---

LONDON — A suit filed in New York on Wednesday against banks who lent to the South African apartheid regime could help create a modern precedent in a battle by debt campaigners to win cancellation of up to half the $2.4-trillion debts owed by the world’s poorest countries.

The lawsuit against Citigroup Credit Suisse and others alleges the defendants conspired to provide financing for equipment used by South Africa to commit crimes against humanity from 1948 to 1993.

Those banks who have commented have denied the claims, but for debt campaigners, apartheid provides one of the most easily identifiable cases of illegitimate debt.

“South Africa is a very good case of an odious debt,” said Patricia Adams of Canadian advocacy group Probe International.

Campaigners and academics define illegitimate or odious debts as those which were contracted against the interests of the population of a state, without its consent and with the full awareness of the creditor.

“I think the banks will learn from the case, whether it is successful or not, that they must take responsibility for the way their money is used,” said Adams, who was visiting debt campaign groups in Germany.

The odious debts campaign, which joins activists in poor countries with those in rich countries, also believes loans to other illegitimate regimes could be examined and that by making banks responsible for the consequences of past borrowing, they will become more responsible in future loans.

Loans to Argentina’s military junta which contributed to the country’s default on $140 billion of borrowings this year should also be written off, campaigners say.

Loans for corrupt projects in the Philippines during the presidency of Ferdinand Marcos, debts incurred in 32 years of Suharto rule in Indonesia, Yugoslav debts related to Slobodan Milosevic and debts owed by the Democ­ratic Republic of Congo for Zairean dictator Mobutu Sese Seko might all be classified “odious.”

Lack of legal precedent has damaged campaign

Debt campaigners have until now being relying on the doctrine of “odious debts” which originated in 1898 when the United States said the people of Cuba and the US were not liable to pay debts incurred by Spain in a war with the US over the island and has never been tested in law.

From 1985 to 1995, the height of the Latin American debt crisis, there were no international arbitrations involving the enforcement of a loan of a less developed country debtor and a creditor government or private bank.

There have been signs, however, that banks have considered the issue in relation to South Africa.

In 1982 at the peak of lending to the apartheid regine, two lawyers from the First National Bank of Chicago wrote an article in the University of Illinois Law Review in which they warned their employers and other banks of “the consequences of a change of sovereignty for loan agreements” in South Africa.

They noted that “if the debt of the predecessor is deemed to be odious, i.e. the debt proceeds are used against the inte­rests of the local populace, then the debt may not be chargeable to the successor.”

Campaigners say that under pressure from the US and the International Monetary Fund, the new South African go­vernment agreed to honor the apartheid refime’s debt.

Lawsuit could damage developing countries

However, the lawsuit could also be a double-edged sword, by making banks wary of lending to legitimate regimes in developing countries, some economists argued.

“It could change the way banks think, but it could also result in countries with legitimate regimes like Costa Rica being unable to borrow,” said Harvard academic Michael Kremer.

Kremer and graduate student Seema Jayachandran argued in a paper presented at an International Monetary Fund seminar earlier this year that any odious debt rulings should be forward looking and be resolved in an international forum.

But for the debt campaigners, the litigation is a welcome move forward which will warn banks that they are responsible for the consequences of their lending.

“Whether the lawsuit succeeds or not, it brings attention to the responsbility of the banks,” said Adams.