisis in Africa.

Charles Abugre:

Africa still has the greatest numbers of low income countries and

Charles Abugre:

even the middle income countries are actually low income countries.

Charles Abugre:

There is a characteristic we need to keep in mind.

Charles Abugre:

We need to remember that for nearly two decades.

Charles Abugre:

In the period of structural adjustment, the eighties, nineties, up to the, in

Charles Abugre:

fact, nearly three decades, um, the, the continent, um, you know, under,

Charles Abugre:

um, very strict austerity measures.

Charles Abugre:

So the structural adjustment programs basically built up a huge deficit

Charles Abugre:

in public service, um, expenditure, um, schools were collapsing.

Charles Abugre:

The health systems were collapsing.

Charles Abugre:

Um, rules were not being constructed.

Charles Abugre:

There was no power systems and so on.

Charles Abugre:

So for nearly three decades, there was a huge buildup of basic

Charles Abugre:

public investment, uh, you know, deficit in public investment.

Charles Abugre:

And so, uh, after the debt, um, restructuring, um, by the multilateral

Charles Abugre:

debt restructuring initiative that ended somewhere in the mid 2000s and

Charles Abugre:

that provided a little bit of, um, space, uh, for many African countries,

Charles Abugre:

there was an internal desire to a need to, to increase public expenditure.

Charles Abugre:

And fortunately for many, for many of these countries at that time, uh,

Charles Abugre:

increased demand by, by, by China of commodities led to a commodity boom.

Charles Abugre:

So it provided a little bit of space for countries to, to, to start to borrow.

Charles Abugre:

And during that period of structural adjustment programs, the multilateral

Charles Abugre:

institution, the IMF and the World Bank deliberately, as Jayati

Charles Abugre:

said, pushed countries to borrow.

Charles Abugre:

away from, you know, borrowing from official sources, bilateral

Charles Abugre:

and multilateral official sources.

Charles Abugre:

It was a mark of improvement, the mark of progress if these countries

Charles Abugre:

actually transitioned into the, into private capital markets.

Charles Abugre:

So many countries with increasing commodity prices, uh, rebased their

Charles Abugre:

currencies and rebase their GDPs, further increasing the space for them to borrow.

Charles Abugre:

And this is how they were introduced into private capital markets.

Charles Abugre:

So many of them have found themselves now with an entirely

Charles Abugre:

different portfolio of credit.

Charles Abugre:

Unfortunately, with a greater dependence on commodities, it also means that

Charles Abugre:

when the commodity price, um, the commodity market sees a downturn, the

Charles Abugre:

ability to, to, to service this debt in foreign exchange, many of these

Charles Abugre:

countries become very pressured.

Charles Abugre:

And this is what has been the beginning.

Charles Abugre:

So when COVID hit, many of these countries were already in debt distress and

Charles Abugre:

rapidly going into debt distress, largely because commodity prices had decreased,

Charles Abugre:

had fallen in international market.

Charles Abugre:

Secondly, uh, many of them remain very deeply rooted in import dependency.

Charles Abugre:

So many countries on the continent, in particular, import everything from

Charles Abugre:

food to basic commodities and so on.

Charles Abugre:

And so.

Charles Abugre:

Increased imports, inability to industrialize and to diversify domestic

Charles Abugre:

production, increasing import, especially for food and medicines, then tie these

Charles Abugre:

countries, um, into the, to dependency in, in the private capital markets.

Charles Abugre:

And they are borrowing to recycle debt.

Charles Abugre:

Ghana is an, uh, an example that's carried on recycling these debts, borrowing from

Charles Abugre:

private capital markets at increasingly higher prices and so on and so forth.

Julians Amboko:

Good point there, Charles.

Julians Amboko:

So let's look at, uh, what's really causing this vulnerabilities and

Julians Amboko:

making certain lower and middle income countries to be more likely to

Julians Amboko:

fall into an endless cycle of debt.

Julians Amboko:

You remember, we, we had what we normally call the HIPC

Julians Amboko:

initiative around debt distress.

Julians Amboko:

So what really underlies this vulnerabilities and

Julians Amboko:

recurrent cycle, Jayati?

Jayati Ghosh:

You know, uh, basically we know that low and middle income countries

Jayati Ghosh:

or developing countries in general.

Jayati Ghosh:

tend to have structural deficits.

Jayati Ghosh:

That is to say, because they are at a lower level of development, they haven't

Jayati Ghosh:

fulfilled their development project, they are industrializing, they don't have the

Jayati Ghosh:

kind of diversified economies that would provide them with all the imports that

Jayati Ghosh:

they would like to have or that they would need for their growth process or that

Jayati Ghosh:

would be desired by their population.

Jayati Ghosh:

Now, one reason why developing countries had trade controls was precisely

Jayati Ghosh:

that, recognizing that, you know, if you just leave it to free trade, then

Jayati Ghosh:

especially the rich in your own country will want to have consumption that is

Jayati Ghosh:

heavily import dependent, and that that will generate these structural trade

Jayati Ghosh:

deficits, and then you'll have a problem financing them, and you'll have to cut

Jayati Ghosh:

down on all kinds of other essential imports, perhaps just to enable that.

Jayati Ghosh:

We saw in from the 1990s, this whole phase of global globalization,

Jayati Ghosh:

liberalization, privatization, et cetera, we saw the opening up of trade

Jayati Ghosh:

balances, and this was followed then by the opening up of capital accounts.

Jayati Ghosh:

And the whole argument was, you don't have to control your trade anymore.

Jayati Ghosh:

You don't have to try and do industrial policy through trade

Jayati Ghosh:

policy, because now you can actually.

Jayati Ghosh:

free your imports, just export what you can and the rest of it you can get capital

Jayati Ghosh:

inflows to enable your growth process.

Jayati Ghosh:

And the way the world panned out, it did happen, especially from the

Jayati Ghosh:

2000s onwards, that because the U.

Jayati Ghosh:

S.

Jayati Ghosh:

was providing these very low interest rates and large liquidity.

Jayati Ghosh:

And because subsequent to the global financial crisis, more and more other

Jayati Ghosh:

rich countries did the same, there was a lot of money sloshing about the

Jayati Ghosh:

globe looking for places to invest.

Jayati Ghosh:

And so all these countries did get into this, but remember those structural

Jayati Ghosh:

constraints that mean that they are basically running deficits persisted.

Jayati Ghosh:

And they were made worse by the fact that open trade meant that your elites

Jayati Ghosh:

could have this very import based consumption, which added to the imports

Jayati Ghosh:

that you didn't necessarily need, but you were stuck with anyway, whereas

Jayati Ghosh:

your exports didn't always cover that.

Jayati Ghosh:

Yes, if you were a primary commodity exporter and there was a good

Jayati Ghosh:

shift in your terms of trade, you benefited in some years, but that

Jayati Ghosh:

fundamental problem remained.

Jayati Ghosh:

Now, what happened in around the mid 1990s?

Jayati Ghosh:

Part of the decade of the 2010s is that many countries were already experiencing

Jayati Ghosh:

difficulties even in servicing their debt to the multilateral institutions,

Jayati Ghosh:

to the World Bank, the IMF, the Regional Development Bank, and so on.

Jayati Ghosh:

And so they actually were encouraged to have sovereign bonds in

Jayati Ghosh:

international markets, or even domestic bonds that foreigners could buy.

Jayati Ghosh:

And because, as I said, there was so much liquidity and there were so

Jayati Ghosh:

many of these multinational investors looking for places to invest, and it

Jayati Ghosh:

was just a tiny part of their portfolio.

Jayati Ghosh:

So they didn't really care very much.

Jayati Ghosh:

They got this money.

Jayati Ghosh:

They got these resources.

Jayati Ghosh:

Sri Lanka, for example, it was completely what we call Ponzi borrowing.

Jayati Ghosh:

They were borrowing to repay earlier debts.

Jayati Ghosh:

They had debts to the World Bank, to the IMF, to the Asian Development Bank

Jayati Ghosh:

that they couldn't repay with their own exports, with the net exports.

Jayati Ghosh:

Also, because they were allowing the rich to import lots of things, right?

Jayati Ghosh:

And so what did they do?

Jayati Ghosh:

They floated sovereign bonds.

Jayati Ghosh:

And those sovereign bonds were then used to finance the repayment

Jayati Ghosh:

to the IMF and the World Bank.

Jayati Ghosh:

And the IMF, knowing all of this, seeing all of this, does not say to

Jayati Ghosh:

the, to Sri Lanka that don't do this.

Jayati Ghosh:

It encourages them.

Jayati Ghosh:

Now, you know this is going to end in tears.

Jayati Ghosh:

If you are borrowing to repay your debt, you know that this is an unsustainable

Jayati Ghosh:

process and it's going to end in tears.

Jayati Ghosh:

And it's always the case.

Jayati Ghosh:

That's what happened in the US housing crisis, the subprime crisis that

Jayati Ghosh:

generated the big global financial crisis.

Jayati Ghosh:

That's what happened in the Eurozone crisis.

Jayati Ghosh:

So it's not just developing countries.

Jayati Ghosh:

Any country that does this, this is what's going to happen.

Jayati Ghosh:

So yes, there are structural reasons why, let's say, even hippie

Jayati Ghosh:

countries that benefited from a significant debt haircut in the 1990s

Jayati Ghosh:

are back in that same boat again.

Jayati Ghosh:

And some of it, yes, is their own policy fault, I would say.

Jayati Ghosh:

But A large part of it is the responsibility of those institutions

Jayati Ghosh:

and those international forces that actively egged them on

Jayati Ghosh:

and encouraged them to do this.

Julians Amboko:

Thank you.

Julians Amboko:

Thank you for that clarification, Jayati.

Julians Amboko:

And, uh, Charles.

Charles Abugre:

Okay.

Charles Abugre:

So, um, just Two other issues on the systemic, um, underlying

Charles Abugre:

factors driving the debt.

Charles Abugre:

You will recall that, um, in the, in the period of, um, the structural

Charles Abugre:

adjustment programs in the 2000s and 1990s, countries were encouraged to,

Charles Abugre:

um, Uh, to privatize their, uh, their natural resources and, uh, even,

Charles Abugre:

even, uh, public services in order to attract foreign direct investment.

Charles Abugre:

And it was, it was felt that foreign direct investment would be the path to

Charles Abugre:

growing these economies, but also growing them in a non debt accumulating way.

Charles Abugre:

So many developing countries.

Charles Abugre:

Privatize their most productive assets, um, their natural resource

Charles Abugre:

deposits and Africa is, uh, is, is, is very complicit in this.

Charles Abugre:

And so what you have seen is that they, the main source of revenue for, for

Charles Abugre:

government that, that would have reduced the need for boring foreign exchange,

Charles Abugre:

which is, you know, Earnings from the production and export of, uh, natural

Charles Abugre:

resources in particular, that many countries lost those and increasingly had

Charles Abugre:

have a very little share of these exports.

Charles Abugre:

Um, many of them made concessions that, um, even reduces the availability of

Charles Abugre:

the foreign exchange that is earned.

Charles Abugre:

So foreign companies are not even required to deposit their, um,

Charles Abugre:

their foreign earnings, their exchange earnings in central banks.

Charles Abugre:

So they lost both revenues as well as the availability of foreign exchange in their

Charles Abugre:

reserves to support their development.

Charles Abugre:

Where still, This privatization process in the large foreign companies

Charles Abugre:

became a conduit for resource outflows both legally and illegally,

Charles Abugre:

uh, legally in the, in the form of, um, you know, profit repatriation.

Charles Abugre:

So Zambia is both Zambia and Ghana examples of countries that lose more

Charles Abugre:

money from primary income repatriation than they, than they actually in

Charles Abugre:

the case of Zambia in particular, than the cost of debt servicing.

Charles Abugre:

So they're losing money from what they should have earned domestically,

Charles Abugre:

and they are losing money, uh, from, uh, profit repatriation.

Charles Abugre:

And in that process, especially through the natural resource exports, they are

Charles Abugre:

losing billions, uh, both in revenues, And in foreign earnings exchange through

Charles Abugre:

illicit means into various tax havens.

Charles Abugre:

So there is a bleeding process that has also happened and it's,

Charles Abugre:

it's, it's integrated into the conditionalities, um, of the 1990s and

Charles Abugre:

2000 and continues to be so, to be so.

Charles Abugre:

So there's a leakage, there's a big pot leaking In addition to debt sustainability

Charles Abugre:

and other problems of the IMF, there is also the credit rating companies

Charles Abugre:

that are continuously discriminating.

Charles Abugre:

And the Economic Commission for Africa published this paper that,

Charles Abugre:

that said that there's a special tax for African sovereign, uh, ratings.

Charles Abugre:

So they are continuously, uh, rated poorly, which means that they have less

Charles Abugre:

and less access to a diversified portfolio of resources, but also that they are

Charles Abugre:

paying higher and higher interest rates.

Charles Abugre:

So that expands the bleeding.

Charles Abugre:

I think these processes is important to keep in mind.

Charles Abugre:

So it is not only the debt servicing that, that is bleeding the continent.

Charles Abugre:

It is also the, these inequitable.

Charles Abugre:

Contractual arrangements and privatization and the role of large

Charles Abugre:

foreign companies in the economies of developing countries that, that is

Charles Abugre:

also exacerbating the, the, the debt distress forcing them to have to borrow

Charles Abugre:

from very expensive sources and so on.

Julians Amboko:

Many thanks to Charles Abugre and Jayati Ghosh for

Julians Amboko:

such an illuminating conversation.

Julians Amboko:

We'll be hearing more from them in episode 4 when we explore lasting

Julians Amboko:

solutions to the debt crisis.

Julians Amboko:

But right now, let's turn to my own country, Kenya, to take a closer look

Julians Amboko:

at an issue brought up by Charles.

Julians Amboko:

The consequences on working people when governments raise taxes to

Julians Amboko:

avoid formally defaulting on debt.

Julians Amboko:

What started as anger on TikTok

Julians Amboko:

spilled out onto the streets in June 2024 as thousands of Kenyans protested

Julians Amboko:

against yet more tax proposals forcing President William Ruto to back down.

Julians Amboko:

Our reporter Michael Kaloki met a barber who took part in those protests.

Julians Amboko:

He asked us to protect his identity because a number of

Julians Amboko:

activists have been abducted.

Julians Amboko:

Michael Kaloki and Kenyan barber: I see some oils, some, is this dye?

Julians Amboko:

Dye, dye, dye, cotton wool.

Julians Amboko:

Dye, there's some cotton wool.

Julians Amboko:

There's some various chemicals here, that they use at the barber shop.

Julians Amboko:

There's just a motorcycle taxi outside here, and it's quite busy.

Julians Amboko:

The government of William Ruto has increased taxes since

Julians Amboko:

coming into power in 2022.

Julians Amboko:

Which tax has hit you the hardest?

Julians Amboko:

He says the cosmetics tax.

Julians Amboko:

He says that a packet of hair dye used to cost 250 shillings

Julians Amboko:

but it now costs 500 shillings.

Julians Amboko:

That's about two US dollars to four US dollars.

Julians Amboko:

Shampoo was 200 shillings, it's now 300 shillings.

Julians Amboko:

Massage oil went from about 600 shillings to 900 shillings.

Julians Amboko:

The cost of a scrubber used to be 600 shillings and has

Julians Amboko:

now gone up to 800 shillings.

Julians Amboko:

And shaving spirit also.

Julians Amboko:

And how has it affected your business?

Julians Amboko:

And Ada used to cost 400 shillings, but now he has to charge 500.

Julians Amboko:

And as a result, the number of people coming to the shop is going down.

Julians Amboko:

In fact, as we are talking, there are no customers at all.

Julians Amboko:

And he says that sometimes clients even refuse to pay the full amount.

Julians Amboko:

For example, a shave is 200 shillings, but some people will only pay 150 shillings.

Julians Amboko:

What measures were you especially opposed to in the finance bill?

Julians Amboko:

He says that he was especially concerned about the proposal to increase the

Julians Amboko:

price of women's sanitary pads.

Julians Amboko:

He thinks they should be free of charge.

Julians Amboko:

He says fuel, because when the price of fuel is increased, it causes

Julians Amboko:

the cost of everything to go up.

Julians Amboko:

Flour has gone up, sugar has come up, and he says it's better

Julians Amboko:

to drink tea without sugar.

Julians Amboko:

Now, do you have a family at home?

Julians Amboko:

Uh, no.

Julians Amboko:

Family are not?

Julians Amboko:

Yes.

Julians Amboko:

Yes.

Julians Amboko:

He has a family, a wife, and two children.

Julians Amboko:

Both boys.

Julians Amboko:

How did this affect your family at home?

Julians Amboko:

Daily,

Julians Amboko:

you would give his family a total allowance of 800 shillings, which

Julians Amboko:

is the equivalent to about six US dollars, but he now can only give.

Julians Amboko:

500 shillings, which is about three US dollars.

Julians Amboko:

Has it affected your family in any other way?

Julians Amboko:

Hmm.

Julians Amboko:

He used to be able to afford to give his son snacks to take to school, but

Julians Amboko:

at the moment he's only able to send him to school with a bottle of water.

Julians Amboko:

Why did you make that decision to go out on the streets to protest?

Julians Amboko:

He says he joined the protestors because he feels life has become so hard.

Julians Amboko:

He says, I was ready to die for the sake of my children.

Julians Amboko:

to try to give them a better life in the future.

Julians Amboko:

What was the reason that you decided to enter parliament

Julians Amboko:

with the rest of the protesters?

Julians Amboko:

He says that the members of parliament do not know what ordinary people

Julians Amboko:

in the slums are going through.

Julians Amboko:

They just don't know, he says.

Julians Amboko:

They have no idea that people are really suffering.

Julians Amboko:

The MPs just went ahead and voted to pass the Finance Act without really

Julians Amboko:

knowing what it is they were passing.

Julians Amboko:

Hearty appreciation to that Kenyan barber for sharing his story.

Julians Amboko:

Reminder that he asked us not to use his name because he's scared of repercussions.

Julians Amboko:

Next episode on economics from the south.

Julians Amboko:

I sit down with two eminently respected economists, Columbia's former finance

Julians Amboko:

minister Jose Antonio Ocampo and a former high level UN official and

Julians Amboko:

highly regarded economist Jan Kregel.

Jan Kregel:

The SDRs can be used in order to plug the hole

Jan Kregel:

until the Cocoa Bunny market.

Jan Kregel:

It recovers, but if it never recovers, now you have a solvency problem.

Jan Kregel:

And the solvency problem can't be solved by the SDR solution.

Jan Kregel:

So this is the difficulty that you have in terms of the system that we're

Jan Kregel:

now looking at climate changes and other things are not simply things

Jan Kregel:

that can be solved with liquidity.

Jan Kregel:

Jose Antonio Ocampo: We need responsible borrowing and responsible lending.

Jan Kregel:

In the case of official financing, one of the problems is that some of the

Jan Kregel:

official creditors don't want to reduce debts, so don't want, in the jargon

Jan Kregel:

of this debate, don't want haircuts.

Jan Kregel:

And then there is a problem of coordination.

Jan Kregel:

And that's why there has to be a very specific ad hoc initiative

Jan Kregel:

to manage this problem, because otherwise there will be no solution.

Julians Amboko:

Thanks for listening to Economics from the

Julians Amboko:

South from the International Development Economics Associates.

Julians Amboko:

Please subscribe or follow wherever you get your podcasts so that

Julians Amboko:

you can get new weekly episodes automatically, effortlessly.

Julians Amboko:

I'm Julians Amboko.

Julians Amboko:

The producer is Penny Dale.

Julians Amboko:

The concept is by Charles Abugre, C.P.

Julians Amboko:

Chandrasekhar and atieno Andomo of the International

Julians Amboko:

Development Economics Associates.

Julians Amboko:

Check out the show notes for links to the Ideas website where you

Julians Amboko:

can find lots of really insightful articles and research papers on

Julians Amboko:

the issue of debt and so much more.

Julians Amboko:

And also you can sign up to the IDEAS newsletter.

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About the Podcast

Economics from the South
Rethinking economics and challenging the way the world is run
COMING on 16 OCTOBER....
We rethink economics, challenge policies and systems that perpetuate inequality and come up with viable solutions that put people and the planet before money and profits.

Leading economists make sense of topics like the international debt crisis and reforming global financial institutions. Plus ordinary people share their stories of life in countries trapped in an endless cycle of debt distress.

From the International Development Economics Associates - a network of progressive economists who centre the perspectives and needs of the Global South.

New episodes available on Wednesdays.
Host: Julians Amboko.
Producer: Penny Dale.
Podcast concept: Charles Abugre, C.P. Chandrasekhar and atieno Ndomo.
Artwork: Richard Abong’o.
Website: https://networkideas.org