Isn't debt just the fault of corrupt elites?

 

We agree that this is a vitally important issue, and that any debt relief remitted for the poorest countries should be diverted towards the poor in that country and not to powerful local elites.

However we do not believe that control or oversight of those corrupt elites can take place here in the North, but that accountability of these elites should be to their own people. Such accountability can best be achieved through transparency - openness in government - and democracy.

Secrecy in lending

Jubilee 2000 believes that the greatest weakness in the international lending system is that it invariably takes place in secret. Ordinary people in the poorest countries do not know that their local elites are agreeing to take on very large public loans - from the British government, the IMF or the World Bank. Because these are sovereign, government loans, the burden of repayment invariably falls on the people as a whole, and not on elites. It is in the interest of both sets of elites - the creditors and the borrowers - to conduct loan negotiations in secret. The British people for example, do not know that large loans (subsidised by taxpayers) are guaranteed by the British government, and given to unaccountable leaders in countries like Nigeria or Malaysia to encourage them to buy arms from British companies. Nor are the ordinary people of Nigeria or Malaysia told that their government is undertaking these obligations.

Jubilee 2000 believes that in these situations it is for the powerful creditors to take the lead. No loans backed by taxpayers money (and this includes British government loans, IMF and World Bank loans) should be given to a foreign government in secret. The obligation should rest on the creditor to ensure that the agreement to accept such large loans is made public. In fact, transparency about the loan to a sovereign government should be a condition of granting a loan. Similarly, transparency, publicity and openness should be a condition for providing debt relief.

Diverting debt relief to the poor

We believe that every effort should be made to ensure that debt relief is diverted directly to the poor. This is difficult to achieve from the North, and it is difficult to achieve without dictating to developing countries how they should allocate resources. However we in Jubilee 2000 work closely with UNICEF, who run programmes alongside governments in developing countries, for the benefit of women and children. We believe that money saved from the cancellation of debts should be channelled to programmes such as these, programmes which are also owned by the developing country government itself.

Tackle the causes

Finally, we in the Jubilee 2000 Coalition believe it is essential to understand the causes of corruption if we are to tackle the debt crisis and prevent its recurrence. A number of points are worth making here:

1. Creditor's responsibility

The power of corrupt elites in the poorest developing countries is a power that rests largely on the largesse of rich outsiders, particularly those making loans available to developing country elites. Just as Transparency International campaigns for Western companies to be punished by their home legislatures for bribing officials in developing countries, so we in Jubilee 2000 argue that we in the West must put our own house in order before we can put the house of each indebted developing nation in order. A great deal of corruption takes place at the level of negotiating large loans - particularly for big infrastructure projects in developing countries. It is almost natural for the US, UK, Germany or French company bidding to build the project to attempt to bribe local elites agreeing to take the loan on behalf of their governments. And because some of these elites are so poor relative to creditors, they are very easy to buy off. Such corruption by Northern companies should be punished in Northern courts.

2. Corrupt lending

An example of how powerful financial institutions helped generate high levels of debt is that of the loans given by Western bankers and governments to ex-President Mobutu of Zaire. He died recently leaving the now Democratic Republic of Congo with a debt of $13 billion, after huge sums had been salted away in Swiss banks. The tendency of the Press is to highlight this as another example of African corruption.

However the Financial Times revealed on 12 May 1997 that Zaire's case highlights a situation of corrupt lending. $8.5 billion was secretly lent to Mobutu during the 1980's by Western Governments and International Institutions such as the IMF and World Bank for strategic political reasons and for business opportunities This was despite the fact that their own investigative reports revealed that the loans were being corruptly diverted. Yet Mobutu's creditors have not been penalised for their unwise lending. In fact they may well be rewarded for these misguided policies. Now that the new government (the Democratic Republic of the Congo) is unable to repay old debts, the international financial institutions can come forward with the offer of new loans to pay off old loans. In this way they are likely to exacerbate Zaire's level of indebtedness - while at the same time gaining a second income stream from poor economic decision-making.

Secret and often compulsive lending to dictators and other leaders that are not accountable to their people encourages corruption. We in the West should hold the international financial institutions making those loans (including our own Treasury and Trade Department) accountable.

Paying back the debt has fostered corruption and repression. When a country falls into a high level of indebtedness, it is forced to turn to the IMF for new loans. The IMF acts as an unofficial "Receiver" or "liquidator" to the debtor country. As a condition of bailing the debtor out with new loans the IMF imposes conditions. These conditions are known as Structural Adjustment Programmes - a menu of economic policies devised by the IMF. By taking over, or guiding, economic decision-making in poor countries, the IMF in effect undermines the accountability of local elites, and by so doing undermines nascent democracy in these countries.

The IMF's prescription is based on the notion of "one size fits all" and invariably does not take account of local circumstances. The menu includes policies to increase exports (to raise US dollars to pay off debts), to privatise local assets and cut spending - to raise further revenue to repay debts. As a result there are cuts in education, health, sanitation and clean water as funds are diverted to service debts.

It is hardly surprising that public officials (whose wages have been cut in accordance with these cuts) have turned to bribes in order to survive. In Zambia in April 1997, the cost per month for basic food for a family was three times the salary of a primary school teacher.

The daily struggle against corruption in the South

Popular protest against the Government for the pernicious impact of debt has frequently resulted in violent repression, often using military equipment supplied with loans by Western Governments. Even Governments voted in with popular support have often become increasingly repressive as they struggle to please the IMF by implementing SAP's, and thereby fail to meet the needs of their people. And despite all this suffering, SAP's have neither succeeded in promoting development or reduced the countries' debts.

Need for a new process

Debt cancellation is a crucial first step: it clears the burden of past mistakes and reminds creditors that there are consequences for poor economic decision-making. We argue that the international financial system favours creditors and penalises debtors. In particular, the absence of an international bankruptcy law, and the obligation on sovereign governments to always repay the debts of their predecessors means that creditors need not fear losses - even when these debts (as in the case of Marcos of the Philippines, or South Africa's Apartheid debts) may have been odious. Furthermore, the absence of an international bankruptcy law means that a line can never be drawn under debts, and the state of deep indebtedness brought to an end. This is in stark contrast to domestic bankruptcy law, which seeks to write off unpayable debts, free the debtor from his/her liabilities, and enable him/her to make a fresh start

No loans for arms exports

In terms of future lending, the Jubilee 2000 Coalition would like to see a prohibition on the use of taxpayers' subsidies for arms exports.

Need for a new mindset

It is also a question of the "mind-set" of British people - towards the poor of Africa. It is salutary to look at Europe's experience of debt in this century. Following the first world war, there was strong resistance to granting debt relief to Germany - despite warnings from individuals such as John Maynard Keynes who argued that, without debt relief, Germany would never be able to recover stability - economic or social. He was proved right - with disastrous consequences.

After the Second World War, in 1953, Allied leaders, fearing another rise in fascism and the spread of communism amongst an economically degraded and demoralised German people, granted Germany massive debt relief. The London Accord of 1953 was a remarkable agreement. It was overseen by an independent arbitrator - unlike today's debt negotiations which are dominated by creditors. Germany was given generous relief which required her to spend no more than 5% of her export revenues on servicing debts.

Today Western creditors, led by the IMF and including Germany, expect Africa (which has never taken up arms against us, destroyed our livelihoods and killed millions of our people) to do without debt relief, after decades of a great economic depression on that continent. Where some relief is granted, rich country creditors require poor countries to divert at least 20% of their export revenues to servicing debts. We in the Jubilee 2000 Coalition believe that what was good for post-conflict Germany is good for the many post-conflict states in Africa today.

Of course there are corrupt leaders in Africa today, just as there were potential militarists and fascists in Germany in the 1930's. But they will only thrive in areas of social and economic degradation. If the British people had followed Keynes' wise advice - they could have saved themselves a world war. The wisdom of the Jubilee 2000 proposal will be ignored at the peril of both ordinary British people and rich Western governments and institutional creditors.