Committee for the Abolition of Illegitimate Debt

After months, and indeed years, of pushing 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.

to engage with the issue, this week the illegitimate debt campaign moved an important step forward.

On Monday the Bank hosted a roundtable discussion at its headquarters in Washington DC. World Bank staff, government representatives, academics and civil society groups took part in the discussion of ideas and possible practical action regarding odious and illegitimate debt, as well as responsible lending.
The recent increased attention on illegitimate debt has partly been the result of the progressive stance of the Norwegian Government, which funded a World Bank study into the concept 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. , published in September 2007. Odious debt is a narrower category of illegitimate debt, often relating to loans made to oppressive former regimes. The paper was widely seen as a weak and dismissive, and civil society groups called for a meaningful dialogue on odious debt as well as the wider illegitimate debt issue. This roundtable was the result.

The perspectives of the participants were diverse, and although the World Bank did not deviate from to its position - that illegitimate debt is an unclear concept and not one that can be meaningfully pursued - this was the first time it had heard and discussed the perspectives of civil society and development countries in such a meeting. Lenders - whether governments or the World Bank itself - tend to be dismissive of illegitimate debt, while borrower governments are very nervous of openly discussing it, so the most refreshing contributions came from one or two government representatives who went against the grain.

The day-long meeting ranged from technical legal discussion, to wider moral and political debates, and participants shared experiences from countries including Nigeria, Norway, Philippines and Haiti. Standards for responsible loans were discussed as well as dealing with past irresponsible lending and its consequences.

A report of the meeting will be produced in the next month and should add to the momentum on this issue, strengthening civil society demands for action to cancel illegitimate debts.