Lisa Peryman
Odious Debts Online
July 7, 2006

The World Bank’s high-profile focus on curbing corruption looks set to continue but to what effect can the Bank implement its anti-graft agenda when the Bank itself has been “the cause of corruption, and odious and illegitimate debts, in the past?” asks Gail Hurley of the Brussels-based NGO network Eurodad.

In her analysis of the Bank’s current position on the issue, Hurley notes that although
Bank President Paul Wolfowitz has acknowledged publicly that “for every bribe-taker, there is a bribe-giver, and often, that comes from a developed country,” the Bank’s focus in practice has been on the “corruption of today.”
Hurley points out that a “critical examination of the Bank’s lending practices to poor countries in the past” has been “remarkably absent from the anti-corruption strategy presented by officials so far,” even though, she says, “the World Bank has over the years been involved with and lent to some of the world’s most notorious and despised regimes such as Mobutu Seke Seso of Democratic Republic of Congo and Ferdinand Marcos of the
Philippines.” Writes Hurley:
“Bank documentation at the time of these transactions, or published shortly afterwards,
confirms that many Bank officials – at both country-level and in Washington DC – were perfectly aware of the nature of the regimes in place and that many loans were simply transferred into the bank accounts of the dictators and their generals. It was plain therefore that they did not reach the poor or foster economic development.
Despite their odious and illegitimate nature most of these debts continue to be serviced today, at the expense of essential investments in poverty reduction and economic development.”

Hurley recommends that the Bank accept co-responsibility for its mistakes and agree to cancel Bank debts resulting from loans where Bank officials knew much of the money would be diverted by corrupt elites.
“Accountability,” she says, “must begin at home, by addressing the mistakes – and in some cases downright negligence – of the past.”

However, cancelling odious debts does not guarantee that governments in power
now will manage future state loans or public monies freed up from debt repayment any better than past regimes. As moral philosopher Samuel Gregg writes in an editorial [PDF] published by The Washington Times this week: “Does anyone seriously imagine debt-forgiveness that does not hold accountable developing world political elites who corruptly diverted the billions loaned to their countries is likely to discourage future
such diversions? Surely such actions will only undermine ongoing efforts to discourage corruption among these elites by effectively rewarding with debt forgiveness countries whose leaders have been irresponsible borrowers.”

As an example, Gregg cites President Denis Sassou-Nguesso of the Republic of the Congo, who pressed his case for an immediate and extensive debt-forgiveness for
the Congo in Washington, D.C., recently. “To say that President Sassou-Nguesso has a checkered past is an understatement,”writes Gregg. “In a previous incarnation as a Marxist, President Sassou-Nguesso first came to power in the early 1980s before rising to
power again after a civil war that ended in 1997. On several occasions, his supporters have been accused of numerous atrocities, including torture and rape, by Amnesty  International and other international observers. . . . What is especially reprehensible about this particular African leader is the manner in which his government continues to fudge the facts of what happens to the considerable revenues derived from the Congo’s oil industry – revenues that could be used to pay off considerable foreign debt. . . .

“None of this might have come to public attention, save for the flagrant manner in
which President Sassou-Nguesso spends money on himself and his entourage when traveling abroad. While the Congo’s citizens continue to be mired in living standards that lead to disease and death rates consigned to history in the West centuries ago, their leader reportedly spent $295,000 on an eight-night stay for himself and 50-strong entourage (including his wife’s hairdresser) earlier this year in New York. This is just one of a number of similar documented instances of extravagant spending by the president of a country where the average citizen lives on approximately $2 a day.”

Accordingly, Gregg advises creditors to refuse the Sassou-Nguesso’s of the
developing world debt forgiveness as a signal to other political elites “that the days of toying with their people’s futures are over.” In their call for lender and borrower accountability, an examination of past practices and a refusal to cancel debt outright in certain cases, Gregg and Hurley are right on the money. Indeed, indebted countries
could parallel such moves by carrying out audits of public debt, flag loans that are suspicious, and refuse to make payments on debts pending further investigation as a signal to western political elites and financial institutions that the days of irresponsible lending to despots and dictators are similarly at an end.

By invoking the doctrine of odious debt, indebted countries could selectively
repudiate liability for portions of external debt lost to corruption.
The establishment of an international tribunal charged with arbitrating cases mounted by countries repudiating odious debts would be able to address the mistakes of the past without letting wrongdoers off the hook. Creditors can still chase payment from the dictator or regime they loaned to but the amount will no longer appear as a national debt,
which means citizens will no longer have to pay for the crimes of their leaders, as they do now. Last month, it was reported that the Norwegian government had asked the World Bank to undertake a study of odious and illegitimate debt and had set aside $US20,000 to support such research. Perhaps part or all of this fund could go towards drafting a proposal for an international odious debts tribunal post-haste, especially when one considers that under the current system of debt forgiveness, cancellation not only absolves lenders and borrowers: crimes of the past are absolved along with them. Under the current system, justice is forgotten on the road to forgiveness and forgiveness tends to reward everyone except the citizen taxpayers who are forced to repay odious debts generation after generation; an odious debts tribunal provides the mechanism that would allow countries burdened by illegitimate debt to throw down the gauntlet without being
further ripped off by their leaders and leaders’ lenders in the process.