Odious Debts Online
October 20, 2007

The U.S. Congress is to consider far-reaching debt-relief legislation that seeks to dissolve the debts of 67 of the world’s poorest countries owed to the United States, other official creditors in the Paris Club, the IMF, World Bank and other international financial institutions.

The Jubilee Act for Responsible Lending and Expanded Debt Cancellation of 2007 – US Congress

The U.S. Congress is to consider far-reaching debt-relief legislation that seeks to dissolve the debts of 67 of the world’s poorest countries owed to the United States, other official creditors in the Paris Club, the IMF, World Bank and other international financial institutions. Of enormous interest to odious debt watchers, is the portion of the legislation that calls for the U.S. Government Accountability Office (GAO) (the investigative arm of Congress), to undertake audits of the debt portfolios of governments “where there is significant evidence that odious, onerous, or illegal loans were made” and to assess whether past investments by such institutions as the World Bank, the IMF, other international financial institutions, export credit agencies, and commercial lenders “produced the intended results.” The audits will also “investigate the process by which the loans were contracted, how the funds were used, and determine whether United States or international laws were violated in the contraction of these loans, and whether any of the loans were odious or onerous.” If Congress passes the bill, the potential exposure of past odious debts would rank as one of the most promising events in the history to hold looters and lax lenders to account, said Patricia Adams, Executive Director of Probe International and author of Odious Debts. That Congress is considering such a proposal at all is a momentous move, in and of itself, she added.

The bills under consideration are the Jubilee Act for Responsible Lending and Expanded Debt Cancellation (HR 2634) and the Senate version of the Jubilee Act (S 2166), which seek to ensure promises on debt cancellation made at the 2005 G-8 summit in Gleneagles, Scotland are kept and that a number of countries currently ineligible for relief are included in the Act’s expanded proposal for a debt write-off (provided that they demonstrate plans to spend the money saved in debt repayment wisely on poverty reduction).

The bill would also instruct the U.S. Secretary of the Treasury to establish a “Framework for Responsible Lending” for the ‘”avoidance of new odious debt” and a “Framework for Creditor Transparency” to secure transparency in the financial activities of Paris Club official creditors, the World Bank, IMF and other international financial institutions, as well as keep citizens affected by their activities duly informed.

The Jubilee Act also seeks to end the policy conditions imposed on poor countries in exchange for borrowing privileges from the IMF and to curb the so-called ‘vulture funds’ or private commercial creditors that swoop up poor-nation debt for cheap and then later try to reclaim the debt for its full value plus interest, sometimes by suing the country.

Introduced in June by Rep. Maxine Waters, a Democrat from California, and Spencer Bachus, a Republican from Alabama – a hearing on the Jubilee Act (HR 2634) [PDF] in the House Financial Services committee is scheduled to take place later this fall. The Senate version of the Jubilee Act (S 2166) was introduced on Wednesday, Oct. 16, and is sponsored by Senators Robert Casey (D-PA), Richard Lugar (R-IN) and Chris Dodd (D-CT). This version of the Jubilee Act contains the proposal for the Framework for Responsible Lending.

Haiti

HR 2634 is not the only debt legislation of note currently before the U.S. Congress. Also on the table is the Haiti Debt Cancellation Resolution (HRes 241) [PDF] – a bill demanding the complete and immediate write-off of Haiti’s debt to the multilateral financial institutions.

The bill points out that much of “Haiti’s debt burden was accumulated during the oppressive rule of the Duvalier regimes, which did not use the money for the benefit of the Haitian people.”

Although, Haiti is expected to receive complete debt cancellation from the IMF and the World Bank under the Multilateral Debt Relief Initiative by September 2008, the bill argues that relief must be immediate because Haiti – one of the western hemisphere’s most impoverished countries — “cannot wait until . . . to experience the benefits.”

Norway‘s lead

This new strength of focus on the odious debt concept politically and legally today, owes something to Norway for taking a bold step forward towards lender responsibility.

Going where no government had gone before, Norway was the first to actually use the phrase “illegitimate debt” last year when it announced the cancellation of debts associated with the country’s Ship Export Campaign of the late 1970s.

Read Odious Debts Online coverage of “Norway takes historic step”. To recap: The debts date back to 1976, when Norway exported 156 ships to a number of countries as part of a so-called development project to boost Norway’s shipping exports during a time of crisis for the country’s shipbuilding industry. The exports were financed through the Norwegian export credit agency, known as the Guarantee Institute for Export Credits (GIEK).

The significance of Norway’s decision to cancel debts remaining from that scheme is now the subject of an in-depth examination published by the Norwegian Debt Campaign (SLUG) LINK. Written by Kjetil G. Abildsnes, “Why Norway took Creditor Responsibility — the case of the Ship Export campaign,” looks at the political reasoning behind the debt cancellation and notes that despite misgivings and the withholding of approval by GIEK and The Norwegian Agency for Development Co-operation (NORAD), the Ministry of Trade and Commerce nevertheless pushed the loans through in order to ensure the country’s shipbuilding industry stayed afloat. Writes Abildsnes: “Thus, Norway broke or set aside its own rules motivated by the needs of the ship-building industry. The result was reckless lending.”

Leading up to the government’s 2006 announcement, Norway signalled its intention to support illegitimate debt cancellation when the country’s Labour Party formed a new government in 2005 and signed what would become known as the “Soria Moria declaration“. The declaration outlined the new government’s commitments for the next four years, including the position that Norway would lead the way in cancelling poor-country debt, as well as pursue an agenda to address illegitimate debt on an international scale. To that end, Norway set aside money for the World Bank to undertake a study of odious and illegitimate debt, since published last month.

While drawing attention to Norway’s lead on addressing its lending mistakes, the SLUG paper also offers interesting detail about the country’s ship fiasco and the results of what happens when money is given to projects for very wrong reasons. One particular case involved a “shipyard” called Noroff that had never built a ship before but was still deemed a fit candidate for the Norwegian export campaign. The end result came as a shock to the ship’s Puerto Rican buyer, who arrived in Norway only to find that when his “vessel entered its native element – water – it did something peculiar – it wagged its tail.” It seems that “the builders had used too soft steel so the aft of the ship was rocking back and forth” — the ship had to be completely rebuilt! Wisely, the new owner, “having had enough of Norwegian expertise,” insisted that the rebuilding take place in Puerto Rico.