How can we ensure the debt crisis does not happen again?

 

We agree that this is a vitally important issue, and that lessons must be learnt from the debt crisis with its devastating impact on ordinary people. Current events in East Asia with large scale bail outs of creditors have demonstrated that lessons are still to be learnt. Since Jubilee 2000 was launched, we have been very keen to highlight the causes of the debt crisis in order to both address the current debt crisis and address future crises. We hold to a number of core principles:

Secrecy in lending

Jubilee 2000 believes that the greatest weakness in the international public 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 loans - from the British government, the IMF or the World Bank. It is in the interest of both sets of elites - the creditors and the borrowers - to conduct these negotiations in secret.

The British people for example, do not know that large loans (subsidised by taxpayers) are given to encourage unaccountable leaders in countries like Nigeria or Malaysia to buy arms or other exports 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. Many groups and grassroots movements are already active in fighting against corruption and bad loans in the South. Jubilee 2000 Coalition is currently supporting a Conference in Accra which will launch the Jubilee 2000 Afrika Campaign - bringing together activists from around Africa who are active on these issues.

Creditor's Responsibility

The debt crisis was largely a result of irresponsible lending by powerful creditors who assumed correctly that countries never go bankrupt. In the words of the current Director of the IMF:

"Poor countries have often been misled by advice... from respectable bankers, sometimes more interested in the return of their loans and medium-term prospects than in the level of existing debt."

Jubilee 2000's call for cancellation of unpayable debt is fundamentally linked with a recognition that we share responsibility for the debt crisis. Significant cancellation of debt would finally hold creditors to account and introduce some much needed discipline and accountability into the international lending process.

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. 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. If the new government (the Democratic Republic of the Congo) is unable to repay these 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. We in the West should hold the international financial institutions making those loans (including our own Treasury and Trade Department) accountable.

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 additional resources generated by the cancellation of unpayable debts, should be channelled to programmes, such as these, programmes which are also owned by the developing country government itself.

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 Phillipines, 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.

New conditions for lending

Controls need to be put in place on lending, both by Governments and International Financial Institutions such as the IMF and World Bank, but also the growing volume of lending, which is largely short-term and speculative. Crises in South Korea and Mexico have demonstrated the need for controls on speculators who invest on a short-term basis and withdraw rapidly leaving the country in a state of economic instability. Inevitably, the IMF is then brought in to bail out the private creditors in return for the usual "Structural Adjustment Programmes".

As ever, the poor pay the costs for the mistakes of the rich, while the bankers, in the words of a Republican congressman enjoy the benefit of IMF 'welfare'. Jubilee 2000 Coalition is calling for a prohibition on the use of taxpayers' subsidies for arms exports. The UK Government has taken some steps towards this. We are also encouraging debate on and exploring other controls on lending. One such proposal is the Tobin Tax - a tax on short-term and speculative lending.