World Bank Hosts Illegitimate Debt Roundtable

from Blog the Debt via Jubilee USA

Odious debt and responsible lending: World Bank hosts round table debate
The round table on 14 April 2008 was attended by World Bank staff, African Development Bank staff, IMF staff, government representatives, academics and civil society representatives. The discussion aimed to respond to civil society groups’ demands that the Bank initiate a more meaningful consultation process on the content of its recent discussion paper, “Odious Debt: Some Considerations” published in September 2007. Many CSOs and academics believed that the Bank paper was one-sided and missed many important arguments in support of the doctrines of odious and illegitimate debt. In March, Eurodad published its formal response to the paper.

The round table represented an important step forwards in CSOs’ efforts to engage stakeholders such as the World Bank in open debates on this issue. The strength of participation at the round table – including by representatives of many creditor governments – demonstrated that this issue is indeed an important one and is of interest to a wide range of stakeholders. The Bank expressed a general commitment to continue the dialogue on this issue – which is welcome – but shied away from more concrete actions it could take to further the debate at a technical and political level. These included CSO proposals for the Bank and a Southern CSO to jointly appoint an independent auditor to look in detail at a particular World Bank credit in order to assess its illegitimacy according to a series of jointly agreed indicators. CSOs’ also asked the Bank to make sure its discussion paper and the round-table outcome report were passed to Bank management and Board for formal discussion, however no commitment was secured. Nevertheless, the Bank will host a conference on the issue of low-income country debt in October 2008. CSOs will be invited to attend the event and the Bank expressed a willingness to continue these discussions at that forum. Eurodad will post details of the event as soon as they become available.

The round table tackled technical legal issues, but also covered wider moral and political debates. The specific experiences of Nigeria, Norway, Philippines and Haiti were discussed. How to ensure responsible lending and borrowing in the future was also debated. Although there was general agreement that there are clear cases in the past of where loans have gone fundamentally wrong, there was less consensus on how to tackle the problem.

Some of the proposals presented by CSOs to address the problem of past mistakes included comprehensive debt audits to assess the (il)legitimacy of individual credits, fair and transparent arbitration procedures and a set of fair and equitable rules for future loans. Many officials argued that the focus should instead centre on ensuring responsible lending and borrowing behaviour in the future given the complexities of the problem. Moreover, there were already a number of international initiatives to deal with the problem of unsustainable debts such as the Paris Club forum and the HIPC and MDRI Initiatives. These had cleared substantial amounts of unsustainable – and in some cases questionable – debt from the books of the poorest countries. Looking forward, the Bank/Fund debt sustainability framework for low-income countries represented an important tool to prevent future debt difficulties, it was argued. While very few analysts would disagree with the imperative of preventing future rounds of illegitimate debt, many CSOs could not accept that this approach as sufficient and argued that it is currently the poorest countries who shoulder the burden of past mistakes alone.

A number of legal academics challenged the Bank’s discussion paper on odious debt and argued that the Bank should have looked at the body of international law developed since the Second World War and assessed the legitimacy of loans according to whether they violated peremptory norms of general international law as agreed on by all ‘civilised’ nations (such as prohibition of genocide, torture etc.). Instead, the Bank paper assessed whether case law supported the doctrine of odious debt as proposed by Alexander Sack in 1927. Several academics mentioned that they would be submitting a formal response on the World Bank odious debt paper in the next couple of months. Eurodad will post details of this response as soon as it is available in order to further discussions on this critical topic.