Seething discontent in the Horn of Africa: Eritrea's strange "coup"

A further crack in an unpredictable and repressive regime.

At around 10am on 21 January a contingent of Eritrean troops stormed the state television station. They rounded up the staff – all employees of the Ministry of Information – and forced the director of Eritrea TV, Asmellash Abraha Woldu, to read a statement calling for:

  • the freeing of all prisoners of conscience
  • the implementation of the Eritrean constitution
  • and stating that the ministry of information was under their control.

Almost immediately the television broadcast was interrupted, and remained off the air for several hours, before resuming its broadcasts with pre-recorded material. This is about all that is clear.

In the centre of Asmara, the stunningly beautiful highland capital of this tiny sliver of a country bordering on the Red Sea, life continued much as normal. The Foreign and Commonwealth Office declared that it had detected “unusual military movements in and around Asmara” and instructed British nationals in Eritrea to “exercise extreme caution and to continue to monitor the FCO's websites for updates.”

The Eritrean government dismissed speculation and rumours of a coup and described the events as a “small incident”. They went on to launch a scathing attack on foreign commentators, including this author.

Behind the apparently calm façade lies a seething discontent, particularly among younger Eritreans. It appears that the soldiers involved in Monday’s protest were from outside of the capital. “They were just amateurs,” one source told me, “mostly just very frustrated young people.” Around a thousand young men and women cross the border into exile every month, according to the United Nations refugee agency. Many leave for Ethiopia, which accommodates 127,970 Eritreans. The total Eritrean refugee community stands at 251,954, many of them in Sudan.

So why do young Eritreans flee from the country of their birth? The answer is that they face a future dominated by conscription and poverty. National Service, nominally for eighteen months, can be extended by years. Citizens as old as 50 are still liable for the army reserves. Once conscripted, Eritreans can face years in forced labour on foreign owned gold mines, working for a pittance.

Others are deployed in trenches along the country’s desolate, 1,000 kilometre long border with Ethiopia. The border war between the two countries, from May 1998 to June 2000, was fought with modern jets, heavy artillery and tanks. There is no official death toll, but estimates suggest it left 100,000 dead.  Both countries agreed to settle the dispute though by binding arbitration. While Eritrea stood by the ruling of a tribunal in the Hague, Ethiopia did not, insisting on further talks. But while Addis Ababa – a key western ally in the US “war on terror” – played its cards skilfully, Asmara did not. Washington was alienated by a series of snubs and Eritrea found itself out in the cold.

To try to increase his leverage over the US, and to open another front against his Ethiopian adversaries, Eritrea’s President Isaias Afewerki began supporting Islamist fighters of al-Shabab in Somalia. This brought the wrath of the international community down on his head, and United Nations sanctions against Eritrea that have been steadily tightened. As these became increasingly onerous, the Eritreans apparently cut their ties with the Somali fighters.

The situation inside Eritrea itself continues to deteriorate – but away from the glare of international publicity. The country allows no independent media and none of the major news agencies, like Reuters, AP or AFP have correspondents in the country. Reporters Without Borders considers Eritrea the most repressive state in the world, ranking it below North Korea in its latest index.

No free elections have been held since independence in 1993. There is only one political party, the ludicrously named People’s Front for Freedom and Justice. Human Rights organisations like Amnesty International regularly criticise the country’s arbitrary detentions and routine practices of torture. Former prisoners report being held in shipping containers in temperatures that rise to over 50 degrees in the blazing sun. Others are suspended from their wrists in the notorious “helicopter” position.

Human Rights Watch estimates there are between 5,000 and 10,000 political prisoners, without including deserters from National Service “who may number tens of thousands more.” The UN recently appointed a Special Rapporteur to monitor Eritrean human rights violations. Beedwantee Keetharuth can expect little assistance from Asmara.

The news from the Eritrean capital following Monday’s “small incident” indicates that so far the mutinous troops have been allowed to return to their barracks. But the omens are not good.

In May 1993, four days before the country’s official declaration of independence, soldiers who had not been paid during the entire liberation war with Ethiopia, launched the largest public protest the country had ever seen. They stormed around Asmara, demanding that President Isaias should meet them. When he finally came to hear their grievances, the President promised to improve their lot and they returned to the barracks. That evening, with the protests over, around 200 of the leaders were rounded up and arrested. Some were imprisoned for up to 12 years without trial.

Much the same appears to have happened this week. The angry soldiers are reported to have gone back to their camp. What happens to them over the next few weeks, and whether other mutineers appear out of the woodwork, encouraged by their example, is impossible to predict. But the government’s credibility has received a severe blow. The Horn of Africa is notoriously unstable and a further crack in even a regime as unpredictable and repressive as Eritrea is unlikely to be welcomed in Washington or London.

 

Eritrea’s President Isaias Afewerki. Photograph: Getty Images

Martin Plaut is a fellow at the Institute of Commonwealth Studies, University of London. With Paul Holden, he is the author of Who Rules South Africa?

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We're racing towards another private debt crisis - so why did no one see it coming?

The Office for Budget Responsibility failed to foresee the rise in household debt. 

This is a call for a public inquiry on the current situation regarding private debt.

For almost a decade now, since 2007, we have been living a lie. And that lie is preparing to wreak havoc on our economy. If we do not create some kind of impartial forum to discuss what is actually happening, the results might well prove disastrous. 

The lie I am referring to is the idea that the financial crisis of 2008, and subsequent “Great Recession,” were caused by profligate government spending and subsequent public debt. The exact opposite is in fact the case. The crash happened because of dangerously high levels of private debt (a mortgage crisis specifically). And - this is the part we are not supposed to talk about—there is an inverse relation between public and private debt levels.

If the public sector reduces its debt, overall private sector debt goes up. That's what happened in the years leading up to 2008. Now austerity is making it happening again. And if we don't do something about it, the results will, inevitably, be another catastrophe.

The winners and losers of debt

These graphs show the relationship between public and private debt. They are both forecasts from the Office for Budget Responsibility, produced in 2015 and 2017. 

This is what the OBR was projecting what would happen around now back in 2015:

This year the OBR completely changed its forecast. This is how it now projects things are likely to turn out:

First, notice how both diagrams are symmetrical. What happens on top (that part of the economy that is in surplus) precisely mirrors what happens in the bottom (that part of the economy that is in deficit). This is called an “accounting identity.”

As in any ledger sheet, credits and debits have to match. The easiest way to understand this is to imagine there are just two actors, government, and the private sector. If the government borrows £100, and spends it, then the government has a debt of £100. But by spending, it has injected £100 more pounds into the private economy. In other words, -£100 for the government, +£100 for everyone else in the diagram. 

Similarly, if the government taxes someone for £100 , then the government is £100 richer but there’s £100 subtracted from the private economy (+£100 for government, -£100 for everybody else on the diagram).

So what implications does this kind of bookkeeping have for the overall economy? It means that if the government goes into surplus, then everyone else has to go into debt.

We tend to think of money as if it is a bunch of poker chips already lying around, but that’s not how it really works. Money has to be created. And money is created when banks make loans. Either the government borrows money and injects it into the economy, or private citizens borrow money from banks. Those banks don’t take the money from people’s savings or anywhere else, they just make it up. Anyone can write an IOU. But only banks are allowed to issue IOUs that the government will accept in payment for taxes. (In other words, there actually is a magic money tree. But only banks are allowed to use it.)

There are other factors. The UK has a huge trade deficit (blue), and that means the government (yellow) also has to run a deficit (print money, or more accurately, get banks to do it) to inject into the economy to pay for all those Chinese trainers, American iPads, and German cars. The total amount of money can also fluctuate. But the real point here is, the less the government is in debt, the more everyone else must be. Austerity measures will necessarily lead to rising levels of private debt. And this is exactly what has happened.

Now, if this seems to have very little to do with the way politicians talk about such matters, there's a simple reason: most politicians don’t actually know any of this. A recent survey showed 90 per cent of MPs don't even understand where money comes from (they think it's issued by the Royal Mint). In reality, debt is money. If no one owed anyone anything at all there would be no money and the economy would grind to a halt.

But of course debt has to be owed to someone. These charts show who owes what to whom.

The crisis in private debt

Bearing all this in mind, let's look at those diagrams again - keeping our eye particularly on the dark blue that represents household debt. In the first, 2015 version, the OBR duly noted that there was a substantial build-up of household debt in the years leading up to the crash of 2008. This is significant because it was the first time in British history that total household debts were higher than total household savings, and therefore the household sector itself was in deficit territory. (Corporations, at the same time, were raking in enormous profits.) But it also predicted this wouldn't happen again.

True, the OBR observed, austerity and the reduction of government deficits meant private debt levels would have to go up. However, the OBR economists insisted this wouldn't be a problem because the burden would fall not on households but on corporations. Business-friendly Tory policies would, they insisted, inspire a boom in corporate expansion, which would mean frenzied corporate borrowing (that huge red bulge below the line in the first diagram, which was supposed to eventually replace government deficits entirely). Ordinary households would have little or nothing to worry about.

This was total fantasy. No such frenzied boom took place.

In the second diagram, two years later, the OBR is forced to acknowledge this. Corporations are just raking in the profits and sitting on them. The household sector, on the other hand, is a rolling catastrophe. Austerity has meant falling wages, less government spending on social services (or anything else), and higher de facto taxes. This puts the squeeze on household budgets and people are forced to borrow. As a result, not only are households in overall deficit for the second time in British history, the situation is actually worse than it was in the years leading up to 2008.

And remember: it was a mortgage crisis that set off the 2008 crash, which almost destroyed the world economy and plunged millions into penury. Not a crisis in public debt. A crisis in private debt.

An inquiry

In 2015, around the time the original OBR predictions came out, I wrote an essay in the Guardian predicting that austerity and budget-balancing would create a disastrous crisis in private debt. Now it's so clearly, unmistakably, happening that even the OBR cannot deny it.

I believe the time has come for there be a public investigation - a formal public inquiry, in fact - into how this could be allowed to happen. After the 2008 crash, at least the economists in Treasury and the Bank of England could plausibly claim they hadn't completely understood the relation between private debt and financial instability. Now they simply have no excuse.

What on earth is an institution called the “Office for Budget Responsibility” credulously imagining corporate borrowing binges in order to suggest the government will balance the budget to no ill effects? How responsible is that? Even the second chart is extremely odd. Up to 2017, the top and bottom of the diagram are exact mirrors of one another, as they ought to be. However, in the projected future after 2017, the section below the line is much smaller than the section above, apparently seriously understating the amount both of future government, and future private, debt. In other words, the numbers don't add up.

The OBR told the New Statesman ​that it was not aware of any errors in its 2015 forecast for corporate sector net lending, and that the forecast was based on the available data. It said the forecast for business investment has been revised down because of the uncertainty created by Brexit. 

Still, if the “Office of Budget Responsibility” was true to its name, it should be sounding off the alarm bells right about now. So far all we've got is one mention of private debt and a mild warning about the rise of personal debt from the Bank of England, which did not however connect the problem to austerity, and one fairly strong statement from a maverick columnist in the Daily Mail. Otherwise, silence. 

The only plausible explanation is that institutions like the Treasury, OBR, and to a degree as well the Bank of England can't, by definition, warn against the dangers of austerity, however alarming the situation, because they have been set up the way they have in order to justify austerity. It's important to emphasise that most professional economists have never supported Conservative policies in this regard. The policy was adopted because it was convenient to politicians; institutions were set up in order to support it; economists were hired in order to come up with arguments for austerity, rather than to judge whether it would be a good idea. At present, this situation has led us to the brink of disaster.

The last time there was a financial crash, the Queen famously asked: why was no one able to foresee this? We now have the tools. Perhaps the most important task for a public inquiry will be to finally ask: what is the real purpose of the institutions that are supposed to foresee such matters, to what degree have they been politicised, and what would it take to turn them back into institutions that can at least inform us if we're staring into the lights of an oncoming train?