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.

Yes to Life, No to Debt

Excerpts from the Tegucigalpa Declaration The Latin American and Caribbean Jubilee 2000 Platform, Honduras, January 1999

THE Latin American and Caribbean Jubilee 2000 Campaign joins the international movement for the annulment of impoverished countries' debt by the year 2000.

The exorbitant foreign debt of the so-called Third World excludes four-fifths of the world's population from economic and social development. The debt reflects an unjust international economic order and a long history of slavery and exploitation.

It is mathematically impossible to repay this debt. Between 1982 and 1996 the Latin American and Caribbean region paid out $739 billion in debt service - more than the entire accumulated debt - and yet the debt continues to grow.

The debt is illegitimate because, in large measure, it was contracted by dictatorships or formally democratic but corrupt governments. The debt is also illegitimate because it swelled due to high interest rates and conditions imposed by creditor governments and banks.

It is immoral to pay the debt because, in order to do so, governments have to allocate an extremely high percentage of government revenues at the expense of social programmes and workers- wages. There is already a huge social debt in terms of peoples- health, education and nutrition. Latin American governments spend 60% less per capita on these areas than they did in 1970.

The debt is used to justify neoliberal policies of structural adjustment as a way of perpetuating dependence. Attempting to increase exports to pay the debt will lead to over-exploitation of natural resources and ecological damage, and threaten the survival of future generations.

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.

Break the Debt Cycle

Excerpts from the Philippine-Asia Campaign Statement Against the Debt Quezon City, Philippines, April 1999

DEBT is the most visible negative sign of the crisis of the neo-liberal paradigm. The most recent Asian crisis increased the debt as private sector debt was passed on to governments as a condition for bailouts of bankrupt economies.

Debt servicing draws away needed funds for basic social services especially health and education. For peoples of the Third World, the only imperative is to break away from the debt cycle and work for genuine social and economic reforms.

While we focus on the building of a sustained campaign to break the debt cycle, we are at the same time committed to working for immediate debt relief. This includes:

* Demand for the scrapping of Marcos' Presidential Decree 1177 which provides for automatic appropriation of the budget for debt service

* Demand the repudiation of all odious debts incurred during the era of the Marcos dictatorship

* Demand the repudiation of fraudulent loans.

In solidarity with other nations and peoples throughout the globe, especially of Asian and Third World countries, the campaign will work for:

* the nullification of structural adjustment loans tied to the 'rescue packages'

* the abrogation of all agreements that provide for public assumption of private sector debts

* the repudiation of all odious debts by dictatorial regimes

* international banks to be made accountable for bad debts.

Our position is to broaden the Jubilee Debt Debate to encompass breaking free from the cycle of debt and the bondage of years of underdevelopment and indebtedness.

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.

Freedom from Debt : Freedom from Domination

Excerpts from the Declaration of the Southern African Jubilee Debt Summit - Gauteng, March 1999

SOUTHERN Africa is shackled by debt owed to the same forces which enforced and sustained slavery and colonialism. Today this debt is both a manifestation and an instrument of the unjust international economic order.

Countries in Southern Africa pay as much as 40% of their export earnings to service the debt. Structural Adjustment Programmes (SAPs) have caused increasing levels of unemployment, reduced government services, higher prices of food and intensified poverty.

Through the imposition of export-led growth, financial and trade liberalisation, fiscal austerity, privatisation and deregulation, our economies remain sources of cheap raw materials and pools of cheap labour for the interests of the industrialised North. Through SAPs our governments have become more accountable to the elites of the North than to their own people. We have been denied the right to be active participants in the decision-making process of our own development.

Southern Africa suffers the effects of apartheid-caused debt. Apartheid-sponsored wars and economic destabilisation forced nations to borrow billions of dollars. Over two million people have been killed in Southern Africa in apartheid-related wars, and thousands of schools, clinics, bridges and roads have been destroyed. Under these circumstances, the debt of Southern Africa is illegitimate and immoral.

Yet there is a debt which we do recognise - a moral debt. This is the debt that our governments, the governments of the G7/8, multilaterals and international commercial banks owe us for unbuilt and broken down schools, for women and girls who continue to bear the burden of poverty and for the jobs, homes, clean water and all the fundamental human rights we do not have.

We thus demand the unconditional, immediate and total cancellation of the debt, termination of conditions for further economic adjustment and the scrapping of the HIPC initiative.

We call on our Church and other civil society allies in the North to support our struggle and the process that has led to this and previous declarations. In so doing they would be transforming themselves into vehicles of genuine solidarity within a Jubilee 2000 global movement led by the South for a new world in the new millennium.

Finally, we commit ourselves to self-determination in working for debt cancellation within a broader concept of Jubilee, including assertion of our sovereignty from Northern domination and transformation towards an alternative global economic system.

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.