Committee for the Abolition of Illegitimate Debt

This turns out to be quite a unique international situation: with a lot of liquid assets at hand and very low 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. in their region, Northern financial investors are looking for attractive returns. Senegal, Zambia and Rwanda promise a return of 6-8% against their securities. Therefore, they are attracting financial companies willing to invest their cash temporarily, even at high risks. In 2014 the countries of sub-Saharan Africa managed to sell their public debt securities for $ 7 billion in international financial markets [2]. That’s a record.

The governments of sub-Saharan countries are euphoric and they are trying to convince their people that good days are just around the corner while, in reality, the situation could take a dramatic turn. These governments are quite heavily indebted, and when the situation deteriorates they will ask their people to foot the bill.

A major portion of the taxes is used to service the debt rather than improve the citizens’ living conditions
In any case, it should be noted that today, a major portion of the taxes collected by the government from the people (through VAT and income taxes) is used to service the debt rather than improve the citizens’ living conditions. In most countries, public expenditure to pay off the governments’ debts is more than the budget allocations for health and education, which is a scandal.

Moreover, the debt securities sold by the governments on the international financial markets have certain contractual clauses which could become quite explosive in the future. For example, the number of accelerated payment clauses in the contracts is growing by the day. What does that mean? If a country gets into financial trouble, holders of debt securities may claim an early refund from the authorities. That can only aggravate the country’s situation. Besides, all the contracts see to it that in case of dispute, the competent legal authority to settle disputes is located in countries such the US or the UK and not in the indebted country.

A maximum number of people and organizations must feel the urgency of this state of affairs, so that they resist and force the authorities to publicly disclose the contents of the contracts.

The debt situation deteriorates

Among the sub-Saharan countries that have floated the largest number of debt securities on the international markets, oil-exporting countries (starting with Nigeria) are faced with an almost 50% drop in oil-prices. Now, over 70% of government revenues come from selling oil. This curtails their ability to repay now or in the future. Therefore, lenders (private banks from the North, investment funds Investment fund
Investment funds Private equity investment funds (sometimes called ’mutual funds’ seek to invest in companies according to certain criteria; of which they most often are specialized: capital-risk, capital development funds, leveraged buy-out (LBO), which reflect the different levels of the company’s maturity. , the richest 1% in Africa, etc.) are getting nervous and have started to sell off their holdings in the secondary or over-the-counter debt market. Since they are selling the securities, those who are buying them at a discounted price are doing so with a handsome 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. in mind. With the scarcity of lenders, the governments of these countries have to repay their new loans at higher rates now.

Let us take Nigeria’s case. Its revenue decreased sharply in 2014 due to the drop in oil-prices between June and December. In 2014, the value of the local currency Naira was devalued by 15% against the US dollar. The foreign exchange reserves of 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.

ECB : http://www.bankofengland.co.uk/Pages/home.aspx of Nigeria have also dropped significantly [3]. In December 2014, the Central Bank issued public debt securities maturing 10 years later with 16% returns [4]. It is not difficult to imagine what this means: a portion of Nigeria’s income, which will grow by leaps and bounds, must be devoted to service debts against a backdrop of plunging revenues. As a result austerity measures will get worse.

Angola, another oil-exporting country, is in a similar predicament. Confronted with a budget deficit for the first time since 2009, their government has just announced a significant reduction in the subsidies on fuel prices enjoyed by the population. This will increase the cost of public transport, provisions, etc.

Not only oil-prices dropped in 2014, the prices of silver and copper also fell by 16% and 18% respectively. Cotton prices suffered a heavy drop of 28% over the year [5]. Rubber prices also plunged [6] and iron-ore prices fell by 51%.

To sum up, many of the Sub-Saharan African countries are patting their own back today for their economic performance, but they are least concerned about working towards a sound improvement of their citizens’ living conditions. This somehow recalls the previous major debt crisis which broke out in 1982.

Let us not wait for another outbreak

A citizens’ debt-audit must not be kept at bay till another crisis triggers off. We must start asking urgent critical questions: what happened to the money that landed in the form of various loans? What conditions were laid down when those loans were granted to the governments? How much interest has been paid and at what rate? How much of the principal has been repaid? How could the debt grow massively without the people actually realizing what was happening? How were the loans channeled? What portion was diverted, by whom and how? Who borrowed and in whose name? Who are the creditors and what was the role of each of them? What are the mechanisms behind the various transactions of the State? Who decided to apply for the loans and in what capacity? How could private debts become public, who are the intermediaries and organizations responsible? Who benefited from the bogus projects run with borrowed money? What crimes have been committed with this money? Did the lenders know what would be done with the money? Why not start criminal, civil or administrative proceedings?

Only a small portion of the loans has contributed to the “development” of the countries involved
Overall, an evaluation of the achievements of the Sub-Saharan African countries and the amounts they paid, like other parts of the world, brings us to a remarkable conclusion: only a small portion of the loans has contributed to the “development” of the countries involved. Much of the borrowed money bolstered networks of corruption (in both the global South and the North) through commissions and kickbacks and enriched oligarchs whose flamboyant lifestyle is at odds with the surrounding poverty and misery. This also made the richest 1% even wealthier, who in turn invested their ill-gotten money in tax havens, mostly in Europe. These loans have also financed white elephants, much-hyped but useless and overpriced projects. Apparently this took place via public guarantees Guarantees Acts that provide a creditor with security in complement to the debtor’s commitment. A distinction is made between real guarantees (lien, pledge, mortgage, prior charge) and personal guarantees (surety, aval, letter of intent, independent guarantee). granted to major private companies through devices set up by export credit agencies in creditor countries.

People bore the brunt, and still pay a heavy price while enduring the negative effects of this 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. contracted by submissive states that do not protect, educate and care Care Le concept de « care work » (travail de soin) fait référence à un ensemble de pratiques matérielles et psychologiques destinées à apporter une réponse concrète aux besoins des autres et d’une communauté (dont des écosystèmes). On préfère le concept de care à celui de travail « domestique » ou de « reproduction » car il intègre les dimensions émotionnelles et psychologiques (charge mentale, affection, soutien), et il ne se limite pas aux aspects « privés » et gratuit en englobant également les activités rémunérées nécessaires à la reproduction de la vie humaine. for their people, but deprive them instead of water, electricity, and other basic commodities Commodities The goods exchanged on the commodities market, traditionally raw materials such as metals and fuels, and cereals. .

It is for the sake of these people that the CADTM, and all other associations ready to co-operate, want to make way for citizens’ battles so that we can have a clear picture of the situation: open accounting books for the debt, in other words carry out citizens’ debt audits to identify the illegitimate, illegal and / or odious part that the people must refuse to pay. It is also necessary to identify the perpetrators of fraudulent acts that led to the debt and / or unjust personal enrichment. The culprits must be prosecuted.

Alongside a debt audit, an alternative development model that gives priority to humanity and nature should also be implemented.

Translated by Suchandra De Sarkar in collaboration with Christine Pagnoulle