Quarterly Bulletin

In the past decade, there have been various campaigns and advocacy initiatives (on trade justice, debt cancellation, debt repudiation, etc.) in efforts to make poverty history. While these initiatives have recorded some relative successes, it is becoming increasingly clear that any nation that is unable for various reasons to mobilise its resources, especially domestic resources, will find it extremely difficult to escape the clutch of poverty. Muyatwa Sitali, staff of the JCTR, in January participated in the World Social Forum and shares in this article some perspectives that arose from the Forum on the role of World Bank and International Monetary Fund in designing economic pathways of developing countries.

Most African nations, including Zambia, are endowed with vast natural resources like water, land and minerals, just to mention a few. Recently it was announced that there is a presence of oil deposits in the Western Province of Zambia. However, despite owning huge natural resources, African states including Zambia have failed to harness these resources for the benefit of their citizens. Over 60% of the population in Zambia is living in extreme poverty and barely survive on a dollar a day.

An inquiry into the causative factors to this problem will definitely reveal a number of reasons that have worked unilaterally and multilaterally to maintain Africa’s and indeed Zambia’s underdevelopment. The just ended seventh World Social Forum (WSF) -- the first one held in Africa, hosted by Kenya from January 20-25, 2007 -- invested most of its time to identify the underlying causes of the resource rich yet undeveloped countries of the South.

The World’s biggest social “jamboree” discussed and enabled experience sharing and coalition building around many pressing development themes. These included Financing for Development, Debt, Trade, Conflicts and Conflict Resolution, HIV and AIDS, and Millennium Development Goals (MDGs). Attending some of the sessions of this gathering, one had a feeling of the uniqueness of the discussions and the unity they all had despite the diversity of the participants and the topics of discussions. They all seemed to have been trying to find a lasting remedy to the woes of poverty, disease, conflict, ignorance and discrimination.

the Question of Economic Recovery

The question: “What is the way to reduce poverty and injustice in this so-called civilised global village?”was very prominent at the WSF. It was evident that to answer that question, many other questions needed to be answered and this had to take into account contextual differences while identifying the commonality in the consequences and responses.

Key questions that needed answers included: Who is causing poverty? Who brings about inequity and inequality? Who is responsible for the ever-increasing problems of poverty and what should be done to bring about sustainable change?

The responses to these questions were many; however, they all had certain things in common. They all made one to conclude that the disparity in power relations at the local and international levels as exacerbated by an unjust international governance system plays a big role in worsening poverty. Several discussions ended up in debates about the role of the International Finance Institutions (IFIs), especially the World Bank and International Monetary Fund (IMF), in the political and economic governance of poor countries, this greatly agitated many civil society actors.

The IFIs have for a very long time been criticised for imposing economic policy prescriptions that are very detrimental to the larger population, especially women, youth and children.  The criticisms have usually included the role IFIs played in pushing for the Structural Adjustment Programmes (SAPs) that led to massive job losses, revenue losses and de-industrialisation.

Additionally, their role in promoting conditions that called for the removal of poor countries’ support to the agriculture sector while condoning rich countries’ perpetual support in terms of agricultural subsidies to their farmers and subsequent dumping of cheaper imports in most poor countries has come under increasing criticism.

ECONOMIC POLICY CONDITIONALITIES

Discussions on debt and aid made frustrating revelations about the IFIs. The IFIs have come under increasing pressure to desist from designing policy conditionalities, especially on taxes, privatisation and liberalisation. The Norwegian government, for instance, commissioned a study in 2006 in a number of countries including Zambia to determine the World Bank’s and the IMF’s use of conditionality to encourage privatisation and liberalisation.

The stubbornness of the Bank and the Fund in bulldozing development paths led to UK’s Secretary of State for International Development, Hilary Benn, to withhold £50 million in 2006 until the World Bank showed satisfactory progress in ensuring that their conditions are from national strategies and reflect national priorities.

CREDITORS URGED TO LEND RESPONSIBLY

The debate on debt has even deeper concerns on what is called responsible borrowing and responsible lending. This is a concept that seeks to ensure that the borrower abides by the domestic norms, statutes, and economic situation that permit the contraction of a particular loan. At the same time, this will induce the lender to be responsible before lending out their resources.

This will become a major campaign for partners in the North who are concerned about how their tax resources are being utilised. It will include among other things, the lenders’ scrutiny of the country that wants to borrow. The scrutiny would include the governance record and the ability to lend without prejudicial conclusions on this aspect.  Under this concept, creditors who lend and will continue to lend to corrupt and irresponsible regimes risk forfeiting their resources. This is because citizens of different countries have become enlightened about the lack of responsibility on the part of many lenders.

Several discussions on the legitimacy of debt brought into perspective the irresponsibility of some creditors who continued to lend to despotic regimes which borrowed colossal sums to oppress their own people. This is termed “odious debt”. It has continued to haunt most countries like the Democratic Republic of Congo (then Zaire), the Philippines and South Africa (under the sting of apartheid). These countries’ loans grew to unsustainable levels during the leadership of the dictators that borrowed for selfish reasons. The World Bank has recently been protesting that odious regimes should not receive funding from new lenders. These protests are empty when considered alongside the loans that the Bank knowingly made to oppressive and corrupt regimes.

As one senior economist of the New Economics Foundation, Stephen Mandel, says, "The Bank's concerns are real, but it is difficult to see how it and its major-shareholders can express them with any moral conviction when they refuse to acknowledge the mess in their own backyard." For example, in the case of Mobutu Sese Seko, the former president of Zaire (now the Democratic Republic of the Congo), it seems inherently unjust if corrupt and dictatorial regimes could take out loans without the consent of the people, steal the proceeds and leave the citizens to face the consequences without the creditors taking any responsibility.

Debt cancellation campaigners have revealed information on how the IMF ignored a warning from one of its officials who was seconded to work at the Zaire Central Bank. While working there, the official wrote a memo stating how serious a problem of corruption had become that there was "no (repeat no) prospect for Zaire's creditors to get their money back." Nevertheless, Zaire's foreign debt was allowed to balloon from US$4.6 billion to US$12.9 billion, in spite of the memo's warning and in spite of the fact that the country had practically stopped servicing its debts since 1982.

Civil Society has called for the cancellation of debt based on the grounds of the illegitimacy of the debt. However, the IMF and the World Bank have been very mute about this demand. What makes this a saddening situation is that poor people are still required to pay for loans, which did not benefit them but actually led to their oppression.

This is why, Stephen Mandel, author of the study, Odious Lending: Debt Relief as If Morals Mattered, which looked at examples of 13 countries still paying for odious debts that had already been repaid, concludes that “in 10 cases, the impact of odious debt was to render all outstanding debt odious. In effect, these countries are ‘overpaying’ their debt service, often to an enormous extent." Special consideration of this debt cancellation must be for those countries that have been through conflicts. These countries are still facing rising debt arrears and deteriorating relations with creditors.

CSOs INFURIATED TO FURTHER ACTIONS

With all this frustrating information, debt campaigners, Jubilee movements, women and youth groups at the WSF were angered to heighten the call for debt cancellation because most of these debts were illegitimate. The opportunity for this has presented itself in a more vivid way now than before because of the inspiration from the example of Norway which has embraced the concept of illegitimate debt.

The Norwegian Government in 2006 cancelled debts of five countries (Egypt, Ecuador, Jamaica, Peru and Sierra Leone) owing to the fact that its export credits lacked proper scrutiny before lending to the five countries. This made Norway the first creditor country to implicitly acknowledge that some of its debt claims to third world countries are illegitimate. This inspired debt campaigners who are convinced that this is just a tip of an iceberg as an audit of both bilateral (debts owed to individual governments) and multilateral (debts owed to financial institutions like the World Bank, IMF and African Development Bank) debts must be carried out soon.

Debt audits are a necessary step for many countries including those whose debts have already been cancelled. A debt audit for Zambia or indeed any other country will launch an inquiry into the question of debt. It will ultimately clarify the past by untangling the web of debt thread by thread and reconstruct the sequence of events that led to the bad loans and present impasse.

A debt audit will seek to find answers to the following questions: Why was this loan borrowed? What has happened to the money of this loan? Under what conditions was this loan contracted? How much interest has been paid and at what rate? How much of the principle has already been repaid? What path has the capital followed? What purpose has it served? What share has been misappropriated and how?

On the other hand, a debt audit will probe into the responsibilities of the lending institutions by inquiring about who has borrowed and in whose name? Who has loaned and what was their role? How did the State find itself committed, by what decision, taken on what account? How did private debts become “public”? Who embarked on phony projects, who pushed for them, incited them, who profited from them? What crimes have been committed with this money? Why are civil, criminal and administrative liabilities not established?

PARLIAMENTARY OVERSIGHT

For Zambia, the needs for such an audit are urgent and will have lasting impact. Already we know that out of the US$6.6 billion that we owed the international community in 1999, US$5.1 billion (91 per cent) was debt caused by instability in the Southern Africa and thus referred to as “Apartheid Caused Debt.” This debt audit will lead to a clearer picture of the debt question in Zambia and will definitely aid in bringing about legislative and administrative reforms that are necessary to avoid a future debt trap.

The reforms will give power to the Zambian people and not to the International Financial Institutions in determining what level of debt is sustainable for Zambia. They will determine where and how the nation will contract loans. Jubilee-Zambia, hosted by the Debt and Trade Project of the JCTR, has so far made recommendations for the reform of the loan contraction so that Parliament will have powers to assess the needs for any loan and ensure that it is properly managed. This can have a very positive impact on Zambia and lead to sustainable development.

Muyatwa Sitali
JCTR Staff
Lusaka

JUBILEE-ZAMBIA WORLDWIDE CAMPAIGN AGAINST “VULTURE FUND”

Zambia is hit by yet another debt problem, different in nature and characteristics known as the “Vulture fund.” In 2005, Michael Sheehan head of Donegal International Limited froze Zambia’s assets in the British Virgin Islands because Zambia stopped paying Donegal for a debt initially owed to Romania. Zambia was first offered the debt for repurchasing from Romania in 1999 at US$3.5million but 12 days before the expiry of the period offered by Romania, Sheehan bought a debt of US$29.8 million from Romania at US$3.28 million.

Preliminary judgement passed on 15/02/07 lifted the freezing order and made clear that Zambia would not be paying US$55 million, but a reasonable amount between US$15-20 million. Next hearing is scheduled for 21/05/07. We feel debt repayments to Donegal will upset Zambia’s fiscal stability and ability to deliver public services due to loss of million of dollars meant to address pressing developmental problems that require immediate financial resources. Join the Jubilee campaigners in asking Mr. Michael Sheehan of Donegal to return the money to Zambia. For more information visit:
www.jctr.org.zm/jubileezambiavulture; www.jubileedebtcampaign.org.uk/vultures