Proposed EU loan would make Tunisia’s debt problems worse, say CSOs

28 March 2014


CC - Gwenaël Piaser

  • MEPs to vote on new loan in April.
  • Tunisia is already paying more to its Western creditors than it receives in loans and grants, and almost all of the new loan would be used for debt repayments.

Brussels, 28th March 2014
Civil society groups from Tunisia and Europe are urging the European Parliament to concentrate on debt relief instead of voting through a EUR 300 million loan to Tunisia, arguing that this will only add to the country’s huge existing debt burden.

The loan – which comes with numerous economic and trade conditions attached – is due to be voted on in plenary by the Parliament on the 16th of April. CSOs argue that only debt relief and assistance in the form of grants and capacity building for the Tunisian institutions can lead to the economic recovery and democratic reform that Europe has promised to support.*

Tunisia is already paying off debts generated under the Ben Ali regime to France and several multilateral development institutions such as 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 African Development Bank and the European Investment Bank. The latter received EUR 149 million (325 million Tunisian Dinars) in debt repayments in 2011 [1] alone, and that figure is rising.

Last year Tunisia made repayments of EUR 330 million [2] in international debt. In total it pays more to its Western creditors in repayments and 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. than it receives in the form of loans or grants.

Fathi Chamkhi of RAID (a Tunisian association member of the Networks CADTM and ATTAC): “This EU loan – which is labeled as ‘assistance’ – would have to be repaid and would mean Tunisia is even more in debt. Tunisia’s existing debt burden was built up under the former dictatorship of Ben Ali, and a significant part of it can be labeled as ‘odious’ – as the European Parliament stated in its resolution of 10th May 2012 – and thus must not be put on the shoulders of the Tunisian people. Perhaps one of the most perverse aspects of this new loan is that 85% would be used to repay debt to EU Member States and the EIB, debt that has been generated by a corrupt, dictatorial regime.

Kuba Gogolewski from CEE Bankwatch Network: “Everybody knows that lending more to repay outstanding debt is a vicious circle. Debt relief is the only way to break this dynamic. Europe knows this very well. In early 1990s foreign Poland’s debt was cut in half by the Paris Club Paris Club This group of lender States was founded in 1956 and specializes in dealing with non-payment by developing countries.

and the London Club London Club The members are the private banks that lend to Third World states and companies.

During the 70s, deposit banks had become the main source of credit for countries in difficulty. By the end of the decade, these countries were receiving over 50 per cent of total credit allocated, from all lenders combined. At the time of the debt crisis in 1982, the London Club had an interest in working with the IMF to manage the crisis.

The groups of deposit banks meet to co-ordinate debt rescheduling for borrower countries. Such groups are known as advisory commissions. The meetings, unlike those of the Paris Club that always meets in Paris, are held in New York, London, Paris, Frankfurt or elsewhere at the convenience of the country concerned and the banks. The advisory commissions, which started in the 80s, have always advised debtor countries immediately to adopt a policy of stabilisation and to ask for IMF support before applying for rescheduling or fresh loans from the deposit banks. Only on rare occasions do commissions pass a project without IMF approval, if the banks are convinced that the country’s policies are adequate.
. It provided the oxygen for economic recovery. Remarkably, it is not part of the deal this time.

Bodo Ellmers from the European Network on Debt and Development (Eurodad) said: “Instead provide support in the form of grants with no strings attached. The young European democracies received generous assistance from the U.S. in the form of the Marshall Plan Marshall Plan A programme of economic reconstruction proposed in 1947 by the US State Secretary, George C. Marshall. With a budget of 12.5 billion dollars (more than 80 billion dollars in current terms) composed of donations and long-term loans, the Marshall Plan enabled 16 countries (notably France, the UK, Italy and the Scandinavian countries) to finance their reconstruction after the Second World War. after World War II. Such assistance enabled European nations to have a fresh start. Today, it is Europe’s turn to support countries like Tunisia which are emerging from decades of dictatorial rule. The EU should not impose macroeconomic conditionality on their partners.”

CSOs are also calling on the EU to provide support for Tunisia in the form of grants and capacity building with no strings attached.


Notes to Editors:

  • * Following the popular uprisings in Tunisia in early 2011, Catherine Ashton and the European Commission promised to put extra billions on the table to support a transition towards ‘deep democracy’. However the majority of these funds came in the form of loans through the European Investment Bank and the World Bank.
  • Details of the debt owed by Tunisia to each institution (Banque Centrale de Tunisie, Dette extérieure de la Tunisie 2011, p20)


For further information, or to request an interview, please contact:

Kuba Gogolewski, North Africa Coordinator for Bankwatch // kuba.gogolewski at bankwatch.org // +32 2 893 10 35

Fathi Chamkhi, RAID (a Tunisian association member of the Networks CADTM and ATTAC) // +21 6 55 52 23 78

Julia Ravenscroft, Communications Manager, Eurodad // + 32 2 893 0854 // jravenscroft at eurodad.org


This press release is issued by the following organisations:



Footnotes

[1Banque Centrale de Tunisie, Dette extérieure de la Tunisie 2011, p20

cadtm.org

Translation(s)

CADTM

COMMITTEE FOR THE ABOLITION OF ILLEGITIMATE DEBT

35 rue Fabry
4000 - Liège- Belgique

00324 226 62 85
info@cadtm.org

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