Kenya should follow a policy of debt rejection, not cancellation

from The Daily Nation

Story by OMTATAH OKOITI

Planning minister Wycliffe Oparanya’s recent call for debt cancellation calls for more serious analysis than many have accorded it.

Although there are compelling moral arguments to cancel the crippling the developing world’s debt, they don’t amount to much when the countries appeal to pity and not to enforceable law. Further, debt relief will not solve the problem of the poor world’s poverty if it does not also address the root causes.

It has rightly been argued by many that if industrialised countries really wish to eliminate poverty in the rest of the world they must, among other things, reform oppressive world trade laws skewed in their favour, drop subsidies that insulate and distort world markets, strengthen their efforts to curb graft and help poor countries to crack down on corruption and recoup their stolen assets stashed in their banks.

Some of the “poorest” indebted nations are also those richest in natural resources. They experience poverty because their governments abuse their resources, not because they are indebted to the West.

Hence, cancelling the debt will not automatically improve their situation. It might even give bandit governments the funds they need to maintain illicit power.

Poor economic policies

Debt cancellation might even encourage poor economic policies by letting irresponsible lender and borrower governments off the hook, conferring a type of legitimacy upon corrupt regimes and their financiers.

For most of these debts are no more than an international fix in which developed nations parcelled out poor world’s resources to themselves, to corrupt among the developing world’s elites, or propped corrupt governments to further their “strategic” interests.

Writing off questionable debts without determining their legitimacy will allow corrupt creditors to shrewdly conceal their complicity in the misuse of public funds by despotic rulers then pause to be lauded as having contributed to the elimination of poverty through debt cancellation.

Blanket cancellation also means a country is not creditworthy. Even if the debts are written off today, poor countries still must borrow some more. Their inability to service their obligations today will affect the cost of their borrowing in the future.

To avoid this, the poor world should stop seeking mercy from people who fixed them in the first place, and demand justice, holding both creditors and corrupt local officials to account.

There is nothing to be forgiven: looters on both sides just have to pay. Graft is a two-way street and the complicity of industrialised nations in the developing world’s corruption – the greatest underwriter of poverty – is well documented and must be punished.

Under international law countries have a right to repudiate odious debts that were contracted without the consent of the people, were not spent in their interests and the creditors were aware of the fact.

For example, demands that the Congolese repay Americans and others who helped Mobutu oppress them have no basis in law under the Doctrine of Odious Debts, created to further international finance by limiting the ability of governments to repudiate debts.

In 1927, Alexander Sack, the Paris-based Russian legal scholar on public debts, wrote: “If a despotic power incurs a debt not for the needs or in the interest of the State, but to strengthen its despotic regime, to repress the population… this debt is odious for the population of all the State...

“This debt is not an obligation for the nation; it is a regime’s debt, a personal debt of the power that has incurred it, consequently it falls with the fall of this power.”
Odious debts

Most countries take on odious debts from former regimes due to political pressure or the fear of being penalised by creditors in the future, and the fact that translating a clear moral issue into a technically sound case in international law is a complex process.

But there are clear precedents for odious debts being repudiated, such as Mexico (1867), Cuba (1898) and Poland (1919).

The US repudiated Cuban debts that consisted of Spanish government loans secured on the island’s revenue. The Spanish asserted a principle of international law: that state obligations belong to a land and its people, not to a regime.

The Americans replied that the debt was “imposed upon the people of Cuba without their consent… was expended in a manner contrary to Cuba’s interests… (Since) Cuba had no voice, from the moral point of view; the proposal to impose them upon Cuba is equally untenable.”

As such, the Americans argued, these debts could not be considered Cuban debts, nor could they be binding on a successor state. As for the lenders, the Americans replied that “the creditors, from the beginning, took the chances of the investment.”

Since under international law citizens need not repay those who financed their oppression, the Kenya government should stop sleeping on the job and take the bull by the horns.