Odious Debts

Odious debts and criminal debts

The Law Report, The Australian Broadcasting Corporation (ABC)
July 5, 2005

In the leadup to the Live 8 rock concerts around the world calling on western governments to forgive loans to developing countries, The Law Report, an Australian-based radio program on lawmakers and lawbreakers, asked: “What if the catch cry wasn’t ‘forgive poor debtors,’ but instead, ‘punish bad lenders’? And what if those lenders were held legally accountable for recklessly loaning money to crooked governments and tyrants – and then expecting ordinary citizens to pay the money back?”

According to Patricia Adams, the executive director of the Canadian-based foreign-aid watchdog Probe International, the latest G-8 debt write-off was “more about rescuing the lending institutions than it was about rescuing the poor countries.”

Creditors, she said, are more and more nervous loans they made over the last 50 years will come under increased scrutiny and that debtors are going to start repudiating those debts. “I think a lot of these loans that were made were not properly scrutinised, there wasn’t proper public oversight, a lot of the money ended up in private Swiss bank accounts, went to projects that were never viable from the beginning and could never generate the wealth needed to repay the loans, and were given mostly for geopolitical reasons and also for patronage reasons, so that these institutions could award contracts to favourite firms in the northern countries,” said Adams.

Asked how an international tribunal charged with arbitrating cases mounted by countries repudiating odious debts would operate, Ms Adams, using Iraq as an example, said:

“The way it works is that the various parties – this would be the creditors and the borrowers, the Iraqi government and anybody who has a claim against the Iraqi government … and remember, most of the claims against the Iraqi government come from other governments, ninety per cent of them are from public institutions, so northern governments. Then both sides would appoint an equal number of jurists who would sit on a nine-member panel … I think actually they each appoint three and then those six then appoint three more. So it’s all under very well-established UN rules that are well laid out for the arbitration of disputes like this.”

When asked if she essentially envisaged “a civil court case being held within the sort of UN auspices against its own bodies,” Ms Adams replied, “Well that’s an interesting twist, that’s quite right.” Professor Jeffrey Winters, from Northwestern University in Chicago, believes a civil case using an odious debts argument doesn’t go far enough.

Mr Winters, who has conducted a 20-year study on the workings of the World Bank, said there is enough evidence for Indonesia, for example, to mount a criminal debt case against the World Bank.

There are requirements built into institutions like the World Bank called Articles of Agreement that essentially function as the constitutions of these international bodies, he said. “In the case of the World Bank, Article 3 states very specifically that ‘the bank shall make arrangements to ensure that the money that it lends will be used for its intended purpose.’ This is a legal mandate.

It is binding on the institution to do this,” Mr Winters explained. “If on the other hand, year after year that money is being stolen and it continues to lend, and it takes no action against those parties which are stealing – and by the way these parties that are working hand-in-glove with the World Bank itself, they have dinners together, they meet socially and so on – if no action is taken against those people who are stealing, then I believe the bank is liable.” Mr Winters has also proposed an international auditing agency be established to monitor lending by the World Bank and multilateral development agencies. “The idea is that this would be a group of international auditors who have no relationship to the World Bank, also no relationship to the private sector corporations  who do the projects, the multinational corporations, and then one’s career path in the international auditing agency would be linked to how much you find. Right now, there’s no incentive in the system anywhere for anyone to actually find stolen money,” he said.

According to Professor Helen Hughes, a Senior Fellow at the Centre for Independent Studies in Sydney, Australia, who has worked as an economist in the World Bank for 15 years: “You will never get a public bank to scrutinise its lending. It’ll become a bureaucracy of one sort or another, and it will never avoid odious or criminal lending. The sensible thing to do would be rather than cancelling the loans, abolish the banks.”

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