Erasing the scar or the evidence?

Lisa Peryman

June 17, 2005

Hailed as the biggest debt settlement the world has ever seen, the recent agreement by the Group of Eight (G-8) rich nations to write off the debts of 18 of the world’s poorest countries has not managed to quell calls for debt repudiation in Africa.

In the wake of the G-8 announcement over the weekend, high-profile African debt campaigner Rev. David Ugolor urged African civil society organisations (CSOs) to prepare themselves to reject Africa’s multilateral debts if the G-8 fails to agree on a 100 per cent debt cancellation for the continent without conditions, at its July summit.

Speaking to the Lagos independent newspaper, This Day, after a two-day conference at Abuja on conflict, security and development, Rev. Ugolor said that while he welcomed the recent G-8 decision to cancel $40 billion in payments on loans owed by 18 of the world’s poorest nations (14 of which are African), he warned the “continent would not be able to undergo the painful reforms” that are likely to accompany the move.

If the G-8 does not agree to an unconditional and total debt cancellation for Africa in July, Rev. Ugolor said CSOs will rally “our people and government to repudiate” Africa’s “odious debt.”

For years, analysts and activists have argued that a substantial fraction of foreign loans to Africa intended for domestic investment or consumption have been diverted by corrupt African political elites. They urge African countries to invoke the international legal Doctrine of Odious Debts to repudiate liability for illegitimate public debts incurred by past regimes.

Some debt campaigners claim gestures by rich nation creditors to forgive the debts of heavily indebted developing countries also affords creditors the opportunity to cleanse their books of embarrassing loans to corrupt, oppressive regimes they had every reason to believe would not use the borrowed funds for their intended purpose.

Responding to the “historic” agreement announced last weekend by finance ministers from the G-8 industrialized nations, the Canadian-based, foreign-aid watchdog Probe International declared lenders were now on the run.

After years of “pushing the Third World around” western creditors have begun to fear exposure for negligent and irresponsible lending to corrupt governments they should never have lent money to, said Patricia Adams, the executive director of Probe International, in a televised interview to discuss the G-8 agreement.

Applauded for having seen the light on debt relief, creditors have done nothing more honorable than to cover their own tracks, she said.

According to a recent Wall Street Journal commentary, a proposal by G-8 ministers to partially compensate international financial institutions (IFIs), such as the World Bank and International Monetary Fund (IMF), will spare them the embarrassment of having beautified their balance sheets in the past when they extended additional loans to heavily indebted poor countries (HIPCs) to cover interest that put the HIPCs further and further into debt.

“Presumably, the compensation is new money that will enable the IFIs to go out and make more bad loans. HIPCs are poor, on the whole, not because the world has neglected them, but because they often are run by corrupt governments, afflicted with disease, beset by insurgencies and can’t attract private investment,” wrote Journal correspondent, George Melloan.

The G-8 agreement erases the debts of 18 nations that have reached the “completion point” under the HIPC initiative, launched by the World Bank and IMF in 1996, and the deal is expected to extend to another 20 nations who do not yet meet these criteria. According to the G-8 finance ministers’ statement, to qualify for debt relief, developing countries must “tackle corruption, boost private-sector development” and eliminate “impediments to private investment, both domestic and foreign.”

Such conditionalities exclude countries that are not considered sufficiently committed to democracy and accountable government. One such country is Nigeria, Africa’s most populous nation with 140 million inhabitants, it is also ranked as the world’s third most corrupt country by graft watchdog Transparency International. Although, some 60% of Nigerians live in poverty and the country’s economic strife has long been linked to corruption and decades of successive military dictatorships, as the world’s eighth-biggest oil exporter, Nigeria does not qualify for a debt write-off under the HIPC initiative.

Describing the G-8’s reprieve as selective, Rev. Ugolor suggested it would create division between African countries and that those nations that did not benefit from the G-8 decision would begin to see themselves in different camps, globally. For instance, he said Nigeria deserved debt cancellation but its exclusion from the list was “not a good signal for Africa.”

Debt repudiation remains a hot topic in Nigeria; a flame fanned by a non-binding resolution passed by Nigeria’s House of Representatives in March to halt payments on the country’s $35 billion external debt, the highest of any country in Africa. The resolution stated Nigeria’s economy had been “devastated by a series of military regimes from 1984 to 1999, who stole billions of dollars from state coffers” and compared Nigeria’s situation to that of “countries emerging from war.” However, the Nigerian Senate later voted to honour debt servicing for this year.

Advocates of debt repudiation such as Remi Ogunmefun, a Lagos-based business and financial lawyer, however, continue to rally the public to their cause.

Making a case for a Nigerian odious debts’ challenge in This Day, Mr. Ogunmefun asks why should Nigerians be held responsible for debts that “are odious and not truly incurred for the benefit of the Nigerian people?”

“Why are we afraid to repudiate these debts using the applicable international law?” he wrote, referring to the Doctrine of Odious Debts. “A government that rose to power through seizure of the state, using the force of arms and repression of the citizenry, cannot legitimate debt on behalf of its people.”

Rather than rely on moral suasion, he said Nigerians should fight the debt crisis based on an odious debts legal argument.

Addressing concerns that a challenge might provoke creditors to seize Nigeria’s foreign assets and block its access to international credits, aid and foreign investment, Ogunmefun said creditors would be forced to respect a legal challenge to the enforceability of the debt contracts because it was in their interests to defend international law and order.

“To do otherwise,” he said, would “open the door to abuse and disorder in international transactions, which may ultimately hurt their interests worldwide.”

Writing off debts, ostensibly to free up money so governments can target more funds to economic development, health, education and social programs, assumes the money will go where it is targeted. Yet, African observers worry the conditions that created the debt crisis are still in place.

Western governments that think the “bad old days” of corrupt African leaders are over are misguided according to Michela Wrong, a former foreign correspondent who witnessed the end of the notorious Mobutu Sese Seko regime in Zaire.

“Whenever I hear talk of a ‘new generation of political leaders’ in Africa, I have to suppress a laugh,” said Wrong, writing for the UK’s Observer newspaper. “That’s not the Africa I see on my travels, and if plans for an African recovery are built on such naiveté and wishful-thinking, they are doomed to go the same way as every other grandiose project drawn up for the continent,” she writes.

Wrong said Africa was “stuck in an uneasy interim” with an old-guard leadership holding on by its fingertips, while too many of the new breed merely mouthed the “new credos” of accountability but continued to “gleefully” exploit the self-enrichment systems set up by their predecessors.

Wrong is one of several analysts to link corrupt spending patterns in Africa to the continent’s post-colonial years and the formation of elites who “looked to an expanding state sector, rather than the market, as a source of enrichment.” She, along with other commentators, are pinning their hopes on the “emergence of a new breed of young, educated, technologically aware Africans who, less burdened by rigid demands of tribal loyalty and free of the inferiority complexes of the colonial era, will stride confidently towards the future.”

Meanwhile, western creditors are doing their best to divert attention away from their complicity in Third World poverty and corruption by appearing to generously forgive debts that ought not to be forgiven but investigated. Instead of “forgiveness,” the people of Africa should be free to review and challenge debts accumulated under despots and international law supports their right to do so. An outright debt cancellation deprives the people of the opportunity for a public reckoning while protecting the wrongdoers from being held to account.

Rather than repudiate odious debt if G-8 leaders fail to offer unconditional and total debt cancellation in July, why not repudiate odious debt, regardless?

In an analysis of Africa’s debt published in 2002, authors James K. Boyce and Léonce Ndikuman argued that “well-functioning credit markets require that creditors bear the consequences of imprudent lending”:

“The notion that creditors should always be repaid, regardless of how and to whom they lend, is indefensible. The logic of sound banking suggests that current and future African governments should accept liability for only those portions of public debts incurred by past regimes that were used to finance bona fide domestic investment or public consumption. By invoking the doctrine of odious debt, they could selectively repudiate liability for those portions of the debt for which no such uses can be demonstrated.”

Erasing debt erases culpability. It does not demonstrate respect for people’s rights, the rule of law or due diligence, and it is certainly no arbiter of justice. Unless the Doctrine of Odious Debts is enforced, the debt crisis will not end and poverty will not become a blight of the past; there will be other G-8 summits to discuss debt cancellation and more Live Aid concerts, or Live 8’s, to raise aid money for Africa. But the looters and loose lenders will be off the hook, their debts cancelled or erased, forgotten and forgiven, history will set them free.

Categories: Africa, Odious Debts

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