Kenya Should Ignore IMF Reform Package and Stop Repaying Debts

19 August 2018 by David Calleb Otieno

A young boy sits over an open sewer in the Kibera slum, Nairobi

The Kenyan Peasants League (KPL), a member of the La Via Campesina (LVC) is concerned about the reform package being pushed down the throat of Kenyan government by the International Monetary Fund (IMF) that is already having adverse impacts on Kenyan citizens who are expected to pay more for basic services.

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.
has been peddling a reform package which include repealing the 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. rate cap law to remove the power of capping 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.
from 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 the market, reducing public spending, slapping a 16% Value Added Tax (VAT) on petroleum products as stipulated in the VAT Act 2013 and freezing all government projects as preconditions for Kenya to continue accessing credit claiming that such reforms were essential in reducing the budget deficit and to control the increasing Kenyan debt that is becoming unsustainable.

Early this year, the IMF announced that it had in mid-2017, suspended Kenya’s access to foreign exchange insurance to stabilize the Kenyan Shilling due to the failure of Kenya to reduce the budget deficit however in March, the IMF accepted to extend forex insurance for a further six months after Kenya agreed to repeal the interest rate cap law.

For the past two weeks, the IMF team has been in Kenya to review the progress of implementation of the reform package ahead of the September 2018 expiry of the extension to establish whether Kenya was on course with the implementation of the IMF reforms. In 2013, Kenya enacted the VAT Act 2013 that for the first time in the history of Kenya introduced a 16% VAT on petroleum product. While signing the VAT Act 2013 into law, the government announced a three years grace period referring the implementation of the 16% VAT on petroleum products to 2016 but further extended the implementation to September 2018. IMF now wants this to be implemented in full among other provisions in the reform package for Kenya to continue accessing credit.

With a freeze on government spending on development projects already in place affecting government ability to provide basic services like water, healthcare, education, affordable food and social security, a further imposition of the 16% VAT on petroleum products will affect the ordinary citizens as it will mean an increase in prices of basic commodities Commodities The goods exchanged on the commodities market, traditionally raw materials such as metals and fuels, and cereals. whose production is depended on petroleum products effectively making ordinary Kenyans to spend more to access basic commodities thereby affecting their human rights and going against the article 43 of the Constitution of Kenya 2010 that obligates the government to provide every Kenyan with quality education, healthcare, clean water, affordable food and social security.

The KPL believes that IMF is pushing the reforms package as part of the global financial systems, financialization strategy, whose intention is to benefit Kenyan creditors to continue earning from Kenya’s servicing of the debts at the expense of the well being of Kenyan people. It is aimed at making the Kenyan creditors earn more 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. and to grow and increase in size and influence over the Kenyan people and institutions regardless of the adverse human rights abuses that such mechanisms will do to the Kenyan citizens.

Fully aware that the Kenyan Debt to 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.
ratio now stands at almost 60% of the GDP and that Kenyan government cannot service the debts without affecting her ability to fulfill her constitutional obligations to provide basic services to Kenyans, the IMF prescriptions to Kenya are aimed at maintaining the servicing of debts to benefit the Kenyan creditors but at the same time make the Kenyan government bridge the deficit created debt servicing of increasing unsustainable Kenyan debt by increasing taxes and interest rates.

The Kenyan government must suspend the repayment of debts until such a time that is morally, humanly and culturally agreeable, through the participation of the Kenyan people. Kenya should also ignore the IMF reforms package and stop repaying the illegal, illegitimate, odious and unsustainable debts that is owed to shadowy creditors and that were incurred under conditions that violated established Kenyan legal and constitutional procedures in the Public Finance Management Act and article 201 of the Constitution of Kenya 2010, that included policy prescriptions violating Kenyan laws and human rights standards, that are unacceptable and the that lenders issued with an intention of denying the Kenyan people their fundamental civil, political, social and cultural rights and that cannot be serviced without affecting the ability or capacity of the Kenyan government to fulfill its basic human rights obligations, such as those relating to healthcare, education, water and sanitation and adequate housing.

KPL is instead asking the Kenyan government to focus on adopting sustainable means of food production that promotes climate justice and are not fossil fuel intensive and is driven by provision of livelihoods to the millions of Kenyans that are on risk of being driven to poverty by market driven IMF prescriptions.

Kenyan needs to adopt agro-ecology which is a way of life and food production that treats the Earth with respect and care, not as a resource but understands that there is an intimate relationship between humans and their ecology that cannot be reduced to a single value in monetary terms.

KPL is calling upon Kenyans to rise up against the global debt system that is a neo-colonial tool used by the global financial systems to undermine the sovereignty of Kenya as a nation, grab our resources, control our food production system and should demand that the Kenyan Government repudiate the illegal, illegitimate and 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.
owed to shadowy creditors and have become unsustainable.

David Calleb Otieno

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

Other articles in English by David Calleb Otieno (7)



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