Experts on Zimbabwe’s external debt

9 July 2009 by Simbiso Marimbe Marasha


Stakeholders met last week in Harare to discuss Zimbabwe’s external debt, which threatens the welfare of its citizens who have been ravaged by a deep social, economic and political crisis.

The Zimbabwe Coalition on Debt and Development (Zimcodd), a coalition of institutions and individuals focusing on social and economic justice, convened the meeting under the theme “The Economy in Transition Dialogue Conference: Towards a Sustainable Public Debt for Zimbabwe”.

The main objective of this initiative was to give various stakeholders, including the Government, an opportunity to deliberate on the country’s current unsustainable debt situation and collaborate on possible means of effectively managing it in the future.

Amongst the stakeholders present was the Minster of Finance, Mr Tendai Biti, who was invited to advise participants of Government’s strategy for dealing with Zimbabwe’s public debt in the short to medium term.

Since the Government was sworn in early this year, it has launched the Short-Term Emergency Recovery Programme (Sterp) to address key issues of economic stabilisation.

The total resource requirements for the key priority areas outlined in this programme are in excess of US$8 billion. Unfortunately, the country is not in a position to generate all these resources internally in the short term.

In order to mobilise external resources, the Government is actively engaging donor countries and multilateral agencies to re-open external lines of credit, provide grants and make investments.

In their view, the only obstacles to normalising these relations are the sanctions imposed by the West. Some of these sanctions specifically prohibit voting for the extension of any loans, credit or guarantee to the Government of Zimbabwe, or cancellation or reduction of indebtedness of the country to any creditor.

Whilst it is looking forward to receiving external assistance, Zimbabwe is saddled with an unsustainably high level of external debt, the bulk of which is owed to multilateral funding agencies.

Officially opening the conference, Minister Biti said Zimbabwe’s external debt, which stands at US$4,6 billion as at June 30 2009, is unsustainable and detrimental to economic recovery.

“At the moment Zimbabwe has no capacity to repay its debt and will not pay,” he said.

“Most of Zimbabwe’s external debt stock Debt stock The total amount of debt is in interest Interest An amount paid in remuneration of an investment or received by a lender. Interest is calculated on the amount of the capital invested or borrowed, the duration of the operation and the rate that has been set. owed in arrears to the World Bank World Bank
WB
The World Bank was founded as part of the new international monetary system set up at Bretton Woods in 1944. Its capital is provided by member states’ contributions and loans on the international money markets. It financed public and private projects in Third World and East European countries.

It consists of several closely associated institutions, among which :

1. The International Bank for Reconstruction and Development (IBRD, 189 members in 2017), which provides loans in productive sectors such as farming or energy ;

2. The International Development Association (IDA, 159 members in 1997), which provides less advanced countries with long-term loans (35-40 years) at very low interest (1%) ;

3. The International Finance Corporation (IFC), which provides both loan and equity finance for business ventures in developing countries.

As Third World Debt gets worse, the World Bank (along with the IMF) tends to adopt a macro-economic perspective. For instance, it enforces adjustment policies that are intended to balance heavily indebted countries’ payments. The World Bank advises those countries that have to undergo the IMF’s therapy on such matters as how to reduce budget deficits, round up savings, enduce foreign investors to settle within their borders, or free prices and exchange rates.

, the IMF IMF
International Monetary Fund
Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.

http://imf.org
, and the African Development Bank. The country’s indebtedness . . . has continued to increase largely due to the recapitalisation of interest whilst arrears are escalating due to continued defaults on principal amounts falling due.”

Analysts assert that if the debt is not reduced in a “consistent and systematic fashion”, it could balloon to US$7 billion by 2011. New credit lines could also add to this figure significantly.

In response to the Government, the IMF has announced that there are many outstanding issues which need to be resolved before it and other multilateral funding agencies resume financial assistance to Zimbabwe. Key amongst these issues is the clearance of arrears.

The institution has, however, agreed to resume technical assistance to targeted areas. The Government has announced it would resume debt service Debt service The sum of the interests and the amortization of the capital borrowed. on a quarterly basis, as part of negotiations to reopen credit lines.

Sarah Bracking of Manchester University presented the findings of a study done in collaboration with Professor Lloyd Sachikonye of the University of Zimbabwe, which gives an incisive historical review of Zimbabwe’s debt profile from the late 1980s to the present day.

She also made recommendations on how Zimbabwe can deal with odious debt in view of the study’s findings which included options of a campaign for write-off or reduction, and alternative sources of development finance.

Another speaker, Vitalice Meja of the African Forum on Debt and Development (Afrodad), spoke on the “illegitimacy” of International Financial Institutions (IFI) lending, as a critical examination of the role of multilateral and bilateral lenders in the creation and growth of odious and illegitimate debt.

In his view, Zimbabwe should call for the total and unconditional cancellation of its IFI-related debts given the failure of the policy and advice that the World Bank prescribed in the past.

He called for the launch of multiple initiatives at international and local level such as the institution of transparent and accountable loan contraction process with clear roles for Parliament and civil society and reform of the IFIs to improve on their effectiveness.

Speaking in his individual capacity, Senator Obert Gutu said that it is imperative for the inclusive Government to urgently institute a debt audit.

He questioned the logic for the Government to ask for US$8 billion to jump-start Zimbabwe’s economy whilst avoiding the issue of past debts. He also said that the IFIs had abdicated their fiduciary responsibility to ensure that past loans were properly used.

“If the World Bank breaches this fiduciary duty it should be held liable and the debtor nation must be entitled to challenge the odious debt at international law,” he said.

The conference called for a comprehensive debt audit which will establish, among other things, the amounts borrowed, interests accrued, amounts repaid, conditions of lending, reasons for borrowing, use of funds borrowed, loan beneficiaries, historical and ecological aspects of the debt.

The findings of the debt audit would form the basis of the case for either repudiation or cancellation. The debt audit will help unlock resources currently earmarked for debt servicing and redirect them towards health service delivery, education, water and sanitation, among other social services which are in a dire state.

Zimcodd has been campaigning for a Citizens Debt Audit involving a broad base of civic organisations.

At the People’s Convention held in Harare in February 2008, civil society organisations and social movements adopted a resolution on the right of the people of Zimbabwe to refuse repayment of any odious debt as part of the broader People’s Charter.



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COMMITTEE FOR THE ABOLITION OF ILLEGITIMATE DEBT

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