[DEBATE] : (Fwd) JSouth on debt 'relief' from WB

[Patrick Bond]

Jubilee South

Civil society statement on illegitimate debt,
Debt Relief and Beyond conference, October 2008

Citizens have increasingly lost confidence in financial institutions. The
current crisis shows that finance is working for the few, not the majority.
For many years citizens organisations have been calling for more democratic
controls on finance. These demands include recognising and cancelling
illegitimate debt, as well as instituting responsible principles, and
creating alternative financial structures.

We welcome the fact that the World Bank organised a round table meeting on
illegitimate debt, and published a paper on this issue, but are unsatisfied
with the results so far. The World Bank’s main arguments are:

a) it is impossible to operationalise the concept of illegitimate debt;

b) we need to look to the future rather than the past;

c) Existing initiatives (Debt Sustainability Framework, Stolen Assets
Recovery Initiative, Independent Evaluation Group) already deal with the
issue;

d) Recognition of illegitimacy will increase borrowing costs and disrupt
the smooth working of the financial system.

We respond:

a) It may be complicated but needs to be and can be addressed. It used
to be said that multilateral debt could not be tackled, then it was when
political will was generated. Norway has also shown what can be done.

b) We need to do both – address the problems caused by past
illegitimate debts and prevent the creation of new illegitimate debts. It is
politically untenable to only improve going forward, while allowing previous
acts to go unpunished.

c) Existing initiatives are not sufficiently comprehensive or
independent of the creditors. They do not deal with the root of the debt
problem – the issue of ilegitimacy.

d) Clearing up past problems with past loans may make borrowing easier
and improve the quality of lending. Financing needs to be evaluated not just
on a financial basis but on whether it improves social, environmental
outcomes.

Many acts and contracts have violated basic social, ethical, political,
economic, and environmental values, standards and principles. Such
violations harm the wellbeing of those in whose names the debts were
incurred. As such it is unjust that they continue to pay, and to suffer. The
existence of illegitimate debt serves as evidence of the failure and unjust
nature of the current financial system, a reality that the current crisis
makes even more evident. The difficulties of operationalizing a complex but
valid concept should be seen as a challenge to be overcome and not an excuse
to back away.

Illegitimacy cannot be reduced to legality, it is an ethical and political
concept. Laws are sometimes inadequate, often unjust. Nevertheless, legal
backing and instruments do exist to support actions for debt repudiation
and/or cancellation on the ground of their being odious and illegitimate.

At the April 2008 Round Table, we asked the Bank to report back on the
progress made in identifying and dealing with illegitimate debt, especially
on:

* Tabling discussions on illegitimate debt by Bank management and
Board;
* Increasing analysis and debate on the conditionalities attached to
loans and to the processes of debt reduction, relief and cancellation;
* Identifying clear mechanisms to address concerns on specific
projects and policy loans as part of a pilot audit process, and providing
full cooperation with external audits, including by providing full
documentation.

We are still waititng for a proper response. This conference is an
opportunity to hear from the \World Bank on this.

Main demands

Political and academic interest has been growing in a broader conception of
debt that includes illegitimacy. The justification for cancelling Iraq’s
debt partly rested on odiousness of the Iraqi government. Norway
unilaterally has cancelled several debt claims on the grounds that the
credits represented “failed development policy”. The principle of
co-responsibility between lenders and borrowers was affirmed in the
Monterrey Consensus on Financing for Development. The European Parliament
recently passed a motion calling for the issue of “of 'odious' or
illegitimate debts, meaning debts having arisen from irresponsible,
self-interested, reckless or unfair lending” to be addressed. Church leaders
have spoken out on the issue, and a Paris Club discussion is scheduled on
the topic. Further political dialogue on the issue is needed at the UN,
World Bank, and other fora. The World Bank’s sustainability and safeguards
frameworks do not go nearly far enough.

1. DELINK DEBT CANCELLATION FROM CONDITIONALITIES

Access to credit should no longer be used as leverage to compel borrowing
governments to implement policy conditions of lenders. Policy
conditionalities that accompany debt relief and debt cancellation programs
such HIPC have had negative effects which sometimes negate the positive
outcomes of debt cancellation. For instance, recent studies show that IMF
conditions for tight monetary policies have reduced allocation of funds for
spending on social services.

2. EXPAND and DEEPEN DEBT CANCELLATION

While some debts have been cancelled under HIPC, MDRI and other initiatives
many countries are still suffering from the huge burden of debts and are
losing much needed resources to debt service. The combined implications of
the food, climate, energy and financial crises further magnify the impacts
of the debt. Debt cancellation must be based not only on sustainability but
also on whether debt is legitimate.

3. REDEFINE THE DEBT SUSTAINABILITY FRAMEWORK

There is a need to review and redefine the Debt Sustainability Framework
that should involve not only national governments but also civil society.
It must be a framework that gives centrality to human development goals and
human rights, which includes gender equality and women’s empowerment.

4. INITIATE COMPREHENSIVE DEBT AUDITS

We also urge international agencies to support comprehensive country debt
audits to uncover the nature of the debts, their impact and any remedies
required. Audits can also address the structural and policy flaws that have
led to the accumulation of unsustainable and illegitimate debt. The
government of Ecuador, for example, has tightened its constitution to
prevent taking on loans that do not benefit the population.

5. DEVELOP A PLATFORM FOR PRINCIPLED and RESPONSIBLE FINANCING

The international community calls for more “responsible lending” at G-8
summits, in the G-20, at the Organization for Economic Co-operation and
Development (OECD), and the United Nations General Assembly need to be
followed by concrete proposals and changes in institutional practices.

6. INSTITUTE IMPARTIAL and TRANSPARENT DEBT DISPUTE WORK OUT PROCESSES

Existing arenas for addressing debt disputes are dominated by lenders, where
they serve as both interested parties and judges. Given the
co-responsibility of lenders and the effects of the financial crisis that is
hitting developing countries through no fault of their own a new arbitration
forum must be created where parties may agree to take debt disputes, are
given equal treatment and judgements are based on impartial evaluation of
evidence.