SYDNEY, NEW YORK, Sep 16 (IPS) – Bangladesh’s White Paper Committee will review foreign loan agreements signed by the fallen kleptocratic regime. We recommend that it identify and declare as unpayable the loans or parts of loans that did not benefit the nation, because they were siphoned off from the country by corrupt politically powerful elites, or worse, were used to buy deadly weapons and surveillance equipment to suppress people. Such loans are “abominable” – they stink and are contemptible.
It is not clear whether sufficient courage will be gathered to include even the loans from international organizations and major and powerful donor countries. However, this is vital, since almost 45% of Bangladesh’s debt is owed to multilateral organizationssuch as the Asian Development Bank (ADB), the World Bank and the International Monetary Fund (IMF), while approximately 27% of total loans come from bilateral donor countriessuch as Japan and the European Union.
These multilateral organizations and countries continued to irresponsibly provide lifelines to the autocratic Hasina regime despite being fully aware of the regime’s large-scale corruption and gross human rights violations, including the suppression of democracy. It was common knowledge that the kleptocrats were moving large sums of illegally obtained money out of the country.
Bangladesh can learn from Ecuador how to deal with these powerful organizations and major donor countries in order to cancel or significantly reduce its odious debt burden.
Ecuador’s bold steps
Ecuador is an example of a government that officially decided to investigate the debt process in order to identify its illegitimate debts and make its debt sustainable for development. In July 2007, about seven months after winning the presidency, President Rafael Correa created the Comisión para la Auditoria Integral de la Deuda Pública (CAIC – Comprehensive Public Credit Audit Commission). Rafael Correa’s idea was to take action to stop the repayment of a portion of the debt that had been identified as fraudulent and illegitimate.
The commission was composed of representatives of Ecuador’s social movements (e.g. indigenous peoples, feminists, trade unions and socio-environmentalists) and international campaigners for the cancellation of illegitimate debts. The government side was represented by the Ministry of Finance, the Comptroller’s Office, the Anti-Corruption Commission and the Public Ministry.
The mandate of the CAIC was to conduct a comprehensive audit of the debts that Ecuador had accumulated between 1976 and 2006. The term “comprehensive” is very important because the audit was not to be limited to an accounting analysis of the country’s debts. It was fundamental to measure the human and environmental impact of the debt policy.
Beginning in November 2008, Ecuador suspended repayments on a large portion of its debt that it deemed “odious.” Specifically, the country stopped paying interest on approximately US$3.2 billion worth of Ecuadorian securities traded on Wall Street.
Not surprisingly, the international financial press spread a lot of negative publicity and fear that the action would have a serious impact on Ecuador’s creditworthiness and foreign investment. However, in June 2009, the holders of 91% of the bonds in question accepted the Ecuadorian government’s proposal to buy them back for 35% of their face value.
Ecuador bought back US$3.2 billion in debt and paid out US$900 million. This meant a saving of US$2 billion on the capital owed and the saving on the interest that no longer had to be paid. The total amount saved is a just over 7 billion dollars.
Rafael Correa stated in his inauguration speech on August 10, 2009 that this “means an annual profit of more than 300 million dollars over the next 20 years – amounts that will not end up in the wallets of creditors, but will go to national development.”
Positive effects
The debt reduction enabled the government significantly increase social spendingparticularly in the areas of health and education. Between 2007 and 2017, the Correa government doubled social spending. In 2016, poverty had fallen by 41.6%. Inequality, as measured by the Gini coefficient, had fallen by 16.7%.
Despite predictions of chaotic and painful days by the international financial press, nothing bad happened. Ecuador’s victory over its private foreign creditors was total. When the country decided a few years later to issue new debt on the financial markets, investors flocked to buy them. This was because they were convinced that the country’s situation had improved.
Lessons for Bangladesh
Bangladesh is not on the list of countries with debt problems and the latest IMF World analysis finds Bangladesh’s external debt sustainable. World Bank Country Director Abdoulaye Seck recently said that The bank is not concerned about Bangladesh’s debt payments.
However, concerned observers believe that the situation could quickly turn into a debt crisisUrgent measures are therefore needed, including identifying odious debts and refusing the unlawful obligation to repay them.
It is arguably unprecedented for a sovereign with a sustainable debt level to refuse to honor existing obligations. President Rafael Correa claimed that this action was justified because these obligations were illegitimate.
Bangladesh must say the same. We have good reason to believe that it will happen. Unlike Sheikh Hasina’s former finance minister Abul Maal Muhith, who famously declared that embezzlement of the order of $40 million from banks amounted to nothing, the head of the caretaker government, Prof. Yunus, considers every tax penny valuable. We trust that he will not hesitate to take the lead.
In pursuing this matter, the government should not be discouraged from taking action for fear of backlash, especially when the parties most affected are multilateral financial institutions.
Nevertheless, Bangladesh need not adopt a hostile stance like Ecuador did when it declared the World Bank representative person non-grata and expelled him, and withdrew from the World Bank’s International Centre for Settlement of Investment Disputes (ICSID). A more measured approach involving quiet negotiations should yield significant benefits.
As a practical step, the interim government should immediately ask the UN Secretary-General to establish an independent UN-led commission to assess all the culpabilities of the repressive autocratic regime it replaced.
Action on odious debt is absolutely feasible and will not only provide Bangladesh with additional financial resources for urgent social programs, but will also encourage all types of lenders to act responsibly. It will also give lenders a chance to clear their names.
While Ecuador’s case was unique in dealing with commercial lenders in contemporary history, Bangladesh’s robust stance on horrendous debt will be an exceptional case with respect to official lenders – both multilateral and bilateral. Both Bangladesh and Ecuador can be powerful examples of ensuring developing countries’ debt sustainability and continued socio-economic progress.
Anise ChowdhuryEmeritus Professor at Western Sydney University (Australia) and former Director of the Macroeconomic Policy and Development Division of UN-ESCAP.
Khalilur Rahmanformer Head of Economic, Social and Development Affairs at the Executive Office of the Secretary-General of the UN; former Head of the Technology Division and the Trade Analysis Division of UNCTAD and its New York Office; Founder of East West University, Bangladesh.
IPS UN Office
© Inter Press Service (2024) — All rights reservedOriginal source: Inter Press Service
