Why should we pay back odious and illegitimate debts?

14 March 2007 by Mohiuddin Ahmad

The increasing debt, together with the expiry of grace periods and unfavourable exchange rates, has resulted in increased debt service Debt service The sum of the interests and the amortization of the capital borrowed. . Average annual debt service payment increased from $65 million in the 1970s to over $600 million at present. Every child is born with a debt obligation for no fault of her/him. Per capita debt obligation of the country has increased from $7 in 1973/74 to $137 in 2003/04, writes Mohiuddin Ahmad.

About three years ago, I made an estimate: Bangladesh has received over US$ 23.7 billion as loan from external sources since 1971/72 up to 2004/05. This is in addition to over US$ 19.5 billion received as ‘grant’. During the corresponding period, the country has paid back 9.8 billion US$ including over 3.2 billion as 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. . Outstanding debt stands at about US$ 19 billion. The country is still crawling as an LDC Least Developed Countries
A notion defined by the UN on the following criteria: low per capita income, poor human resources and little diversification in the economy. The list includes 49 countries at present, the most recent addition being Senegal in July 2000. 30 years ago there were only 25 LDC.
. The question is, where all these money go?

The ‘lending community’ now feels more comfortable to be termed as ‘development partners’. They claim that international aid brings growth and development. But the reality is different. External aid flow increased from 0.7 per cent of the 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.
in 1959/60, to 3.0 per cent in the 2000s. With increasing accumulation of aid, debt burden is also increasing.

Public sector external aid package, covering both grants and loans, has undoubtedly contributed to the expansion of a middle class and a subservient political regime and civil society at home, and has also led to growing indebtedness. The country’s large trade deficit and rapid growth of current public expenditures have contributed to the increase in public debt.

The external borrowing of Bangladesh consists mainly of medium and long-term (MLT) debt acquired on ‘concessional’ terms with an average grace period of 10 years and a repayment period of 20 years. These have come from bilateral and multilateral sources. Besides, there are borrowings from 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.

and IDB, as well as other creditors for purchase of crude oil, ship, aircraft and food grains on deferred payment terms.

Bangladesh’s debt obligation comprises mainly of public sector debt. The share Share A unit of ownership interest in a corporation or financial asset, representing one part of the total capital stock. Its owner (a shareholder) is entitled to receive an equal distribution of any profits distributed (a dividend) and to attend shareholder meetings. of private sector borrowing is also growing. Most of the bilateral aid, except that of Japan, comes in the form of ‘grant’. Most debt is owed to multilateral creditors, particularly the IDA and the ADB. A recent 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.

classification using present value of total debt service, has categorised Bangladesh as a ‘moderately indebted country’.

The increasing debt, together with the expiry of grace periods and unfavourable exchange rates, has resulted in increased debt service. Average annual debt service payment increased from $65 million in the 1970s to over $600 million at present.

Every child is born with a debt obligation for no fault of her/him. Per capita debt obligation of the country has increased from $7 in 1973/74 to $137 in 2003/04. Investments in human development sectors in Bangladesh remain critically low. On the other hand, much of the hard-earned income of the people is drained away in the name of debt service. This has two connotations. First, it reduces the availability of resources for human development. Secondly, the people become more and more indebted, as creditors dump more unnecessary projects. Annual debt service payment now amounts to as much as the combined investments in education and health sectors. If internal debt (micro-credit) is added to this, then almost everybody in the country is indebted from tip to toe. The question naturally arises, for whom is ‘aid’?

Much of the debt is odious, illegitimate and immoral. The Ashuganj Fertiliser Factory is a unique example of adverse lender conditionality vis a vis the country’s weak bargaining position [during the mid-1970s] in negotiating the purchase of technology. With a capacity of 528,000 tonnes of urea per year, the project was conceived in 1975 with a cost of $242.2 million. IDA, ADB and USAID were the major lenders. After the approval, the project underwent various cost revisions and the latest estimate put total cost at $410 million. This was almost double of the cost of similar projects with similar capacity set up elsewhere in the world.

The project was unworthy of export on price competition, and also uneconomic and unviable for the domestic market. A comparison of urea fertiliser plants having similar or identically large capacity in similar developing countries and financed through IDA and other co-lenders shows that the Ashuganj project is far too costly and increased the debt burden on the people. Huge subsidy is provided to sell the product in the market, which drains away valuable resources that could be used in other purposes.

A similar project, KAFCO, was pushed by Japan through the corrupt regime of General Ershad where the government has to sell natural gas at a rate much lower than the international rate and buy the product (urea) at a rate higher than the international price.

There are many more examples like these, but, because of lack of access to information, it is very difficult to expose the horrible situation how the World Bank-led so-called development partners are milking the poor people of Bangladesh. The question is: do the people of Bangladesh has any moral obligation to pay back these odious and illegitimate debts pumped trough corrupt and dictatorial regimes?

Mohiuddin Ahmad is a writer and a researcher. He is the chairperson of the CDL and chair of the Jubilee South-Asia Pacific Movement on Debt and Development. Presently he is teaching at Sungkonghoe University, Seoul. He can be reached at mohi2005 at gmail.com




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