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Why should we pay back odious and illegitimate debts?
by Mohiuddin Ahmad
14 March 2007

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, 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. Outstanding debt stands at about US$ 19 billion. The country is still crawling as an 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 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 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 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 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

Mohiuddin Ahmad