Unpayable, illegitimate, odious and immoral debt

When the Jubilee 2000 petition first emerged in Great Britain, it called for the cancellation of 'unpayable' debt. The notion seemed quite straightforward: bring the debt down to a 'sustainable' level. As it turned out, the Jubilee campaigns in different countries interpreted the word 'unpayable' in different ways.

IN Canada, we took the term 'unpayable' to mean all of the debt of the 50-plus poorest countries and a portion of the debt of the middle-income countries. We said that for indebted poor countries no level of debt was sustainable, and that in the spirit of Jubilee, all of their debts should be cancelled to achieve a genuine fresh start. Other Northern campaigns took different perspectives reflecting positions which took into account historical precedents and/or human development indicators.

As the campaign grew into an international movement, diverse contexts and experiences, particularly from Southern campaigns, led to an evolving understanding of the debt cancellation call. At the first international meeting of the Jubilee movement in Rome in November 1998, participants struggled with the word 'unpayable', seeking interpretations that reflected this diversity. 'The Jubilee Call for Debt Cancellation' issued in Rome linked four kinds of debt to this now malleable word:

* debt which could not be serviced without placing a burden on impoverished people

* debt that in real terms has already been paid

* debt for improperly designed projects and programmes

* odious debt and debt incurred by repressive regimes.

Voices from Southern campaigns insist that we go beyond setting a 'sustainable' level of debt, to seeking debt cancellation in the name of justice, reparation and redistribution. Rev. Molefe Tsele, Chair of the South African Campaign, explains that debts have been '...a political tool that is used to subjugate and inflict suffering, at times with more severity than outright war on the people ... Loans are extended under conditions that make recipients losers from the start.' Given that context, to cancel debt outright is a moral imperative.

Since Rome, declarations have been made by Jubilee coalitions in Southern Africa, Latin America and the Caribbean, and the Philippine/Asia region. Each of these declarations employs words which speak more clearly of the destructive legacy of the debt crisis - a crisis not just fiscal, but also social, ecological, moral and ethical in dimension. According to 'Jubilee South', the real debt that must be paid is the debt we owe to those who live in dire poverty after centuries of exploitation. The call of the international movement for debt cancellation must be not only a call to repair only the fiscal crisis, but also a call to remedy injustice - that is, a true call for Jubilee.

Illegitimate debt

In January 1999, the Tegucigalpa Declaration launched the platform of the Jubilee 2000 movement of Latin America and the Caribbean. In this declaration, the words 'illegitimate' and 'immoral' describe the foreign debt that must be annulled in the year 2000 to remedy injustice. Tegucigalpa viewed as illegimate debt that swelled as 'a result of interest rates and negotiating conditions imposed by creditor governments and banks.' This imposition resulted from debtor countries negotiating alone while creditor countries acted as a bloc. By this definition the majority of the debt of the South is 'illegitimate'.

In addition, the Tegucigalpa Declaration uses the word 'illegitimate' to describe debt 'contracted by dictatorships ... as well as by governments which were formally democratic, but corrupt' Ñ debt used against the interests of the people who are now required to pay it back.

Odious debt

The March 1999 Gauteng Declaration of Southern Africa cites apartheid-caused debt as an example of this kind of illegitimacy. This description of illegitimacy is closely related to the international legal concept of 'odious debt'. The Doctrine of Odious Debt, recognised in international law, says that debt incurred by dictatorships for their own benefit or for the purposes of enforcing the dictatorship is odious, and therefore not the responsibility of the democratic governments that replace them.

The concept of odious debt was first invoked by the United States in 1889 after it captured Cuba from Spain in the Spanish-American war. Spain demanded that the US pay Cuba's debts but the US refused on the grounds that the debt had been 'imposed upon the people of Cuba without their consent and by force of arms' (Joseph Hanlon). The repudiation of odious debt has legal precedents. In 1923 US Chief Justice Taft recognised the concept in a case involving Britain and Costa Rica.

Joseph Hanlon estimates that fully one-fifth of all developing country loans were used to prop up dictatorial regimes. Molefe Tsele argues that 'in the context of Third World debt as a whole, the line between bona fide and odious debt is very thin indeed, if it can be drawn at all.' While debts incurred by the apartheid-era regime in South Africa are clearly odious, so too are other 'apartheid-caused debts... that is, debts incurred by frontline states as a direct result of acts of aggression by the apartheid regime or loans incurred to defend themselves against such acts.'

Thus the Mandela government in South Africa will cancel US$6.5 million in debts owed by Mozambique and one billion Rand in debts owed by Namibia, recognising their odious nature as they date from the era of apartheid government that occupied Namibia and destabilised Mozambique.

The Tegucigalpa Declaration also calls for the cancellation of another category of debt - immoral debt, i.e. debt whose payment causes social and ecological deficits (in terms of harming people's health, reducing education and nutrition standards, and damaging the environment). In the view of the Latin American campaign, the failure to follow a human development approach, that is to put peoples' basic needs ahead of debt service, is immoral. Debt must be cancelled if its service threatens the survival of present and future generations.

These concepts - illegitimate, odious and immoral - take us out of the sphere of accountants, economists and policy experts into the spheres of historians, lawyers and ethicists. While these concepts are complex in many ways, they are not without precedents. For example, cases do exist where odious debts have been cancelled in the past.

Neither are we without international frameworks to assess and adjudicate these questions. International human rights commitments (whether civil and political or social, economic and cultural) establish standards against which the impact of the debt can be tested. An explicit recognition of the link between human rights and debt already exists in the appointment by the UN Human Rights Commission of a 'Special Rapporteur on Debt'. Responding to the challenges of our Southern partners means understanding debt in a different framework and designing new international processes that relate to that framework.

International arbitration process needed

The South Africa Jubilee campaign has forcefully made the case for declaring South Africa's apartheid-era debt odious and writing it off. While the South African government can unilaterally write off loans owed to it by Namibia and Mozambique, to whom can it turn for the cancellation of its own odious debts? Some kind of international court or tribunal empowered to judge odious and other illegitimate debts and order their cancellation is needed.

In Brazil, the Jubilee 2000 campaign have taken their own initiative around this. On 26-28 April, a Peoples' Tribunal was convened to judge the legitimacy of Brazil's foreign debt. Judges included a Minister of the Supreme Court, a federal judge and prominent lawyers. The jury was composed of prominent Brazilians including Cardinal Paulo Evaristo Arns and representatives of the Landless Peoples Movement, the unemployed, retirees and trade unions. Over 1,700 Brazilians attended the Tribunal, which heard from a variety of witnesses on the origins and impacts of Brazil's debt.

The Tribunal concluded that much of Brazil's debt is unjust and illegitimate. In particular the Tribunal found that Brazil's 'indebtedness was constituted by dictatorial - and thus illegitimate and anti-popular - governments, and their creditors .... were aware of the risks attendant on these loans'.

The Brazilian Tribunal is now calling on the international Jubilee 2000 Campaign, the World Council of Churches and Brazilian and international institutions to mobilise to persuade democratic states to propose to the UN General Assembly that a joint suit be brought before the International Court of Justice at The Hague. The suit would seek a judgement on both the processes that give rise to the foreign debt of the heavily indebted, impoverished countries and the factors that caused it to grow, such as unilateral decisions by creditor countries to raise interest rates.

Other participants in the international Jubilee 2000 movement have called for some kind of international body to judge the legitimacy of debts. The Tegucigalpa Declaration calls for the creation of an Arbitration Tribunal that would be similar to the procedures available under Insolvency Law in the United States.

While an international tribunal could use Canadian and US law as a point of reference, it should not be seen as a process of countries 'declaring bankruptcy' or 'going into receivership' whereby a court-appointed receiver would take over and administer a country's finances.

On the contrary, the role of a tribunal would be analogous to a Chapter 9 proceeding in the United States whereby municipalities may file for protection from creditors. Under the US code, a municipality is not expected to stop providing basic social services essential to the health, safety and welfare of its inhabitants in order to pay its creditors. Debt rescheduling arrangements must take into account a government's need for funds for essential social services. Furthermore, the US law allows civic groups to have a voice in the proceedings. Municipal employees, through their trade unions, have the right to be represented in Chapter 9 proceedings.

The Tegucigalpa Declaration states that 'Creditors and debtors will appoint an equal number of judges to an Arbitration Panel or Tribunal. Debtor nations will make such appointments on the basis of broad consultation with all members of society'.

The involvement of less developed country governments and civil society in an arbitration process is fundamental to securing a process that is just. There is a legal precedent in Canada for representation of debtors on arbitration panels. During the Great Depression, Canada enacted the Farmers Creditors Arrangements Act, under which both debtors and creditors nominated members to a panel overseen by a judge. In some cases, other farmers sat on panels deciding on the arrangement of debts owed by their peers.

At Cologne and in the months that follow, the G-7 will decide how much debt cancellation it can afford. Complex calculations may tell us what 'sustainability' costs; mathematical formulae may tell us what is 'unpayable'. But justice cannot be measured in income per capita or debt- to-export ratios alone. Justice is also predicated on concepts which cannot be measured, such as human worth and human dignity and the willingness to make amends. (Third World Resurgence No. 107, July 1999)

The above is reproduced from Economic Justice (Vol. X, No. 1-2, May 1999), published by the Ecumenical Coalition for Economic Justice.