Odious Debts Online
December 12, 2006
A move last month by the Inter-American Development Bank (IADB) to write off US$2.1-billion in debt owed to it by five Latin American countries helps the Bank bail itself out and bury its mistakes under a cloak of magnanimity, says odious debts expert, Patricia Adams.
Bank President Luis Alberto Morena announced in November that the IDB intends to write off the debts Bolivia, Guyana, Haiti, Honduras, and Nicaragua owe to the soft loan window of the Bank and called it “great news for the more than 30 million people in these five countries.” The soft loan window (or Fund for Special Operations) provides loans on concessional terms and is funded by regular cash contributions from the bank’s rich member countries.
Patricia Adams of debt watchdog Probe International and author of Odious Debts: Loose Lending, Corruption and the Third World’s Environmental Legacy, points out that debt write-offs, such as these, will also help the five debtor countries continue to service their loans to the hard loan window of the Bank (or Ordinary Capital). Borrower defaults on the hard loan window of the IDB – which raises its capital on international bond markets – would threaten the triple-A credit rating of the institution and possibly force the rich countries to pony up billions to pay back bondholders. The multilateral development banks (MDBs), of which the IDB is but one, want to avoid this scenario at all costs.
Bailouts of the soft loan windows of the MDBs help stave off this worst case scenario, says Ms. Adams and, in effect, help bail out the Banks themselves.
Debt forgiveness also rids the banks of embarrassingly unsuccessful and corruption-plagued loans from their portfolios and helps them avoid demands for independent audits. With mounting evidence before the US Senate Foreign Relations Committee, for example, suggesting that as much as $200 billion of MDB loans over the past 60 years has been used corruptly, the MDBs want to quell the threat of more and more debtor governments challenging the enforceability of claims in arbitral proceedings on the grounds they were contracted corruptly. Viewed from that vantage point, debt forgiveness starts to look very attractive to the MDBs, says Ms. Adams.
Ms. Adams’ organization, Probe International, argues for a moratorium on Third World debt payment until public audits of all claims can be evaluated. Legitimate debts spent in the interests of the people should be forgiven if countries are too poor to repay them. Illegitimate debts, contracted corruptly or negligently, and without the consent of the people, would be deemed unenforceable.