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Take The Hit!

Congo, Democratic Republic of

new internationalist
issue 312 - May 1999

Post conflict

[image, unknown] [image, unknown]
Grass grows on a monument to Marcos in the Philippines [image, unknown]
Take the hit!
[image, unknown]

Banks and governments knew perfectly well what they were
doing when they lent money to prop up despotic regimes.
Now, says Joseph Hanlon, it’s their turn to suffer the consequences.

There is ‘no (repeat, no) prospect for Zaire’s creditors to get their money back in the foreseeable future’. That’s what Edwin Blumenthal, the International Monetary Fund’s man in Kinshasa, wrote 20 years ago in a report for the agency.

Over the next six years the IMF lent Zaire $600 million, the World Bank lent $650 million and Western governments lent nearly $3,000 million – knowing that Zaire’s dictator, Mobutu Sese Seko, would put the money in private Swiss bank accounts or squander it on lavish palaces. When Blumenthal wrote his report, Zaire owed $5 billion. When Mobutu was overthrown and died last year, the debt was over $13 billion.

Mobutu was the man for whom the word ‘kleptocrat’ was coined – a combination of kleptomaniac (compulsive thief) and autocrat. But he was a staunch Western ally, so it made no difference. Now things have changed: the Cold War is over, Mobutu is dead, Zaire is the Democratic Republic of the Congo and the West wants its money back. The new government should be spending every penny it has rebuilding the country. Instead, every man, woman and child in the plundered nation must repay $260 in debt.

Surely something is wrong here. If a compulsive gambler goes to a bank to borrow money, and the bank is stupid enough to lend it, who is liable? The bank or the gambler’s children? In Zaire the situation was even worse. The lenders backed Mobutu in creating a repressive machine that made it impossible for citizens to object to the loans. This is not just lending to the gambler – it’s helping him to abuse his spouse when she objects.

In international law there is a concept known as ‘odious debt’. When the Americans captured Cuba from Spain in 1898, the Spanish demanded that the US repay Cuba’s debts. The US refused, arguing that the debt had been ‘imposed upon the people of Cuba without their consent and by force of arms... The creditors, from the beginning, took the chance of the investment.’ The doctrine that ‘odious debts’ are not the responsibility of the people and successor governments was subsequently enshrined in international law.

In South Africa, apartheid was defined by the UN as a ‘crime against humanity’. By 1982, as the campaign for international sanctions grew, lawyers for US banks publicly warned their employers that a majority government might not repay apartheid debts: ‘If the debt of the predecessor is deemed to be “odious” and the debt proceeds are used against the interests of the local populace, then the debt may not be chargeable to the successor.’

When Nelson Mandela became President he inherited more than $18 billion in debts. The IMF warned that unless they were repaid, however odious, South Africa would be isolated by the international community. The upshot? Money that should have been used to build schools and homes and to create jobs to redress the legacy of apartheid was instead sent to the very same US, British and Swiss banks that had backed apartheid.

Nor does this happen just in Africa. The corruption of Philippines’ dictator Ferdinand Marcos and his wife Imelda is legendary. Estimates are that they and their cronies pocketed a third of all loans to the Philippines in the form of kickbacks and commissions. Their personal wealth was estimated at $10 billion. When President Aquino took over, rather than insist that Marcos repay the money, the IMF said the Filipino Government should be responsible for the debts of private corporations, that taxes should be raised and that the rice subsidy should be ended as a way of raising enough money to repay the debts.

Where's the loot? No record of $30 billion borrowed by Galtieri (far right) and his chums in Argentina.

The lenders knew perfectly well what was happening to their money. The largest single debt of the Marcos era was the $2.8 billion Bataan Nuclear Power Station. This white elephant was built by the US company Westinghouse for 11 times the original estimate and never used because it was built over an earthquake zone. Investigations by the New York Times showed that Westinghouse had channelled tens of millions of dollars in bribes to Marcos through Swiss companies. Is Westinghouse responsible for that bad debt – or are the children of the Philippines?

In Argentina, there are no records for 80 per cent of the $40 billion borrowed by the military dictatorship from 1976 to 1983. A case in the courts there calls for the Government either to produce accounts or have the debts declared illegal. It is claimed that New York banks knew that money was being misused, with kickbacks and fraudulent loans to companies linked to the military, and that the IMF connived with the fraud. It is also clear that the military used some of the money to buy weapons used in the Falklands/Malvinas War.

In Brazil, the military dictatorship which ran the country from 1964 to 1984 used other tricks – like contracting two loans for the same project, then siphoning off the second one for arms and corruption.

Why did supposedly reputable financial institutions like the IMF and governments like the US turn a blind eye to obvious corruption? Because Marcos, Mobutu and the Latin American dictatorships were valued allies in the Cold War – and because the money flowed back to American companies and banks anyway. And why did the banks lend to Marcos or Argentina? Because they knew that the IMF and the US would enforce repayment.

Nor is this just a Cold War phenomenon. Last year the IMF lent billions of dollars to Russia, knowing it was flowing out again to Swiss banks. Why? Because the US wanted to prop up Boris Yeltsin and his corrupt allies.

The Jubilee 2000 campaign to cancel the debts of the world’s poorest countries says that nearly $500 billion – almost a quarter of all Third World debt – is from loans given to prop up dictators in some 25 different countries. Campaigns are growing in these countries to stop payment on this debt. In South Africa, the campaign has won the backing of the Archbishop of Cape Town, Njongonkulu Ndungane. ‘South Africa,’ he says, ‘has had governments that systematically oppressed the majority of its people... aided and abetted by the international financial community.’ Debt incurred under the apartheid regime, Ndungane argues, ‘should be declared odious and written off’.

In Nigeria, campaigners are calling for creditors to seize the military dictators’ Swiss bank accounts for repayment, not to increase taxes on ordinary Nigerians. And there are also spirited anti-debt campaigns in Brazil, Argentina, Mexico and the Philippines.

Recently the International Monetary Fund has quarelled with the definition of ‘odious debts’, arguing that if creditors accept that loans may be forgiven this will ‘encourage international investors to take on greater risks in the belief that they will only partially suffer the consequences’.

In reality, the IMF’s ability to force poor countries to repay their debts has allowed lenders – including the IMF itself – to make odious loans for political reasons. And that raises a fundamental issue. A critical goal of the sanctions campaign against apartheid in the 1980s was to cut off investment and loans. Bankers knew perfectly well that they were backing a crime against humanity. Should they now be penalized? So far the international community has said ‘no’ – the victims of genocide in Rwanda and the families of the ‘disappeared’ in Argentina must pay the debts of their oppressors. But if there are ever to be sanctions against apartheid or genocide or military oppression, then those who back the oppressors must know that they take a risk.

It may be unrealistic to expect politicians and bankers to have any morality. But the argument is important. Governments and international financial institutions should have to bear the risks of the loans they themselves decide to make. They should, in bankers’ jargon, ‘take the hit’ – and write them off.

It’s time to stop forcing the victims to pay twice for their own oppression.

Joseph Hanlon is a policy adviser to Jubilee 2000 UK Coalition.

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