(May 19, 1999) Observatoire de la Finance’s chairman, Jean-Loup Dherse, has a proposal that may improve the chance of building a political consensus for radical debt relief in the West.
One of the CSFI’s European partner organisations is the Geneva-based Observatoire de la Finance, whose area of interest is the interface of money and morals. Its chairman, Jean-Loup Dherse, has a proposal that may improve the chance of building a political consensus for radical debt relief in the West. We reproduce Dherse’s argument: Pressure for large-scale, coordinated debt relief, perhaps including a debt write-off for the poorest countries, has never been greater. The World Bank’s HIPC initiative, inter-faith pressure in the context of next year’s Jubilee 2000 all of this seems to be pushing on an open door. But there are nay-sayers, who cannot be ignored.
“They warn that writing-off (or writing-down) debt can set a dreadful precedent, appearing to reward the kleptocrats who have reduced their countries to penury, and penalising those countries (like Uganda) that have genuinely made an effort to meet their international obligations. This ‘moral hazard’ argument is a hard one, and it risks derailing the movement for substantial debt relief – a movement that, in my view, has a moral imperative of its own.
“Is there a way to keep the train on track? I think there is. The idea came to me when thinking about the role of the Paris Club in rescheduling official debt incurred by some of the worst regimes we have experienced in the emerging world – Marcos in the Philippines,Mobutu in Zaire/Congo, Abacha in Nigeria and so on – and when reviewing the pathetic efforts of successor governments to track down the assets that the kleptocrats and their cronies spirited abroad.
“Not surprisingly, many Fight- thinking people in the West (not just hard-hearted bankers) are reluctant to write off billions of dollars of loans when they know that a very large part of the money (perhaps all) is sitting offshore in Geneva or Miami or Vienna.
“Debtor governments know that, and they do from time to time make an effort to get the money back. But, as the Aquino government found, it is an uphill struggle; lawyers are expensive, and political muscle can be as important as the law in prying open the bad guys’ strongboxes.
“My suggestion is simple: As part of the price for a comprehensive debt rescheduling (or write-down) of offi- cial debt through the Paris Club, the debtor government should formally transfer to its creditors title to any funds illegally spirited abroad by previous regimes. After all, it is the creditors governments (not the debtors) that have the money, the muscle and the lawyers to track down secret accounts and to sequester them.
“I am aware that, as it stands, my proposal needs fleshing out. A definition of funds illegally exported will not be easy to agree; and what happens if the present regime’s hands are no cleaner than those of its predecessor?
“How does one ensure that all available documentation is handed over? And who will take over the claims? The Paris Club itself? Or indi- vidual creditor governments? Jointly or severally? But, though important, these are details; the crucial point is the principle that debt relief will not be given unless the debtor country is willing to surrender all rights to illegal offshore accounts.
“In my view, this proposal, if adopted, would have two powerful results. First, it would mean that debt relief could actually be presented to Western electorates as potentially cost-free, in that the money recovered might well exceed the value of the relief (Whether creditor governments choose to hypothecate any funds recovered to their aid budgets would, of course, be up to them.) Second, and linked to the first point, it would build up a political constituency for debt relief that would transcend party and that could not be undermined by the ‘moral hazard’ argument. Please governments, at least give it some thought.”
This is the kind of innovative thinking that would go a long way to overcoming a natural distaste that creditor governments feel when confronted with demands for debt relief from governments whose hands are far from clean.
Jean-Loup Dherse, The Banker, May 19, 1999