The Return of Debt Crisis in Developing Countries

Abstract

In the aftermath of the COVID-19 pandemic, much of the global South has been immersed in a debt crisis of a breadth and depth not seen since the early 1980s. The debt distress was apparent before the pandemic and the situation over the last decade is best described as a slow burn, which the pandemic and war in Ukraine ignited in often sudden and dramatic ways. However, what remains a surprising feature of the ongoing situation has been the avoidance so far of a generalized domino effect, unlike previous systemic Southern debt crises. This fact does not diminish the severity of the consequences given that the containment of crisis has been achieved by regular and persistent applications of austerity and adjustment programmes with deleterious impacts on development in poor countries. This article frames the Debate by exploring these aspects of the current Southern debt crisis, focusing on its deeper structural drivers versus the role of more proximate triggers of the crisis; the similarities or differences with past crises of recent decades; and the degree to which anything has in fact changed in orthodox responses to crisis management. A theme that emerges from the more heterodox scholarship profiled by this Debate is that the current crisis and its responses are maintaining the dominant development paradigm of the last 40 years, rather than eliciting a shift away from it. There is a continued adherence to neoliberal ideology in macroeconomic policy making and to the punitive subordination of developing countries in debt distress, through crisis responses, to the Northern and especially US-centred international financial system. Ignoring the very strong similarities to the past, especially the 1982 debt crisis that ushered in this paradigm, risks repeating the lost decades to development that followed.