Shirking Responsibility

Odious debt is debt incurred by a government that does not go to help the people that government is representing. It is the money that builds palaces while people starve or ends up in Swiss Bank accounts. Some of it pays for militaries used to oppress the citizens, some of it goes to pay bribes so foreign corporations can come in to make profit. It is the payoff of official graft and corruption.

The G-7, to be fair, has promised to address the problem of odious debt by forcing countries asking for debt relief to clean up their corruption problems. No clean up, no relief. It is what Tony Blair was talking about when he said, "We require the African leadership also to be prepared to make the commitment on governance against corruption -- in favour of democracy, in favour of the rule of law."

It is very noble of Mr. Blair to want to clean up corruption in the developing world. It is something that is long overdue. It would be far better if Mr. Blair, and his friend Mr. Bush, and all of the other leaders who are trumpeting the necessity of tying debt relief to the clean-up of corruption would take responsibility and admit that corruption is not a one way street. Every bribe taken requires somebody to pay that bribe. Every loan that becomes an odious debt requires a lender.

These debts didn’t come from nowhere. When Paul Bremer asked for debt relief for Iraq, the case he presented was that Saddam had taken foreign loans and built palaces while oppressing his own people. Paul Bremer, for once in his life, was right. What Bremer didn’t say, what nobody wants to say, is that the nations that Saddam was borrowing from, including the USA, knew exactly what the money was being used for. So did the lending institutions that gave the loans and the corporations that invested in the various projects. Debt relief, the forgiving of loans made, was not really necessary because the loans were not legitimate in the first place. The debt owed by Iraq and other developing nations is odious debt.

The concept of odious debt has been around for about a century and has precedent in international law; so the nations, lending institutions, and corporations who are owed money have little legitimate claim to the debt that is being forgiven. A mere decade ago, the same people who are now trumpeting debt relief were saying that cancelling these crippling debts was impossible. So what caused them to change their minds?

It wasn’t public opinion, the G-7 has been ignoring protestors for years. It wasn’t the rock stars either. Bono is famous, but he’s not that influential with men in suits. Bob Geldof hasn’t been heard from much since the original Live Aid concert. Sure -- Roger Waters is getting back together with Pink Floyd, but it isn’t like Syd Barrett is coming back or anything. Besides, somehow I can’t imagine the people at the G-7 taking even Barrett’s return as some kind of sign that they have to change their ways. The image of a bunch of finance ministers passing a joint around and listening to See Emily Play is kind of entertaining, but I doubt that it would be enough to induce any generosity in them. So what has brought on this surge of generosity?

There is the matter of the debts being uncollectable. These nations do not have any money and the debt they currently have is pushing them further into debt even while they require more and more aid. There is also the matter that at rates that have developing nations repaying as much as $13.00 for every dollar borrowed, much of the original debt has been repaid.

Those are small matters though, not the kind of thing that the World Bank or IMF have found overly troubling in the past. There is something more pushing them. If the debt is not forgiven, eventually somebody is going to cry odious debt and the matter will go to court. When things go to court, uncomfortable details tend to come out.

That is not the kind of thing that the leaders of the G-7 and the people at the World Bank and IMF want to happen. By forgiving the debt they avoid having their past actions too closely examined. There isn’t a country in the G-7 that hasn’t loaned money to somebody they shouldn’t have and corporations from the developed world have been deeply involved in graft and corruption in virtually every developing country that they work in.

One example of this is the tiny African nation of Lesotho. When they were building the Lesotho Highlands Water Project, the government of Lesotho hired 12 of the world’s largest engineering firms. Since the project was a huge mega-project, the construction of five dams to redirect water from Lesotho to South Africa, the expertise of such corporations was needed. G8 countries were involved in the financing of all five dams, either directly or through agencies they have control over.

Interestingly enough, South Africa, which was to receive all of the water from the Lesotho Highlands Water Project, was under sanctions when the funding for the project was originally given the go-ahead. The project itself amounted to sanctions busting.

In 1998 South African troops invaded Lesotho to restore order because of anti-government demonstrations. The South African fear was that the dams would be damaged. 17 protestors were killed. The project continued.

There were bribes and corruption throughout the project. The project was originally estimated to cost $3.4 billion, but by its completion the cost had risen to about $20 billion. Some estimates put the cost of bribes and corruption as high as $500 million. The government of Lesotho pressed charges against several companies and individuals from several countries, including Acres International of Oakville, Ontario. Acres International lost their case and was found guilty of paying bribes. Export Development Canada, a crown corporation that oversees contracts to refused to bar Acres International from further contracts with them. No charges were pressed in Canada. The World Bank did a further investigation and found that Acres International had paid bribes. The World Bank imposed a three year ban on contracts with the Oakville-based company...a slap on the wrist. Still, that slap was much more than the Canadian government was willing to do.

Acres International and the Lesotho Highlands Water Project are not unique. Halliburton and American Vice President Dick Cheney, along with Shell Oil, are under investigation for corruption while building a refinery in Nigeria. Britain, France and Germany have all made loans to corrupt dictatorships. Until recently bribes paid to foreign officials were not only legal in the UK, since the actual crime took place in a foreign country, but the bribe was tax deductible as a commission.

The corruption issue is not an African problem, an Asian problem, or a South American problem. It is very much problem of the wealthy nations of the world. It is our corporations that pay the bribes, our banks that give the loans, and our governments that turn a blind eye to corruption while making loan guarantees. The International Monetary Fund and the World Bank are our institutions, not the institutions of the developing world.

The debt that we have imposed on developing nations, sometimes pushing it as a requirement of aid, is our problem. The promise to forgive debt on condition of developing nations cleaning up their corruption without openly addressing our own role in that corruption is dishonest.

Instead of taking the responsibility for our actions, the leaders of G-7 are trying to shift all blame to developing world while keeping their own past errors and instances of corruption from becoming public. That will not solve the problem. In fact the shirking of that type of responsibility is likely to magnify the problem because it creates a built-in excuse for cancelling the debt relief. If our leaders do not accept responsibility for our role in the corruption inherent in the debt crisis, we are doomed to make the problem worse, not better.