This report estimates “apartheid-caused debt” at UKP28 billion.

…

This report estimates “apartheid-caused debt” at UKP28 billion. That is the UKP11 billion that South Africa borrowed to maintain apartheid, and the UKP17 billion that the neighbouring states borrowed because of apartheid destabilisation and aggression. This is 74% of the present regional debt of UKP38 billion.

…

After the Second World War, the United States allowed Britain to repay debt at a very low rate so that it could rebuild. In 1953, the victorious allies met in London to cancel most of Germany’s debt, so that it could rebuild. Now the nations of Southern Africa want to rebuild a post-apartheid society, but the creditors of today are not willing to offer them the space Britain received from the US and the Allies gave to Germany. Instead they are demanding that the states of Southern Africa pay three to five times the level that Britain or Germany paid after World War II.

1. What is ‘apartheid-caused debt’?

In this report, we first define “apartheid-caused debt”, looking separately at South Africa and at the neighbouring states, and then we argue the case for cancelling this debt.

We group two very different kinds of loans into what we define as “apartheid-caused debt”. This framework forms the basis for the estimated figures we set out below.

The debt of Southern Africa

The apartheid regime defended itself not only by oppressing its own people, but by suppressing the people of the neighbouring states as well. It waged a full-scale war against Mozambique and Angola, made raids into all the neighbouring states, and imposed an economic blockade on Lesotho, Botswana, Zambia, Zimbabwe and Malawi.

… the neighbouring states had to take out loans as a result of South African destabilisation. These were largely loans made by governments and by international financial agencies such as the World Bank. They were often “concessional” loans with low interest rates; …

Nevertheless, the cost of destabilisation was so great that loan repayments now account for a substantial expenditure – more than is spent on health and education in many of these countries. The repayment of these loans is now delaying reconstruction after the apartheid war. …

The debt of South Africa

White South Africa took loans from international private banks to fund apartheid, because by the 1980s governments and the international financial agencies refused to lend. These private lenders took a risk in lending to the white regime when it was already a pariah state. These are also “apartheid-caused debts”.

We argue below that in international law, the new government of Nelson Mandela is not liable for these “odious debts” and that the international community should say that South Africa need not pay them.

It is not straightforward to define the precise amount of “apartheid-caused debt”, in part because of what financial analysts call “fungibility” – the fact that money lent for one purpose, in practice frees up funds for other purposes.

Thus banks did not lend money to apartheid South Africa overtly to allow it to wage war on its neighbours, but money loaned to South Africa to build dams and power stations released other money which could then be used by the military – and the banks that refused to impose financial sanctions knowingly colluded in this. Similarly, the World Bank did not lend money to Mozambique so it could defend itself against apartheid, but those loans were essential to keep Mozambique alive under the apartheid onslaught.

Creditors are not demanding that money be taken away from health and education to repay the debts – but they know that social services are such a large part of government spending that debt service requires cuts in these services.

This is the essence of “fungibility” of money. Loans are labelled in ways that avoid reference to “unacceptable” expenditures. We pretend that debt repayments come from a different pocket than social spending, and thus do not demand health spending cuts. But in reality, it is all money going into and out of government budgets.

In the appendix, we show how we estimated “apartheid-caused debt” and the related cost of destabilisation. In summary, these costs are:

3. South Africa’s ‘odious debt’

…

This concept of “odious debt” has a long history, arising initially from the United States’ capture of Cuba from Spain in 1898. Spain demanded that the US pay Cuba’s debts, and the US refused on the grounds that the debt had been “imposed upon the people of Cuba without their consent and by force of arms.” Furthermore, the US argued that in such circumstances “the creditors, from the beginning, took the chances of the investment.” The concept of “odious debt” was upheld and formally entered international law in the 1923 judgment of US Chief Justice Taft in the case of Great Britain vs Costa Rica.

South Africa is a prime example of a country that has had governments that systematically oppressed the majority of its people. In 1973 the United Nations began to describe apartheid as a crime against humanity. Nevertheless, the international financial community, aided and abetted by the National Party government, continued to make loans to Pretoria, particularly in the 1980s, for which the new government is now held responsible. …

The Archbishop of Cape Town, the Most Reverend Njongonkulu Ndungane, speaking at Southwark Cathedral on 24 April 1997 noted that “as we approach the new millennium, the time has come to invoke the Doctrine of Odious Debt. … In the case of South Africa, its foreign and domestic debt was incurred, by and large, under the apartheid regime, and should … be declared odious and written off.”

South Africa’s foreign debt

… The World Bank estimates that when the new government took over in 1994, it inherited a debt of UKP11 billion. … Most of the debt is in the form of bonds and other marketable foreign debt, particularly syndicated loans denominated in dollars or ECUs and issued by European and US banks in the early 1980s. There are no outstanding loans to international financial agencies (IMF and World Bank) which predate the release of Nelson Mandela.

4. Why debt should be cancelled

We have argued that the apartheid-caused debt is odious and should therefore be cancelled. It should also be cancelled because it is siphoning off much needed resources. Nelson Mandela has promised that South Africa will pay its debts. Mozambique continues to pay its debts, even though debt service means that it has been forced to cut its education budget. Southern Africa made UKP3.8 billion in debt service payments in 1996, which is more than the region spent on health.

The Southern African Development Community (SADC) Executive Secretary, Kaire Mbuende said recently: “There is no good reason why the debt of these states should not be written off. … ” Mbuende said repeated debt rescheduling had failed to help SADC countries because it: “pushes them even deeper into debt …”

After other wars

Under the World Bank/IMF HIPC Initiative, poor countries are expected to make debt repayments equivalent to 20% of their export earnings. Mozambique will pay 17 per cent in 1998, falling to 13 per cent in 2000 under the new agreement. South Africa paid 12 per cent in 1996. This is a much higher level than was expected of war-torn Europe.

After World War I, the victorious powers demanded that Germany make reparations payments of less than 15% of its exports , and this was considered so excessive that it restricted Germany’s post-war rebuilding and was seen as an important cause of World War II. This view was accepted by the allies who negotiated a new debt repayment agreement with the then new Federal Germany in London in 1953; this required Germany to pay only 3.5% of exports. Similarly, in order to allow Britain to rebuild, in 1945 the United States agreed that British debt repayments should be limited to 4% of exports.

In both cases, it was argued that Europeans needed to spend money on post-war reconstruction rather than debt repayments. Yet now the international community wants Southern Africa to make massive debt repayments instead of rebuilding. Why should Mozambique, Malawi, or South Africa be asked to pay 12 to 20 per cent when Britain and Germany only had to pay four per cent? …

If Southern Africa is to be peaceful and prosperous, and also a growing trading partner with Europe, it should spend its money to rebuild, and not to pay debt service. As Europe learned, this is an investment in preventing war. …

************************************************************

This material is being reposted for wider distribution by the Africa Policy Information Center (APIC), the educational affiliate of the Washington Office on Africa. APIC’s primary objective is to widen the policy debate in the United States around African issues and the U.S. role in Africa, by concentrating on providing accessible policy-relevant information and analysis usable by a wide range of groups and individuals.

Auto-response addresses for more information (send any e-mail message): africapolicy-info@igc.apc.org (about the Africa Policy Electronic Distribution List); apic-info@igc.apc.org (about APIC); woa-info@igc.apc.org (about WOA). Documents previously distributed, as well as the auto-response information files, are also available on the Web at: http://www.africapolicy.org

To be added to or dropped from the distribution list write to apic@igc.apc.org. For more information about material cited from another source please contact directly the source mentioned in the posting rather than APIC.

For additional information: Africa Policy Information Center, 110 Maryland Ave. NE, #509, Washington, DC 20002. Phone: 202-546-7961. Fax: 202-546-1545. E-mail: apic@igc.apc.org

David Marks, Africa Policy Information Center