Odious Debts

Wolfowitz, the World Bank, and illegitimate lending

Joseph Hanlon
The Brown Journal of World Affairs
May 16, 2007

When Paul Wolfowitz visited Indonesia in April 2006, he noted the importance of moving forward to tackle corruption through a range of new procedures, and then added that Indonesia was managing its debt well. In passing, he noted that when he was U.S. Ambassador to Indonesia twenty years before, he had been aware of massive corruption in the United States’ cold war ally. Later, he admitted, “The World Bank first acknowledged corruption as a major impediment to development only ten years ago.”He seemed to treat four points as unrelated – tackling present corruption, managing past debt, his own role when improper borrowing was carried out, and the Bank’s failure to acknowledge corruption in the past. But for many in Indonesia, these factors are intimately linked. Indonesia now has a massive debt burden precisely because the World Bank, with the support of the U.S. government, lent to a known corrupt government, which stole and wasted the money.Although the World Bank is finally addressing corruption, Wolfowitz is doing so in a way that puts all the responsibility on the people of the borrowing country. In Wolfowitz’s system, the lender – his World Bank – carries no responsibility for improper lending, in the past or in the future. However, in domestic lending, and increasingly in corporate international lending, the lender has a whole range of responsibilities. This has led to the concept of “illegitimate debt” – loans which are so bad that by making them a bank has failed in its fiduciary responsibilities, and has no right to collect on those loans. The Indonesian case is a prime example of the World Bank’s illegitimate loans.

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Categories: Odious Debts

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