Africa

Poor countries overpaying billions as result of irresponsible lending, says new research

New Economics Foundation
September 18, 2006

A new study claims that poor countries have overpaid creditor countries
billions of dollars as a result of irresponsible lending.

The study called, Odious Lending: Debt Relief as if Morals Mattered,
by senior economist Stephen Mandel for the UK-based think tank, New
Economics Foundation (NEF), looks at the examples of several countries
still paying for odious debts that have already been repaid – debts
that were borrowed on behalf of but not used to benefit the citizens of
the borrowing countries, who remain left on the hook for their
settlement.

According to the study,
Indonesia has overpaid its recorded debt – which dates back to the
32-year dictatorship of former ruler Suharto – by $151 billion, which
would mean that Indonesia has made a cumulative net transfer to the
North of US$138 billion to date.

The Philippines, the study found, had overpaid its odious debts – which
make up 100 percent of the country’s total debt load – by
$35 billion. Meanwhile, Argentina had overpaid its debts by $77 billion
and Nicaragua was struggling with odious debt worth five times more
than the country’s total GDP.

“This means that people in these – often desperately poor – countries
end up paying three times for loans ostensibly taken out in their
name,” said the report’s author, Mr Mandel. “First they are oppressed
by the regimes propped up and enriched by these loans; secondly they
are impoverished by the cost of servicing the loans; and thirdly they
are oppressed again by the penalties imposed if the odious regimes
default.”

He added that if debt cancellation comes through the procedures of the
Paris Club and the Heavily Indebted Poor Countries (HIPC) initiative,
then poor countries are forced to pay a fourth time when IMF
conditionality imposes “often disastrous policies of trade and capital
account liberalisation, privatisation, and restrictions on social
expenditure.”

The NEF study identifies ten countries with debts it defines as 100
percent odious. They are: Argentina, Democratic Republic of Congo,
Indonesia, Nicaragua, Nigeria, Pakistan, Peru, Philippines, South
Africa and Sudan.

Rather than continue to repay their odious debts, which Mr Mandel says
is inappropriate, these countries are actually owed around
$383 billion for overpayment of outstanding debt.

Mr Mandel proposes the establishment of an internationally recognized
body to evaluate the odious nature of the debts in question and an
arbitration panel made up of creditors, governments and civil society
representatives, to work out a way to relieve countries of their odious
debts.

Categories: Africa, Odious Debts

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