Committee for the Abolition of Illegitimate Debt

There are few issues that have captured the airwaves in Nigeria more than the twin campaigns in favor of debt relief and against corruption. A photograph of Nigeria’s former top cop made the front pages only to be followed the next day by apologies for humiliating the man. The Senate president, the number three man in the government, got kicked out of office for allegedly helping to grease of palms of some Senators, so that a government ministry’s budget could be laced up with bogus figures. The Senate president did not go down alone. He is currently squirming in the dock with the former minister of education and some other senators. Another minister was sacked for underhand dealings in a proposed sale of government houses in the high-brow section of Ikoyi, Lagos . Many of President Obasanjo’s extended family members were scheduled to become owners of these choice quarters built with public funds.

It must be said that corruption in Nigeria is a by product of the general rut that has beset the nation through more than three decades of military rule as well as years of short-sighted civilian governments. That rut and decay has been oiled by a voodoo economic system whereby government efforts are focused on expending resources, and scant attention is paid to income generation, environmental protection, or the assurance of human rights and other basics.

Many agree that the fight against corruption is long overdue, and that although there are shortcomings in the warfare, it is still better than nothing. It is also better now than later. Observers note, however, that the assault on aspects of corruption is mainly a response to the urgent need to give a pretty face to the nation’s creditors, including the International Monetary Fund 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 , 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.

, and the Paris Club Paris Club This group of lender States was founded in 1956 and specializes in dealing with non-payment by developing countries.

. In this regard the government’s crusade is already getting smiles from those creditors but the face-lift appears to be a selective game and a mere scratch on the surface.

Debt forgiveness, debt cancellation or debt rescheduling Debt rescheduling Modification of the terms of a debt, for example by modifying the due-dates or by postponing repayments of the principal and/or the interest. The aim is usually to give a little breathing space to a country in difficulty by extending the period of repayment and reducing the amount of each instalment or by granting a period of grace during which no repayments will be made. : what will it be? By their statutes, neither the World Bank nor the IMF may cancel debts. Thus at the G7, Group of wealthy nations meeting of 1996, ideas were floated on how to help Highly Indebted Poor Countries (HIPC Heavily Indebted Poor Countries
HIPC In 1996 the IMF and the World Bank launched an initiative aimed at reducing the debt burden for some 41 heavily indebted poor countries (HIPC), whose total debts amount to about 10% of the Third World Debt. The list includes 33 countries in Sub-Saharan Africa.

The idea at the back of the initiative is as follows: a country on the HIPC list can start an SAP programme of twice three years. At the end of the first stage (first three years) IMF experts assess the ’sustainability’ of the country’s debt (from medium term projections of the country’s balance of payments and of the net present value (NPV) of debt to exports ratio.
If the country’s debt is considered “unsustainable”, it is eligible for a second stage of reforms at the end of which its debt is made ’sustainable’ (that it it is given the financial means necessary to pay back the amounts due). Three years after the beginning of the initiative, only four countries had been deemed eligible for a very slight debt relief (Uganda, Bolivia, Burkina Faso, and Mozambique). Confronted with such poor results and with the Jubilee 2000 campaign (which brought in a petition with over 17 million signatures to the G7 meeting in Cologne in June 1999), the G7 (group of 7 most industrialised countries) and international financial institutions launched an enhanced initiative: “sustainability” criteria have been revised (for instance the value of the debt must only amount to 150% of export revenues instead of 200-250% as was the case before), the second stage in the reforms is not fixed any more: an assiduous pupil can anticipate and be granted debt relief earlier, and thirdly some interim relief can be granted after the first three years of reform.

Simultaneously the IMF and the World Bank change their vocabulary : their loans, which so far had been called, “enhanced structural adjustment facilities” (ESAF), are now called “Growth and Poverty Reduction Facilities” (GPRF) while “Structural Adjustment Policies” are now called “Poverty Reduction Strategy Paper”. This paper is drafted by the country requesting assistance with the help of the IMF and the World Bank and the participation of representatives from the civil society.
This enhanced initiative has been largely publicised: the international media announced a 90%, even a 100% cancellation after the Euro-African summit in Cairo (April 2000). Yet on closer examination the HIPC initiative turns out to be yet another delusive manoeuvre which suggests but in no way implements a cancellation of the debt.

List of the 42 Heavily Indebted Poor Countries: Angola, Benin, Bolivia, Burkina Faso, Burundi, Cameroon, Central African Republic, Chad, Comoro Islands, Congo, Ivory Coast, Democratic Republic of Congo, Ethiopia, Gambia, Ghana, Guinea, Guinea-Bissau, Guyana, Honduras, Kenya, Laos, Liberia, Madagascar, Malawi, Mali, Mauritania, Mozambique, Myanmar, Nicaragua, Niger, Rwanda, Sao Tome and Principe, Senegal, Sierra Leone, Somalia, Sudan, Tanzania, Togo, Uganda, Vietnam, Zambia. ). Many governments in the majority world have spent considerable energy and resources in an effort to convince the World Bank and the IMF that they are HIPC. Nigeria , with all its strategic resources and wealth, is angry that it is not classified as a HIPC. Scant attention is paid to the reality that neither the World Bank nor the IMF was set up to make poor economies stronger or independent of the controlling global economies and superstructure. The purpose of the HIPC initiative is merely to help selected countries (who accept IMF regimens) bring their debt burden to a sustainable level, so they are not continually wailing for debt rescheduling. The HIPC initiative does not alleviate poverty or reduce the debt burden significantly, and a country must be sufficiently docile to the dictates of Washington to qualify.

How did Nigeria and other countries fall into the present debt trap? Often loans and resources were obtained for white-elephant projects sashayed straight from creditors into the private bank accounts of political leaders. In some cases the wealth of an African leader equates to his country’s level of indebtedness. As the stolen funds are stashed away in Swiss and other Northern banks, the poor bear the brunt of the profligacy of those in power.

Where funds are not simply stolen, they are inefficiently managed. The mounting debts have been veritable tools of economic and political subjugation rendering nations comatose. Demanding repayment is like demanding blood from a corpse; the debts are generally odious, unpayable, and iniquitous.

It is often argued that canceling external debts is tantamount to giving the offender a pat on the back. In other words, debt cancellation is seen as an immoral act. But what is it that’s immoral: the debt or its cancellation? A loan that has been repaid several times over through debt servicing and yet remains unpaid is an immoral debt. It is indeed odious and should be repudiated.

The world is the loser when poor countries are sentenced to excruciating poverty and economic decay by a debt burden with no way out. In cases where countries have simply refused to pay such debts in the past, the world was the better for it.

If nations didn’t have to focus so single-mindedly on foreign exchange earnings, there could be an emphasis on local well-being. There would be less deforestation, less desertification, less monoculture Monoculture When one crop alone is cultivated. Many countries of the South have been induced to specialize in the production of a commodity for export (cotton, coffee, cocoa, groundnuts, tobacco, etc.) to procure hard currency for debt repayments. plantations, less permission for multinational corporations to ride roughshod over territories, less disease, and better-educated populations. The IMF’s 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/ programs, whether enforced from Washington or by local surrogates, are not seen as responsive to national needs.

The Nigerian government has made debt a major cross-sectoral campaign issue. At the moment, the legislative and executive branches are singing the same tone. University students have also joined the chorus. The atmosphere is thick with debt cancellation songs.

What is needed, however, is for all debtor nations to simply stand together, look the creditors in the eye, and say, “we don’t owe and we won’t pay” using the words of the Jubilee 2000 campaign. It is time for the world to take stock of the massive historical and current ecological debt being piled high by the destructive extraction of resources from the poor regions of the world. It is time for the accounting books to be re-examined within the framework of equity Equity The capital put into an enterprise by the shareholders. Not to be confused with ’hard capital’ or ’unsecured debt’. and fairness so that everyone may know who really owes whom. Many economists contend that if the total debt of the majority world were cancelled, the global financial system would not even blink. The majority world debt is insignificant (less than 3% of global lending) and pales by comparison with the debts owed by the USA and certain transnational corporations.

However the debt was incurred, it has become a yoke by which weaker states are kept weak and are made to subsidize the more powerful states. This external debt serves is a conduit by which lifeblood is siphoned from weaker states in a continual net transfer of funds from the majority world to the rich nations.

It is time to remove the yoke from the necks of nations and give the world a burst of life. Let us not straightjacket through needless conditionality. When the debts are cancelled nations will forgo their cannibal mentality, and corruption will take a back seat.

FPIF Policy Analyst Nnimmo Bassey is a human rights activist from Nigeria working with Environment Rights Action, Friends of the Earth, Nigeria.