Committee for the Abolition of Illegitimate Debt

SOUTH ASIA – the region which is in a state of effective war for most of the last quarter-century has been currently, badly impacted by the global financial crisis. The blows have come at a time when it is already stumbling from the adverse effects of a severe terms-of-trade shock, the food crisis and the rising price of oil. The adverse effects of these terms of trade losses have been substantial, reflected in a slowdown of growth, worsening of macroeconomic balances and huge inflationary pressures (of late the Indian inflation Inflation The cumulated rise of prices as a whole (e.g. a rise in the price of petroleum, eventually leading to a rise in salaries, then to the rise of other prices, etc.). Inflation implies a fall in the value of money since, as time goes by, larger sums are required to purchase particular items. This is the reason why corporate-driven policies seek to keep inflation down. has been under control due to a substantial fall of demand, reduction of global oil prices, etc). It seems likely that the global financial crisis will deteriorate these trends, particularly on the growth and balance of payments Balance of payments A country’s balance of current payments is the result of its commercial transactions (i.e. imported and exported goods and services) and its financial exchanges with foreign countries. The balance of payments is a measure of the financial position of a country vis-à-vis the rest of the world. A country with a surplus in its current payments is a lending country for the rest of the world. On the other hand, if a country’s balance is in the red, that country will have to turn to the international lenders to meet its funding needs. front. Slowdown in global economy will adversely affect South Asian exports and could hurt income from remittances. Between January 2003 and May 2008 South Asia suffered a huge loss of income from a severe terms-of-trade shock owing to the surge in global commodity, food and petroleum prices.

Within South Asia, losses range from 36% of 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. for the tiny Island country of Maldives to 8% for Bangladesh. Much of it was due to high oil prices, where all countries lost. On the food account, Bangladesh lost most, followed by Nepal and Sri Lanka. Even in the absence of reliable data, one can safely assume that Afghanistan – a country ravaged by US imperialist invasion and tattered in the last decade – has been substantially impacted.

There has been a negative impact on the external balances of most South Asian countries. Pakistan suffered the most rapid deterioration of 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. , which turned from a surplus of around 4% of GDP in 2003 to a deficit of over 8% in 2008. Sri Lanka similarly registered a sharp increase in deficit. Even in India, a surplus of more than 2% of GDP in 2004 has changed to a deficit of over 3% in 2008. The balance in Nepal that was in surplus for a fairly long period finally turned into a deficit in 2008. Only Bangladesh continued to enjoy a surplus in its current account balance. Rising food and fuel prices have been a major source of inflationary pressure in South Asian countries and the responses by the governments of the region have been meagre which has been a partial adjustment of domestic fuel prices, reduced development spending and tight monetary policy.

Economic hardship mounted across Pakistan for the whole of 2008. Electricity shortages became so dire that even middle-class families in big cities had to ration supply, with power cuts for 12 of every 24 hours, with one hour on, and one hour off. Food prices soared, making some basics, even flour, unaffordable for the poor. Though, no large-scale riots occurred, but concerns were mounting that such protests are not far off. The new government reduced subsidies on fuel and food, and 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 moved in October to ease an intra-bank liquidity Liquidity The facility with which a financial instrument can be bought or sold without a significant change in price. crisis. In addition, new rules were imposed on the Karachi stock exchange to stop sell-offs. But none of those steps have stanched the crisis in confidence. The central bank’s currency reserves have dipped to $4 billion, enough to cover payments for oil and other imports for about two months. As it became clear that the Chinese were not going to provide a cushion for Pakistan, the rupee slumped to a record low. Pakistan reeling under worst current account deficit accepted 11 tough 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 conditions for a possible bail-out of $ 7.6 billion to overcome the crisis. Last October, the government after being refused by China and another key ally Saudi Arabia was seen knocking the doors of IMF for a possible rescue package. According to Pakistani official sources, accepting a rescue package from the fund would be seen as humiliating for the government. An I.M.F.-backed plan required to cut spending and raise taxes among other measures, which would certainly hurt the poor.

In Bangladesh, the pressures from the global slowdown are building. In particular, demand has weakened sharply in Bangladesh’s major export markets in the European Union and North America, and although remittances remain robust, there has recently been a decline in the number of workers leaving Bangladesh for employment abroad. In February a three-member IMF team met Prime Minister Sheikh Hasina, Finance Minister AMA Muhith, Planning Minister AK Khandker, Adviser for Finance and Planning Mashiur Rahman, Bangladesh Bank Governor Salehuddin Ahmed and other government high-ups. In the guise of offering support to offset any negative impact the country may face due to the global financial crisis it wanted to accelerate the neo-liberal reforms in the country by trapping it in IMF loan. Fortunately, the Bangladesh government has refused the assistance; however, there is no guarantee that in the face of deepening crisis it can bid farewell to IMF for good.

Though in Nepal, the officials and economists appear to be more complacent saying Nepal would not be hit hard as the economy is not directly linked with the global economy, they are not entirely correct. It is heavily dependent on the Indian economy. If something happens to the latter, its immediate fallout would be on Nepal. India has already experienced good impacts of the global crisis; hence, this would extend to Nepal in many ways. Moreover, Nepal is now a remittance dependent economy having more than 1.2 million working abroad. Some countries have either reduced the number of foreigners or completely stopped recruiting foreign workers resulting in the decline for Nepalese workers. Also, certain lay-offs have forced many Nepalese workers to return home from abroad. A high level IMF mission, in November, visited Nepal for two weeks where it met a Nepalese delegation led by finance minister Babu Ram Bhattarai who formally expressed Nepal’s 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. in re-entering the program that ensures IMF’s close surveillance of the country’s financial discipline and supports to maintain financial stability. It is important to note that The IMF had provided an assistance of US$ 73.9 million to Nepal after it qualified for ‘standby credit worth’. The program’s term ended in 2007.

Meanwhile, Sri Lanka is going back on bended knees to the IMF, whom it chased away two years ago, for a bailout package of US$ 1.9 billion, as authorities scrape the barrel for foreign exchange. The value of the country’s imports are now much more than its exports and foreign exchange reserves, which have normally averaged over three months worth of imports. The country face a two-fold crisis: sagging export income and the Central Bank using the few dollars it has to intervene in local money markets to defend the Sri Lankan rupee from depreciating against the US dollar. On the other hand, the government’s access to cheap commercial borrowings from foreign sources to fund the costly war against Tamil rebels has dried up with the global financial meltdown. While the country’s gross official reserves by end December 2008 stood at US$1.7 billion, sufficient just for 1.5 months of imports, compared to more than US$ 3.5 billion in December 2007, the irony is that the government is seeking help from an agency it had virtually thrown out from the island in January 2007. The IMF has made no comment on the talks, but economists expect the international lending body to insist on cuts in government spending, higher 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. and a gradual depreciation of the local currency. Sirimal Abeyratne, a senior economist from Colombo University says that the country is now in sort of a debt trap, borrowing to pay off what it borrowed earlier; which is where part of the 1.9 billion will go.

It was in this backdrop that the campaigners and activists from South Asia met at the 2^nd South Asian workshop on International Financial Institutions (IFIs) and the Debt Crisis at Kathmandu from January 14-15, 2009. This conference had been jointly organized by South Asian Alliance for Poverty Eradication (SAAPE), VAK, NGO Federation of Nepal & CADTM where around 50 participants from various organizations across different countries of the region participated. It also witnessed the presence of leading International debt campaigners Denise Comanne & Eric Toussaint from CADTM, and Lidy Nacpil, from Jubilee -South Asia Pacific Movement on Debt and Development.

The conference opened with a presentation from Dilli Raj Khanal, ex-member of the National Planning Commission of Nepal, on the Nepalese macro-economic situation and the overall economic crisis. He clearly made the interconnection between the two and highlighted Nepal’s vulnerability due to its high dependence on remittances. Eric Toussaint spoke on the on the overall global capitalist crisis pointing out emphatically that the way out from the crisis doesn’t lie either in one or two insignificant macro-level policy changes or on nationalisation of sick institution and defaulters but, a radical change of the socio-economic-political order that is at the root of this crisis. The first day ended with a presentation by B Skanthakumar from Sri Lanka on the country level situation.

The second day was marked by a presentation by Prof. Ram Bapat on the questions of democracy and governance and how the policies and measures of the International Financial Institutions undermines both and also discussions on the concepts of 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. by Lidy Nacpil. The proceedings were interspersed with presentations of the country situations by Abdul Khaliq on IFIs, Pakistan & War on Terrorism, Mohan Tamang on Bhutan political crisis, debt scenario and International Financial Institutions, Rezaul Karim Chowdhury on Bangladesh and IFIs, William Stanely on the question of ecological debt due to industrial and extractive exploitation in Orissa, India & S.M.Prithiviraj on IFI’s role in Tsunami Rehabilitation in Tamil Nadu, India.

The major themes highlighted in the conference were the ADB attempts to privatize the Kathmandu drinking water supply system and the imposition of stringent conditionalities for providing aid. The participants observed that the privatization of state owned enterprises under neo-liberal agenda minimizes the state’s sovereignty and welfare role and strengthen the repressive mechanisms which serve the interests of the multinational companies at the cost of the people.

Various other presentations from Pakistan, Sri Lanka, Bhutan, Bangladesh and India demystified and condemned the roles of IFIs in increasing the burden of debt, privatizing basic services and thus making it out of control of the working poor, clear violations of Human Rights and environmental concerns, etc. It was observed that all this was done in the name of development and progress. It was observed with sadness that no governments in South Asia dared to confront the hegemonies of the IFIs in spite of tremendous mass mobilizations and demands from below. In order to strengthen South-South co-operation the assembly gave a call for the “Bank of the South”.

The future course of action decided to take the issue forward in terms of mass awareness campaigns and mobilizations to force the South Asian governments in the various countries of the region to resist the anti-people policies imposed by the IFIs, to say “no” to the conditionalities imposed by the IFIs and also to get 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.

, Asian Development Bank (ADB) and the International Monetary Fund (IMF) out of the region.