Committee for the Abolition of Illegitimate Debt

Despite an impressive GDP GDP
Gross Domestic Product Gross Domestic Product is an aggregate measure of total production within a given territory equal to the sum of the gross values added. The measure is notoriously incomplete; for example it does not take into account any activity that does not enter into a commercial exchange. The GDP takes into account both the production of goods and the production of services. Economic growth is defined as the variation of the GDP from one period to another. growth since 2005, poverty still affects millions of people’s lives. According to Oxfam reports, nearly one million primary school-aged children are still out-of-school – the ninth highest number of any country in the world. Kenya’s level of spending for education has gradually fallen each year since the early 2000s. A quarter of the Kenyan population regularly lack access to healthcare. A recent study estimated that nearly 2.6 million people fall into poverty or remain poor due to ill health each year. The rate of unemployment in the country, especially among the youth is almost at crisis levels. [3]

The situation is similar in other East African countries, viz. Tanzania, Uganda, Burundi, Rwanda or South Sudan. A rapid build-up of loans has pushed East African countries close to a debt crisis. Five East African Community (EAC) member countries have together amassed more than $100 billion domestic and foreign debt, stretching their repayment budgets to the limit. Kenya and Burundi have the highest loan distress profiles relative to their EAC peers, with their debt to GDP ratios projected to exceed 60 per cent this year.

Activists gather at Kangemi, Nairobi

It is in this backdrop that activists from Kenya, Uganda, Tanzania and also from Morocco, South Africa (by skype) India and Poland met at Kangemi, Nairobi between 7-9 February 2020. Kangemi, on the outskirts of the city is one of the slums that hosts thousands of people. It is surrounded by the posh neighbourhoods of Loresho and Kibagare in the north, Westlands in its west and Mountain View in the east. Indeed, the city exhibits terrible inequality, and the gulf between rich and poor in Nairobi is starkly illustrated by its neighbourhoods. Kangemi, like other slums of the city, has no sewerage. Unemployment is high, addiction is rife, and most women are victims of some form of violence. The streets are littered with waste, the tiny shacks that line them packed together like tin cans. Often, families are forced to choose between using the little water they have for cooking or for hygiene.

Nairobi is no exception and is symptomatic of other third-world cities, elsewhere in the planet. Mike Davis observes that “the African situation, of course, is even more extreme. Africa’s slums are growing at twice the speed of the continent’s exploding cities. Indeed, an incredible 85 per cent of Kenya’s population growth between 1989 and 1999 was absorbed in the fetid, densely packed slums of Nairobi and Mombasa.” [4] The burgeoning slums tells us that “any realistic hope for the mitigation of Africa’s urban poverty has faded from the official horizon.” [5]

Le quartier de Kangemi à Nairobi (Photo : Borgen project)

This meeting was fourth in the series after the popular meetings of February 2017, July 2018 and in September 2019, held in Kenya by the Kenyan Peasants League (KPL) in collaboration with CADTM. This meeting attempted to devise strategies to conduct effective anti-debt campaigns in the East African Region, aiming to launch successful campaigns against various illegitimate debt – both private and public – in the region. The meeting was also held in the backdrop of Kenya government’s decision to increase the Debt Ceiling [6]. It is important to note that the total public debt rose to 62.3% of the GDP by June 2019. Also, the release of the Building Bridges Initiative (BBI) Report [7] recommends the regulation of loan apps that are forcing poor Kenyans [8] to severe indebtedness.

Participants shared the political & economic situation of their respective countries on the first day. Simon Ruta reported about the terrible unemployment situation in Uganda. The Tanzanian participants spoke about the lack of democratic space in Tanzanian politics and also how loans are used by ruling parties to win elections.

The meeting also took place at a time when issues of microfinance loans, mobile app loans and student loans have increasingly raised attention. Various reports speak about the fact that not only the sovereign loans but also illegitimate private debt, viz. the microfinance loans, mobile app loans and student loans weigh heavily on the Kenyans. One of the participants briefed the meeting about the precarious situation faced by the Kenyan student community. Caught between the triumvirate of privatisation of education, student loans and high degree of unemployment, the Kenyan students face a future that is not just bleak, but terrible. The recent threat by the Kenyan Higher Education Loans Board (HELB) to publish pictures of student loans defaulters in local dailies [9] complicates the situation further. Participants of the meeting discussed that there is indeed an opportunity to mobilise jobless graduates into the anti-debt campaign by raising the demand for the cancellation of student loans. A huge number of unemployed graduates are unable to get Credit Reference Bureau (CRB) clearance to get jobs or to even apply for it since they have not been able to repay their student loans. The provisions of the CRB are clearly weighed against the students for the simple fact that students will normally fail to repay if they are unemployed in the first place. Similar situations exist in neighbouring Uganda. Around 3000 graduates sensing no chances of employment came with gowns with placards written “what next after graduation”. This has created a debate around the future of the youth in the country.

Groupe de travail pendant la rencontre CADTM à Nairobi en février 2020

Role of IFIs in East Africa

In one of the main sessions on the first day, the author, explained the background and the backdrop of the International Financial Institutions. Though the discussions largely centred around the Bretton Woods twins, the issue of new lenders like the Chinese agencies didn’t escape the purview. Indeed the issue of the Standard Gauge Rail (SGR) built with Chinese finance is causing a storm in Kenya (see http://cadtm.org/Only-a-citizen-s-audit-of-SGR-debt-will-unravel-public-heist-of-resources). Recently, a group of local organizations have threatened to move to court seeking the government to make public all the documents regarding the Standard Gauge Rail (SGR) [10].

In neighbouring Tanzania, a USD 500 million 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.

loan on education is being hotly debated. The purpose of the loan is to improve education in Tanzania but it focuses mostly on private schools that are far from being inclusive. It is important to note that like most other places in the world, education in Tanzania is now a commodity. This is coupled with an authoritarian regime that has no hesitation in introducing draconian laws at will. The state, recently, used a diktat that girl students who fall pregnant should not be allowed back. [11] This has evoked huge protests from the social movements. Even a Tanzanian MP wrote to World Bank pointing out this grave violation of human rights and complained that this loan would not be used to upgrade the state of education in the country but for political purposes to win elections. [12]

In Uganda, debt is like a ticking time bomb since the government is putting more emphasis in building large capital infrastructure at the expense of social services. Participants pointed out that the Entebbe Express Highway [13] loan will be paid by the children in Karamoja who won’t be able to drive on this highway as it is an expensive toll road. These sort of loans make Ugandans refugees in their countries while people struggle for livelihoods as the largest chunk of the state revenues are dedicated for debt repayments. Currently, the Ugandan debt is projected to hit USD 18 billion which is more than 50 per cent of the country’s GDP.

At the end of the session, participants planned to challenge these large scale infrastructure projects which create huge debts but has little utility to the working people. Projects like the SGR in Kenya, the World Bank educational loan in Tanzania and the sugar plantation project in north Uganda will be closely monitored and campaigns would be launched for a citizen’s audit of these projects.

The need for Citizens Debt Audit

Following the discussions on the first day, Jawad Moustakbal of ATTAC-CADTM, Morocco spoke about the citizen’s debt audit (see his ppt: https://www.cadtm.org/What-is-the-Citizen-Debt-Audit ). He emphasised that the citizen’s debt audit is a political process and must not be viewed as a simple technical manoeuvring. In most cases governments talk about debts when they are faced with a debt crisis but not while they incur it. Therefore, it is imperative for the citizenry to question the legitimacy of debts not only according to existing laws and standards but also, on the principles of social justice. He explained with examples how this audit can shed light on the debt system and disclose necessary information about its necessity. It also has the power to democratise knowledge and make it accessible for the majority of the people. In this context, it is important to note that the participation of ordinary people is of utmost importance since it is only the oppressed that can free and liberate them and us.

Jawad Moustakbal d’ATTAC-CADTM Maroc présente l’audit citoyen de la dette pendant la rencontre CADTM à Nairobi

The other objectives of the audit is also to demand for a freeze of repayments until the process is completed, to highlight and discourage debts incurred illegitimately and to find an alternative model of economy. Following the session, participants discussed about the necessity to raise a campaign on the citizen’s audit of the projects that they would be closely monitoring.

Dominic Brown of Alternative Information & Development Centre (AIDC), South Africa addressed the meeting on the third day via skype. AIDC was supposed to send a participant to this East Africa meeting but could not do so in the last moment due to some other urgent engagements. Dominic spoke about the World Bank loan to the coal-based thermal power station, Eskom which was mired in corruption. Eskom, a state owned energy utility company has run into serious debts. The South African government wants to privatise this organisation to “solve” this crisis. There are worries about the loss of jobs and also the privatisation of electricity which would have immense negative consequences on the population. This issue needs to looked in a much broad political and economic context as the loan has facilitated extraction of huge amount of minerals and there is a connection between debt, environment and job losses. In South Africa unemployment rate is about 40 per cent. Dominic contended that the loan to Eskom is case of odious debt Odious Debt According to the doctrine, for a debt to be odious it must meet two conditions:
1) It must have been contracted against the interests of the Nation, or against the interests of the People, or against the interests of the State.
2) Creditors cannot prove they they were unaware of how the borrowed money would be used.

We must underline that according to the doctrine of odious debt, the nature of the borrowing regime or government does not signify, since what matters is what the debt is used for. If a democratic government gets into debt against the interests of its population, the contracted debt can be called odious if it also meets the second condition. Consequently, contrary to a misleading version of the doctrine, odious debt is not only about dictatorial regimes.

(See Éric Toussaint, The Doctrine of Odious Debt : from Alexander Sack to the CADTM).

The father of the odious debt doctrine, Alexander Nahum Sack, clearly says that odious debts can be contracted by any regular government. Sack considers that a debt that is regularly incurred by a regular government can be branded as odious if the two above-mentioned conditions are met.
He adds, “once these two points are established, the burden of proof that the funds were used for the general or special needs of the State and were not of an odious character, would be upon the creditors.”

Sack defines a regular government as follows: “By a regular government is to be understood the supreme power that effectively exists within the limits of a given territory. Whether that government be monarchical (absolute or limited) or republican; whether it functions by “the grace of God” or “the will of the people”; whether it express “the will of the people” or not, of all the people or only of some; whether it be legally established or not, etc., none of that is relevant to the problem we are concerned with.”

So clearly for Sack, all regular governments, whether despotic or democratic, in one guise or another, can incur odious debts. and local activists have established a peoples’ committee to campaign against it and also other debt issues. The social movements and other progressive forces in the country are pushing for the repudiation of the Eskom debt. The World Bank has also put austerity measures as conditions for the loans. Finally, Dominic pointed out how successive post-apartheid governments have resorted to massive borrowings.

The predatory micro-credit

In December 2019, a woman in Uriri Sub-county in Migori County allegedly committed suicide by jumping into the flooded Kuja river as she was unable to repay a USD 90 microfinance loan [14] while another 25 years old man committed suicide in July 2019 after he was allegedly unable to repay a USD 30 loan which he had borrowed through a mobile phone app [15]. Three years ago a man in Kisumu County committed suicide after failing to pay a bank loan [16]. In Homa Bay county close to 25 people have committed suicide due to micro-credit loans. The Kenyan participants highlighted these events and sought a practical strategy to deal with these issues. Participants from Uganda also highlighted similar problems in their country. Earlier, theft and fraud by a small number of microfinance institutions (MFI) created a large-scale crisis and contributed to a precipitous decline in trust in the financial sector as a whole. [17] The MFIs in Uganda, aspiring to elevate themselves as banks, are opaque and hence, there is very little information available to the general public about their operations. However, their predatory policies are evidenced from the conditions and the testimonies of the victims.

In the third day, Fatima Zahra El Beghiti of ATTAC-CADTM Morocco explained the political-economy of micro-finance. She explained how micro-finance was introduced as a part of the Structural Adjustment Structural Adjustment Economic policies imposed by the IMF in exchange of new loans or the rescheduling of old loans.

Structural Adjustments policies were enforced in the early 1980 to qualify countries for new loans or for debt rescheduling by the IMF and the World Bank. The requested kind of adjustment aims at ensuring that the country can again service its external debt. Structural adjustment usually combines the following elements : devaluation of the national currency (in order to bring down the prices of exported goods and attract strong currencies), rise in interest rates (in order to attract international capital), reduction of public expenditure (’streamlining’ of public services staff, reduction of budgets devoted to education and the health sector, etc.), massive privatisations, reduction of public subsidies to some companies or products, freezing of salaries (to avoid inflation as a consequence of deflation). These SAPs have not only substantially contributed to higher and higher levels of indebtedness in the affected countries ; they have simultaneously led to higher prices (because of a high VAT rate and of the free market prices) and to a dramatic fall in the income of local populations (as a consequence of rising unemployment and of the dismantling of public services, among other factors).

IMF : http://www.worldbank.org/ Programmes. Micro-finance is not just a relationship between the lenders and those borrowing but is also a system that promotes poverty through encouraging indebtedness. However, a vast propaganda machinery is engaged to introduce micro-finance as a panacea to poverty. The MFIs achieve profits of over 30% while the poor clients have accumulated suffering, impoverishment and over-indebtedness. It can be easily concluded that this form of lending is a powerful means of appropriating a large part of the income of the world’s poor people towards private banks, financial investment funds Investment fund
Investment funds Private equity investment funds (sometimes called ’mutual funds’ seek to invest in companies according to certain criteria; of which they most often are specialized: capital-risk, capital development funds, leveraged buy-out (LBO), which reflect the different levels of the company’s maturity. and MFIs. Major large banks and IFIs lend to micro-finance industry. The World Bank has created a special support system for MFIs through Consultative Group to Assist the Poor (CGAP), created in 1966, under the guise of poverty alleviation.

Fatima Zahra d’ATTAC-CADTM Maroc pendant la présentation sur le microcrédit à Nairobi

The Moroccan case of predatory lending and also, the struggle against it was presented to participants. She emphasised on the urgency to fight against micro-credits and other illegitimate debts, the demand for an end to austerity policies including the recovery of privatised public utilities and the call for abolition of illegitimate micro credits.

The meeting ended with the adoption of Kangemi declaration (see http://cadtm.org/Kangemi-Declaration) and with the slogan: “Let us unite against micro-credits and illegitimate debt”.