There is a growing consensus that the bulk of Africa’s debt is ‘odious’ which is an international term devised by the US when it ‘conquered’ the island to prevent it from liberating itself from Spain
THE Bush administration has, of late, been persuading Iraq’s creditors to forgive its 95 per cent ($195 billion) debt on the grounds that it was obtained by the dictatorial regime of Saddam Hussein for its own purposes, and that the people of that country are not obliged to repay it.
But Washington is not ready to apply this principle in the case of Third World countries, specially Africa whose predicament is much more severe than Iraq’s and where it, along with international financial institutions (IFIs) and private banks, had in the past extended similar loans in large numbers. China is the only country which has cancelled the debts owed to it by 31 African countries. These amounted to $1.27 billion.
There is a growing consensus that the bulk of Africa’s crippling debt is illegitimate and falls within the legal definition of ‘odious’ debt — an international law that was devised by the United States over a hundred years ago when it ‘liberated’ Cuba, meaning when it ‘conquered’ the island to prevent it from liberating itself from Spain in 1898. When the US took over, it cancelled Cuba’s debts to Spain on the grounds that these were invalid since these were imposed on the people of Cuba without their consent after having been contracted under an unequal power relationship. Cuba was a Spanish colony at that time.
This principle was later recognized in the international law, again on an initiative taken by the US. It was in 1927 that Alexander Sack, the world’s pre-eminent legal scholar on public debts, defined the doctrine of odious debts, which remains the ultimate legal source on that subject. This doctrine, though now 78 years old, helps bring clarity to today’s complicated Third World debt situation, and fairness to a tragedy in which innocent citizens pay, and corrupt and negligent borrowers and lenders get away scot free.
He had explained the odious debt in the following words: “If a despotic power incurs a debt not for the needs or in the interest of the State, but to strengthen its despotic regime, to repress the population that fights against it, etc., this debt is odious for the population of the State.”
In that sense, most of Africa’s debt is odious and hence invalid because it was advanced by the West, not with the consent of the people of the borrowing country or in their interest, but to buy the incumbent regimes’ loyalty in the Cold War. Western states, the US in particular, and their banks offered billions of dollars in loans to any country that supported them, no matter how brutal their leaders were or how bad their governments.
In July 2000, the Argentine federal court gave a landmark judgment declaring that a substantial portion of Argentina’s foreign debt is rooted in fraudulent and illegitimate loans amassed during the period the country was under military rule. In his decision, judge Jorge Ballestero held that many loans to Argentina were part of “a damaging economic policy that forced [Argentina] on its knees through various methods ... and which tended to benefit and support private companies — national and foreign — to the detriment of society and state companies.”
The ruling held corrupt civil servants as well as International Financial Institutions, such as the IMF, responsible for the situation. It provided a rare opportunity to Argentinean lawmakers to conduct a formal investigation into the origins of the loans. But the Argentine Congress did not properly pursue the matter because of pressure from foreign creditors. It is interesting to note that all of the new credit the Argentine government got from the IMF, the World Bank and private banks, has been used to repay old debts.
In a study of African debt situation released in 2002, two US scholars, James K. Boyce and Leonce Ndikumana, argued that since a substantial part of foreign loans to Africa intended for domestic investment or consumption were instead “captured by African political elites and channelled abroad in the form of capital flight,” these have become invalid because these have been “transformed into private external assets.”
The West never gave a thought to the borrowing countries’ ability to repay or to what use these loans were being put. For example, the apartheid regime in South Africa continued to receive large loans which it, in fact, used to oppress South Africa’s black majority.
Similarly, former president Mobutu Sese Seko during his 32-year rule over the former Zaire, now Democratic Republic of Congo, took away billions of dollars in borrowed funds, foreign aid and revenues from state-owned mineral companies. The responsibility for the diversion of borrowed funds falls not only on past African governments, but also on their creditors, including private bankers as well as bilateral and multilateral institutions.
Meanwhile, Nigeria has taken an unusual and bold initiative. Its House of Representatives passed a non-binding resolution in March this year, urging the government to halt payments on the country’s $35 billion external debt. The country’s newspapers have backed the government move and urged it to invoke the legal doctrine of odious debts.
That Africa’s debt is odious was officially acknowledged recently by a member of British Prime Minister Tony Blair’s Commission for Africa. In a comment on the release of the Commission’s final report, K.Y. Amoako, the executive secretary of the United Nations Economic Commission for Africa, said Africa has accumulated odious debt as a result of “irresponsible borrowing and irresponsible lending”.
The 48 countries of Sub-Saharan Africa spend approximately $13.5 billion every year in debt repayments. These repayments divert money from allocations for healthcare and education and undermine African governments’ ability to fight Aids and famines.
Africa Action, a leading campaign group, has opposed the existing debt relief framework developed by creditors and designed to serve their interests. It argues that the costs of debt cancellation should be borne by the creditor nations and the IFIs. “We believe that the global North owes Africa a historical debt for centuries of exploiting the continent’s human and natural resources. We therefore pose the question, ‘who really owes whom?’”
In the 1960s and ‘70s, African countries began accepting loans for political and economic stabilization. One reason for easy loans in that period was also massive revenue surpluses of oil money in western banks and many loans were made to simply retain the loyalty of corrupt regimes.
Sub-Saharan Africa’s debt crisis worsened in the 1980s, as the ratios of foreign debt to the continent’s GNP rose from 51 per cent in 1982 to 100 per cent in 1992, and its debt grew to four times its export income in the early 1990s. In 1998, the debt stock was estimated at $236 billion, and that of the whole continent was over $300 billion. Africa’s debt burden is twice that of any other region in the world — it carries 11 per cent of the developing world’s debt, with only five per cent of its income. GNP in Sub-Saharan Africa is $308 per capita, while external debt stands at $365 per capita.
Attempts to address the debt crisis began with debt swaps by creditors and later with the IMF’s Structural Adjustment Programmes, designed to re-structure economies to ensure full payment of the debt stock. From 1989 onwards, a range of measures were undertaken to reschedule and restructure debts through the Paris Club. In 1996, the Heavily Indebted Poor Countries (HIPC) Initiative was launched by the IMF and World Bank to resolve the debt crisis by reducing or cancelling debt in some cases.
The concept of odious debt can become a basis for the cancellation of debts under an international agreement. It has two main aspects: the legitimacy of the borrower’s purpose in seeking the loan and whether the lender was recklessly indifferent to the status of the contracting state. In the case of South Africa, for instance, all apartheid-caused debt should be considered odious because of the nature of the regime. More broadly, it can be said that the debts of developing countries that have arisen as a result of bad lending policies and loan conditions should be declared odious and written off.
Debt repudiation is another option for the countries that do not accept the legitimacy of their past debts. Repudiation means unilateral cessation of debt repayment, but this has certain potential disadvantages, including the possibility of retaliation by commercial banks, creditor governments and multilateral lending institutions. Such a risk can be reduced if the action is taken collectively by a group of debtor nations.
An instance of debt repudiation is that of Peru, where President Garcia declared that Peru was unilaterally limiting its debt payments to 10 per cent of its export earnings — a de facto repudiation. But this move did not work and rather isolated Peru from international financial markets, and eventually leading to an enhanced ($20 billion) foreign debt. In Africa, a collective repudiation may ultimately work well and compel the IFIs to consider liberal cancellation of the debts that are clearly of an illegitimate nature.
Another possible way out is the setting up of an international debtors’ court where debtor governments could present their cases. Jubilee 2000 and other groups have endorsed the idea of arbitration between creditors and debtors by a court. This can work as a mechanism for determining the unpayable debts of a sovereign state, similar to bankruptcy laws for individuals.
In order to expose the illegitimate nature of Africa’s debt, a process of disclosure and classification of all outstanding debts has been proposed by Jubilee South. This can encourage future government accountability and transparency. A thorough information disclosure on existing debts would lead to investigation and classification of these debts in order to establish their legitimacy.
THE Bush administration has, of late, been persuading Iraq’s creditors to forgive its 95 per cent ($195 billion) debt on the grounds that it was obtained by the dictatorial regime of Saddam Hussein for its own purposes, and that the people of that country are not obliged to repay it.
That Africa’s debt is odious was officially acknowledged recently by a member of British Prime Minister Tony Blair’s Commission for Africa. In a comment on the release of the Commission’s final report, K.Y. Amoako, the executive secretary of the United Nations Economic Commission for Africa, said Africa has accumulated odious debt as a result of “irresponsible borrowing and irresponsible lending”.
