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Illegitimate Debt


Very few countries have developed after incurring international debts in a foreign currency that they then had to repay. Yet over the past half century, the IMF has consistently required the opening up of less-developed countries to overseas investment as a quid pro quo for being granted access to foreign aid.


And despite being aware by the mid-1960s that these countries were over-borrowing and may never be able to repay the loans, the World Bank has continued to encourage a pattern of profligate lending by donor countries, which peaked with the petrodollar boom in the mid-1970s.

Since at least the early 1980s, less-developed countries in Asia, Africa and Latin America have seen recurring sovereign debt and financial crises disrupt their economies and cause suffering to their people. Yet when nations have unsustainable debts they typically must repay them. Though effectively broke, the debts can be paid by virtue of the fact that countries can always increase taxes, take on more debt, or reduce spending on health, education and infrastructure. As Citicorp Chairman Walter Wriston famously said in the 1970s, 'Countries never go bankrupt'.

Jubilee's Australia's critical perspective of debt is not the simplistic belief that all debt is bad: rather, it is the more nuanced position that borrowing to facilitate development should be done selectively and with great caution, lest it lock less-developed countries into a subordinate relationship to lending countries and financial institutions, reduce democracy and violate human rights.

An entire new source of loan-based development financing is potentially opening up, with some multilateral institutions manouvering to make much-needed climate change adaptation financing available to vulnerable countries in the form of loans. Needless to say Jubilee Australia wholly rejects the use of loans to confront the climate crisis.

Investigating the origins of debt


The legitimacy of many past loans, often pushed onto nations by overenthusiastic commercial bankers or governments, and often associated with bribery of officials in the borrowing nation, is questionable.

The appalling human suffering that has resulted from less-developed countries prioritising foreign debt repayment while citizens forgo their basic human rights, including access to clean water and sanitation, basic healthcare and housing, is thoroughly documented.

A fundamental agreement of international debt campaigners is that debts found to be illegitimate should be cancelled immediately and without conditions. Such a position arises from the contention that those governments and institutions lending to less-developed countries, often in the name of ‘development’, should share responsibility for self-interested or poorly conceived loans and should pay the outstanding costs of the illegitimate debts created.

Critical civil society and campaigns like the international Jubilee network see themselves as existing to demonstrate that there is much more to the story of the ‘debt crisis’ than the simplistic interpretation of rich-country charity being carelessly squandered. Corruption and waste in indebted nations has regularly left a well-worn trail back to institutions and actors in industrialised countries like Australia. In particular, the competitive trade policies of developed countries and the debt accumulation of less-developed countries are inherently linked. Yet Norway is still the only country to have acknowledged this in practice by cancelling debts shown to have arisen from loans that were made more for the purpose of boosting domestic exports than to serve the development needs of the recipient country.

The narrative of illegitimacy is still very challenging to people both inside and outside of government, and much of Jubilee’s advocacy work surrounding the debt crisis remains very sensitive. People’s default assumption seems to still mirror the story projected by many in government: that the debt crisis is the fault of corrupt and venal third world officials and that, in contrast, industrialised nations have been generally well-intentioned in their dealings with developing countries.

In 1996, 1999 and again in 2005 the G7/G8 announced commitments to cancel up to US$155 billion in debt owed by the ‘heavily indebted poor countries’ (HIPCs) to the major multilateral institutions such as the World Bank and IMF, intended to reduce the debt burdens to “sustainable levels”. Whilst viewed by many as the panacea for the debt crisis, these initiatives were donor-centric. In other words, wealthy creditor countries and institutions play the role of judge and juror. And there is no space for governments or citizens to raise questions about the legitimacy and legality of the original loans.

For this reason, debt audits are now seen as a key strategy for countries to pursue. Comprehensive debt audits initiated by the government and citizens have exposed the culpability of all the actors in loan and debt contraction and ascertain what constitutes illegitimate or odious debt. Citizen’s audits are underway in the Philippines and Indonesia amongst other countries. A comprehensive public audit in 2008 encouraged President Correa to default on some of Ecuador’s most unjust debt, eventually leading to a write-down by some of its creditors. As these audits uncover failure and often criminality surrounding loans, the calls for countries to repudiate (to refuse to pay) grow stronger.

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