The CADTM delegation to UNDP for a consultation on debt.

23 June 2008 by Myriam Bourgy


The major highlights of the year 2008 for the developmental world is two international conferences, the first at Accra, next September on aid effectiveness and the second at Doha at the end of November on financing development. The first conference aims to evaluate the Monterrey process (adopted in March 2002) and to redefine the new modalities in order to achieve the objectives of the Millennium Development Goals. Chapter V of the Monterrey consensus is devoted to external debt. It is in this framework that CADTM was invited to participate at a consultation on debt organised by UNDP UNDP
United Nations Development Programme
The UNDP, founded in 1965 and based in New York, is the UN’s main agency of technical assistance. It helps the DC, without any political restrictions, to set up basic administrative and technical services, trains managerial staff, tries to respond to some of the essential needs of populations, takes the initiative in regional co-operation programmes and co-ordinates, theoretically at least, the local activities of all the UN operations. The UNDP generally relies on Western expertise and techniques, but a third of its contingent of experts come from the Third World. The UNDP publishes an annual Human Development Report which, among other things, classifies countries by their Human Development Rating (HDR).

on 29th and 30th of May. The main organisations and networks working on this issue were invited to contribute to the theme “Avoiding the 2015 debt crisis”. Six persons were present From CADTM: Victor Nzuzi (Democratic Republic du Congo), Aminata Tourre Barry (Mali), Mimoun Rahmani (Morocco), Fathi Chamkhi (Tunisia), Sushovan Dhar (India) and Myriam Bourgy (Belgium).

The discussion was around four principal issues: Debt sustainability in post-MDRI countries, Public debt in MICs and emerging market economies, Odious and illegitimate debt & Proposals for transparent institutional structures to prevent and resolve future debt crises, based on co-responsibility.

Debt sustainability in post-MDRI countries

The first session of the conference was devoted to debt sustainability. The speakers were Sitali Muytwa from Jubilee Zambia, Patricia Miranda from Jubilee Bolivia and Dusan Zivkovic from UNCTAD UNCTAD
United Nations Conference on Trade and Development
This was established in 1964, after pressure from the developing countries, to offset the GATT effects.

. It must be noted that the task of moderation of the session was given to a 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.

representative who highlighted that the HIPC Heavily Indebted Poor Countries
HIPC
In 1996 the IMF and the World Bank launched an initiative aimed at reducing the debt burden for some 41 heavily indebted poor countries (HIPC), whose total debts amount to about 10% of the Third World Debt. The list includes 33 countries in Sub-Saharan Africa.

The idea at the back of the initiative is as follows: a country on the HIPC list can start an SAP programme of twice three years. At the end of the first stage (first three years) IMF experts assess the ’sustainability’ of the country’s debt (from medium term projections of the country’s balance of payments and of the net present value (NPV) of debt to exports ratio.
If the country’s debt is considered “unsustainable”, it is eligible for a second stage of reforms at the end of which its debt is made ’sustainable’ (that it it is given the financial means necessary to pay back the amounts due). Three years after the beginning of the initiative, only four countries had been deemed eligible for a very slight debt relief (Uganda, Bolivia, Burkina Faso, and Mozambique). Confronted with such poor results and with the Jubilee 2000 campaign (which brought in a petition with over 17 million signatures to the G7 meeting in Cologne in June 1999), the G7 (group of 7 most industrialised countries) and international financial institutions launched an enhanced initiative: “sustainability” criteria have been revised (for instance the value of the debt must only amount to 150% of export revenues instead of 200-250% as was the case before), the second stage in the reforms is not fixed any more: an assiduous pupil can anticipate and be granted debt relief earlier, and thirdly some interim relief can be granted after the first three years of reform.

Simultaneously the IMF and the World Bank change their vocabulary : their loans, which so far had been called, “enhanced structural adjustment facilities” (ESAF), are now called “Growth and Poverty Reduction Facilities” (GPRF) while “Structural Adjustment Policies” are now called “Poverty Reduction Strategy Paper”. This paper is drafted by the country requesting assistance with the help of the IMF and the World Bank and the participation of representatives from the civil society.
This enhanced initiative has been largely publicised: the international media announced a 90%, even a 100% cancellation after the Euro-African summit in Cairo (April 2000). Yet on closer examination the HIPC initiative turns out to be yet another delusive manoeuvre which suggests but in no way implements a cancellation of the debt.

List of the 42 Heavily Indebted Poor Countries: Angola, Benin, Bolivia, Burkina Faso, Burundi, Cameroon, Central African Republic, Chad, Comoro Islands, Congo, Ivory Coast, Democratic Republic of Congo, Ethiopia, Gambia, Ghana, Guinea, Guinea-Bissau, Guyana, Honduras, Kenya, Laos, Liberia, Madagascar, Malawi, Mali, Mauritania, Mozambique, Myanmar, Nicaragua, Niger, Rwanda, Sao Tome and Principe, Senegal, Sierra Leone, Somalia, Sudan, Tanzania, Togo, Uganda, Vietnam, Zambia.
initiative and MDRI were positive. The first two speakers presented the balance Balance End of year statement of a company’s assets (what the company possesses) and liabilities (what it owes). In other words, the assets provide information about how the funds collected by the company have been used; and the liabilities, about the origins of those funds. -sheet and the impacts of HIPC initiative and MDRI in Bolivia and Zambia. They showed a relative decline of the debt service Debt service The sum of the interests and the amortization of the capital borrowed. and the debt stock Debt stock The total amount of debt However, the debt problem weighs heavily and has not been tackled in the desired manner as was hoped when these initiatives were put in place. Considering its proximity with the positions of developing countries, the presentation of the UNCTAD representative was deceiving. He greeted the two debt relief initiatives, the increasing importance of the role of the private funds and judged everything from the point of view of economic growth. Victor Nzuzi (NAD-RDC) intervened in the discussions and raised questions about the non-inclusion of illegitimate debt in the HIPC initiative and the failure of the initiative. Moreover, we cannot accept the term “debt sustainability” since the very term signifies that the countries should reimburse the maximum to their ability and above all create conditions to avoid any new debt crisis because that can endanger creditors and the overall capitalist economic system. It is really difficult to speak about debt sustainability when the debt itself is an encumbrance and impedes the access to fundamental needs for a large section of the population. The viability of debt can only be gauged in comparison to human rights. Aminata Barry (CAD-Mali) intervened on the question of democracy and the participation of the civil society organisations in the initiatives. In fact, the organisations consulted were often those that defended governmental positions. Myriam Bourgy intervened on the necessity of taking into account the indebtedness of private enterprises while measuring the debt-burden of countries. Indeed, a heavy debt-burden of the private banks can in future convert itself public debts as it happened during a number of economic crisis between 1990 and 2000. The entire session took note of the importance of the internal debt as a salient debt burden of developing countries. The question of aid was also discussed but the issue of South financing the North was never dealt with. The stakes are therefore to wipe out the funds that rest within the developing countries (control on 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. repatriation which has multiplied 4.5 times between 2000 and 2006, exploitation of natural resources that genuinely benefit the countries...). The issue of vulture funds Vulture funds
Vulture fund
Investment funds who buy, on the secondary markets and at a significant discount, bonds once emitted by countries that are having repayment difficulties, from investors who prefer to cut their losses and take what price they can get in order to unload the risk from their books. The Vulture Funds then pursue the issuing country for the full amount of the debt they have purchased, not hesitating to seek decisions before, usually, British or US courts where the law is favourable to creditors.
were touched and there was a consensus to fight vulture funds. However, that can take place by the Northern countries adopting laws in their parliament (as has been done by Belgium) as in the South, but also by a strong global struggle against the tax havens that house the vulture funds.

In the end, in response to UNCTAD; the private funds or the foundations like the ones run by Bill and Melinda Gates do not take into account the fundamental causes of the problems. The question of mosquito nets is a good instance of resolving the problem by “first-aid” without touching the “cause” of the disease (which necessitates an amelioration of the sanitary conditions for the population, research of vaccines...); it’s therefore crucial to look into the quality of aid without overlooking the fact that the private funds are linked to private economic interests which are as diverse as the actors involved in it.

Public debt in MICs and emerging market economies

Karina Saenz of CAIC, Ecuador, Kim-Marie Spence of CAPRI, Jamaica and Oscar Ugarteche deliberated on the new regional financial architecture. The presentation of Oscar Ugarteche was based on the formation of regional blocs that would create new institutions and new currencies. He projected the European Union model which for us is deplorable. The liberal EU that lacks social and democratic right is never an example worthy of projection. Sushovan Dhar (India) intervened by raising the question of the viability of such an architecture without a political change. Oscar replied that a world revolution is not necessary as the World Bank and the 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.

http://imf.org
have lost their weight. The IMF has already sold a part of their gold. Victor intervened on the regional currency and voiced opinions about de-linking the currency from political domination since it is normally indexed to another currency as is the case of CFA Franc.

Mimoun (Morocco) spoke on the importance of internal debt in MICs since there is a real transfer of external debt to the internal. The MICs have not benefited from HIPC; meanwhile, an active debt management have been applied to them. The same has been also applied to Morocco with conditionalities outside the HIPC initiative and MDRI.

Odious and illegitimate debt

The debate on 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.
was actively taken up. The World Bank and UNCTAD presented reports on this issue. A number of international conferences were held on this issue – as the one organised by Aktionfinanzplatz at Berne, Switzerland - where a number of academicians and also the organisations were present. In this session, Lidy Nacpil (Jubilee South) presented on the illegitimate debt. Sabine Michalowski from the University of Essex presented the contemporary debate on odious debt. According to her, there is a consensus among juridical academicians that the doctrine of odious debt is not recognised as a legal doctrine and that the doctrine should be applicable in public law. One of the possibilities to cancel the debt is to look at it from the point of view of jus cogens and whether the lending violate the advanced norms of international law or not. Jostein Hole Kobbeltvedt from the Norwegian church spoke about the Norwegian decision of debt cancellation, which was on the grounds of illegitimacy and co-responsibility. It is important to note that Norway took this decision outside the framework of the Paris Club Paris Club This group of lender States was founded in 1956 and specializes in dealing with non-payment by developing countries.

and the other members of the Club wanted to bring sanctions against Norway for the breach of ‘solidarity’ within the members of the Club, it is shameful that the Club harbours such notions of solidarity. The Norwegian debt cancellation has more figurative impacts than the economic gains derived from the action.

Victor intervened to highlight the role of intellectuals in providing the poor, arsenals for struggle! The inclusion or the non-inclusion of odious debt hardly matters. There are pertinent criteria already enunciated which can be sufficiently applied and the people of the South can relate to that to repudiate the debt. Fathi Chamki (Tunisia) illustrated the concrete example of Tunisia where the contracted debt can be considered odious enough. Aminata Barry insisted on the debt audit to determine the illegitimacy and odiousness of debts.

Proposals for transparent institutional structures to prevent and resolve future debt crises, based on co-responsibility

Kunibert Raffer from University of Vienna as well as Jürgen Kaiser presented the international arbitration tribunal project based on the principles of law, impartiality and responsibility. On behalf of CADTM Sushovan précised that the arbitration tribunal is not the best of the solutions and as a matter of fact, the balances of forces and power should be taken into account. There is little doubt that the system favours the creditors. Vitalis Meja from Afrodad and Njoki Njehu intervened as speakers. The last speaker insisted on the debt audit and specifically the citizens’ audit of debt. The populace should be able to control the indebtedness of the state. The audit is without doubt is a mechanism to determine the responsibilities and to define which debts are illegitimate and odious. This could also force the creditors and the developing countries’ governments to take responsibilities. Victor intervened to remind the necessity of carrying out debt audits and campaign strategies across the countries taking inspiration from the Norwegian and Ecuadorian initiatives.




Other articles in English by Myriam Bourgy (4)

CADTM

COMMITTEE FOR THE ABOLITION OF ILLEGITIMATE DEBT

8 rue Jonfosse
4000 - Liège- Belgique

00324 60 97 96 80
info@cadtm.org

cadtm.org