Proposed Solutions by the Dialogue Reference Group on Ballooning Kenyan Debts are False and Flawed

25 September 2018 by David Calleb Otieno

The Kenyan Peasants League (KPL), a member of La Via Campesina and part of the Kenyan Social Movements for the Abolition of Illegitimate Debts has been following closely the just concluded Dialogue Reference Group meeting that brought together a section of religious leaders and Kenyan civil society. KPL finds that their proposals to check the Kenyan debts, already unsustainable, is not only fundamentally flawed but false as the Kenyan debt crisis cannot be solved by using the same capitalist practices and logic that created it in the first place.

On the face of it, the call by the Dialogue Reference Group for an independent audit of the Kenyan debts in order to establish how much is owed to each creditor, the conditions imposed by them, purposes for which the money was borrowed and where the money went to sounds progressive and pro-people. However, their proposal that the Kenyan parliament should commence the so called independent debt audit in six month raises eyebrows.

The same parliament has in the past enacted legislations promoted by the criminal troika Troika Troika: IMF, European Commission and European Central Bank, which together impose austerity measures through the conditions tied to loans to countries in difficulty.

of 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.
(IMF), World Bank World Bank
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.

(WB) and the World Trade Organizations (WTO WTO
World Trade Organisation
The WTO, founded on 1st January 1995, replaced the General Agreement on Trade and Tariffs (GATT). The main innovation is that the WTO enjoys the status of an international organization. Its role is to ensure that no member States adopt any kind of protectionism whatsoever, in order to accelerate the liberalization global trading and to facilitate the strategies of the multinationals. It has an international court (the Dispute Settlement Body) which judges any alleged violations of its founding text drawn up in Marrakesh.

) like the Value Added Tax (VAT) Act 2013 or the recent repeal of the law that vested powers on the Central Bank Central Bank The establishment which in a given State is in charge of issuing bank notes and controlling the volume of currency and credit. In France, it is the Banque de France which assumes this role under the auspices of the European Central Bank (see ECB) while in the UK it is the Bank of England.

of Kenya (CBK) to cap interest rates Interest rates When A lends money to B, B repays the amount lent by A (the capital) as well as a supplementary sum known as interest, so that A has an interest in agreeing to this financial operation. The interest is determined by the interest rate, which may be high or low. To take a very simple example: if A borrows 100 million dollars for 10 years at a fixed interest rate of 5%, the first year he will repay a tenth of the capital initially borrowed (10 million dollars) plus 5% of the capital owed, i.e. 5 million dollars, that is a total of 15 million dollars. In the second year, he will again repay 10% of the capital borrowed, but the 5% now only applies to the remaining 90 million dollars still due, i.e. 4.5 million dollars, or a total of 14.5 million dollars. And so on, until the tenth year when he will repay the last 10 million dollars, plus 5% of that remaining 10 million dollars, i.e. 0.5 million dollars, giving a total of 10.5 million dollars. Over 10 years, the total amount repaid will come to 127.5 million dollars. The repayment of the capital is not usually made in equal instalments. In the initial years, the repayment concerns mainly the interest, and the proportion of capital repaid increases over the years. In this case, if repayments are stopped, the capital still due is higher…

The nominal interest rate is the rate at which the loan is contracted. The real interest rate is the nominal rate reduced by the rate of inflation.
. This repeal was as part of the preconditions for Kenya to access more credit from the market. It is intriguing how can such an institution that has already sold our sovereignty to the undemocratic and unaccountable institutions like the IMF & WB can be entrusted with initiating an independent debt audit as proposed by the Dialogue Reference Group.

Furthermore, the proposals by the Dialogue Reference Group that in case the Kenyan parliament fails to initiate this audit in the next six months it shall by its own establish a people’s national debt audit task force to conduct the independent audit, exposes their real identity. Their purpose is to act as local agents of the International Financial Institutions (IFSs) while posing as pro-people who are already suffering from the dysfunctions of the current capitalist system that is driven by pursuit for profit Profit The positive gain yielded from a company’s activity. Net profit is profit after tax. Distributable profit is the part of the net profit which can be distributed to the shareholders. at the expense of the lives and livelihoods of millions of Kenyans.

While KPL believes that a citizens debt audit is a key to unearth the real identity of the Kenyan creditors, we note that the process should be driven by the citizens and not by Nairobi based elite associations like Dialogue Reference Group as we consider that a true and authentic fight against ballooning Kenyan debts is not and should not be treated as a mere technical and economic issue that needs technocrats alone, but must be driven and controlled by the people themselves who are affected by these unsustainable debts. According to KPL, the Kenyan external and internal debts are a mechanism used to transfer wealth created by Kenyan workers and small scale producers to benefit the capitalists while the local ruling class and their allies like the Dialogue Reference Group skim off their commissions during this transfer in form of funding for activities that do not benefit local citizens.

It is ironical that the meeting convened by the Dialogue Reference Group was attended by envoys of countries that are fighting for a slice of the Kenyan debt as has been witnessed in the recent past. There is an emerging scramble between the US and China. The Dialogue Reference Group’s intention to establish a so called people’s national debt audit task force to address the Kenyan debt crisis while at the same time inviting envoys of countries that want to continue to increase the burden of Kenyan debt further is a sham.

The KPL believes that the Kenyan debt crisis is a result as well as a symptom of the dysfunction of the global financial systems. It can only be truly addressed by changing the current capitalist economic model that gives more authorities to corporate elites. It is ironical that the latter despite having caused the current Kenyan debt crisis want to be part of the solutions of the debt quagmire that we are now in as a country. The proposals by the Dialogue Reference Group would lead to false and flawed solutions since they don’t challenge the powers of the undemocratic institutions like the IMF, WB and WTO. These institutions influence Kenyan financial and economic legislations and policies leading to debt.

The powers to solve the Kenyan debt crisis must be returned to millions of Kenyan peasants that pay taxes and feel the pinch of the increased taxes rather than such undemocratic and unaccountable amorphous bodies like Dialogue Reference Group. The membership of such organizations are largely drawn from a few religious, corporate and civil society elites from above whose proposed solutions to the Kenyan debt crisis are intended to ensure constant economic expansion and protection of the interests of the corporate elite and IFIs regardless of the consequences of such false solutions on the millions of Kenyans.

It is baffling how Kenyan debt crisis can be solved using the same logic and principles being pushed down our throats by IMF, WB and WTO that was created over seventy years ago to alleviate poverty but has instead been pushing neo-liberal policies like free market trade, privatization and deregulation that has evidently made the rich richer, while poverty and world hunger continue to remain at staggeringly high levels.

It is clear that Kenyan debts have been incurred contrary to the provisions of the article 201 of the Constitution of Kenya 2010 which states that there must be openness, accountability and public participation in all financial transactions including incurring of debts and that the burdens and benefits of public borrowing must be shared equitably between present and future generations. Furthermore, they are contrary to the objectives of the Public Finance Management Act stating that all public finances must be managed in accordance with the principles of public finance management as stipulated under article 201 of the Constitution of Kenya 2010.

Thomas Sankara aptly captured the debt colonization by saying that if African countries stopped paying debts, the lenders will not die while if they paid then the African citizens will die. The KPL is calling for repudiation and abolition of all illegal, illegitimate and odious Kenyan external and domestic debts as they were incurred illegally and illegitimately and the burden be passed to those that benefited from such money as opposed to passing the burden on Kenyan workers and peasants.

KPL is also demanding that instead of IFIs imposing skewed conditions on Kenya to access development aid, the IFIs should instead push for recovery of assets embezzled by Kenyan corrupt leaders and kept in banks of the global north with the complicity of IMF, World Bank and WTO.

KPL is also calling on all Kenyans to demand unconditional reparations for the historic, social and ecological injustices committed to Kenyans during the colonial and post-colonial period.

David Calleb Otieno

KPL International Coordinator and Convener, Kenyan Social Movements for Abolition of Illegitimate Debts



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