Odious Debts Online

March 29, 2005

The nomination of US Deputy Secretary of Defence, Paul Wolfowitz, for the presidency of the World Bank has sparked some positive interest from debt campaigners.

Based on previous public statements in regard to Iraqi debt relief, a proposed World Bank leadership under Mr. Wolfowitz could potentially signal a shift towards greater transparency and accountability at the global institution and a stronger commitment in general to the issue of debt relief.

According to debt campaigner Jubilee USA, which has declared some major reservations [PDFver here] in regard to the Wolfowitz nomination, there is a “silver lining” to his candidacy given that Mr. Wolfowitz was a “leading advocate for canceling Iraq’s debt, describing that nation’s debt in public statements in a way to indicate that it was odious.”

In a statement made by Mr. Wolfowitz in April 2003 to the US Senate Committee on Armed Services, Mr. Wolfowitz urged debtors ‚Äì such as France, Germany and Russia ‚Äì to consider writing off “some or all of the debt” Iraq owed them so the new Iraqi government would not be “burdened with it.”

In his statement to the Senate, Mr. Wolfowitz said: “I hope . . . they [France, Germany and Russia] will think about the very large debts that come from money that was lent to the dictator [Saddam Hussein] to buy weapons and to build palaces and to building instruments of repression.”

Another debt campaigner, the UK-based Jubilee Iraq, said such comments demonstrated a “clear application” of the principles upheld by the international legal Doctrine of Odious Debts for cancellation of debt deemed odious ‚Äì public debt incurred by corrupt regimes without the consent of the people and not for their benefit.

Jubilee Iraq called on Mr. Wolfowitz to make good on his position regarding Iraq and support an odious debt arbitration tribunal for that nation’s debt.

A position also supported by the Canadian-based foreign-aid watchdog Probe International, which, since 1991, has advocated an international arbitration process for developing world debt, including more recently, Iraq’s.

Patricia Adams, Probe International’s executive director, said such a process would force debtors to demonstrate that “they acted responsibly in financing Saddam.”

“Closed-door meetings to determine how much the West can squeeze out of Iraqis amounts to a cover-up Iraqis will deeply resent,” said Ms. Adams last fall, in the lead up to the Paris Club decision to cancel 80 percent of the debt Iraq owed its members.

“Iraqis should be free to review and challenge debts accumulated under Saddam. They want to pay back loans used for food or housing, but not for chemicals used to gas them or to build torture chambers,” she said, adding, “what better way to demonstrate the power of democracy and the rule of law than to establish a precedent telling financiers everywhere their money isn’t safe when they finance tyrants against their people.”

Meanwhile, proposed reforms aimed at curbing corruption in multilateral development bank (MDB) projects are expected to be released later this year by the US Senate Foreign Relations Committee.

The committee headed by Senator Richard Lugar has been investigating allegations of corruption in development projects funded by MDBs for more than a year based on a combination of public hearings, private meetings, written interrogatories and visits by staff aides to bank development projects overseas.

Renewed concern regarding MDB accountability and transparency was brought to the fore again recently by a new Transparency International report which claimed construction, more than any other segment of a nation’s economy, is prone to corruption.

Responding to the report’s findings, Dr. Susan Hawley, a policy adviser at the UK-based anti-graft campaigner Corner House, said “many of the large infrastructure projects around the world that have been plagued by corruption allegations were backed in part by either a multilateral development bank or an export credit agency.”

Until recently, she said, the impact of MDBs and the export credit agencies in facilitating corruption in the construction sector had been largely overlooked by the institutions and governments that supported them.

A recent report by CIOB International Construction News on corruption in international infrastructure development, said it remained unclear whether Mr. Wolfowitz had been asked to look into the questions Sen. Lugar’s committee had raised but suggested that it might explain some of the “furore” surrounding his nomination.

In a statement issued by the U.S. Treasury, Mr. Wolfowitz said he had seen “first-hand the harm that corruption and weak institutions can inflict to defeat development and poverty reduction” while working on economic development in the Philippines and Indonesia.

According to the CIOB report, the Wolfowitz nomination to lead the World Bank might have been intended by President George W. Bush to deepen the bank’s focus on issues of transparency, accountability and governance, a direction initiated by current bank president James Wolfensohn.

However, a reluctance on the part of MDBs to discuss these issues was registered early on by Sen. Lugar when he invited MDB heads to appear before his committee but none of them accepted.

The committee’s final public hearing scheduled for April is expected to feature testimony from the US executive directors to the Asian Development Bank, the African Development Bank and the European Bank for Reconstruction and Development.

The committee’s reform package is slated for introduction soon after, along with legislation to authorize more than $3 billion in new financing for three of the MDBs. With a 184-nation membership, the World Bank ranks as the largest MDB of all and is due to receive the lion’s share of government funding, estimated at $2.85 billion over the next three years.

MDBs are the largest source of development finance in the world, typically lending between US$30- and US$40 billion to low- and middle-income countries in any given year.