The Jubilee campaign for debt cancellation asked for more
than just the debt to be cancelled. There were two other specific demands:
firstly, that the cancellation be carried out through a neutral, transparent
and participatory procedure, and secondly that measures be taken to ensure
that similar debt crises do not arise in the future.
Since the debt arose out of a whole situation of imbalance and inequality,
then just canceling the debt is not enough. The other two demands should
not be seen as things appended on the demand for debt cancellation. They
lie at the very heart of the campaign and in the long run may even be
more important that cancellation itself.
Transparent means that decision making processes should not
be obfuscated. It means that all those whose lives are affected by decision-making
should have access to knowledge about the decision making processincluding
knowing who are the responsible persons, what are the issues being considered,
what decisions are actually made, and what are the reasons for those decisions.
Like the other issues here, transparency is required not only of the debt
cancellation process but in all areas of international finance and governance.
It is a contradiction for international institutions to pretend to be
promoting democracy and good governance without carrying out their own
interactions with governments in an open and transparent way. Such things
as World Bank country assistance strategies therefore should be public
as should all policy requirements placed on governments by creditors and
Neutral means that decision making should not be in the hands
of one particular faction. Since, in a debt crisis, the creditors are
usually the ones in the stronger position, neutrality will almost always
involve making sure that the creditors do not control the process.
Participatory means that the neutrality of the process must
be achieved not by carrying out the decision making in some distant and
uninvolved way, but by involving all of those who will be affected by
the decisions in the decision-making process. Clearly, the most important
requirement here is to ensure the effective participation of those most
vulnerable in this process.
Taking measures to see that similar debt crises do not arise in the future
will require a comprehensive evaluation of the background and causes of
the debt crisis. This evaluation itself must be transparent, neutral and
participatory in the sense that has just been described. Such an evaluation
would have to take full consideration of the fact that the creditor countries
for the most part are former colonial powers and the indebted countries
are former colonies. This is obviously not just coincidence and means
that the debt crisis has to be viewed against the background of colonialism.
It also cannot be just coincidence that the main creditor countries are
industrialized countries while the indebted countries are exporters of
commodities and raw materials. So an evaluation of the background of the
debt crisis would also have to consider the disadvantaged situation of
commodities and raw materials in the international market and redress
this imbalance. Problems of misplaced accountability must also be addressed,
especially when debt derives from such things as failed development projects
carried out under the initiative and direction of the creditors and yet,
when failure occurs, becomes completely the responsibility of the recipient
There are some basic ethical principles that point to the kind of system
implicit in the Jubilee campaign demand for measures to be taken to ensure
that similar debt crises do not emerge in the future. I will describe
some of these principles.
a) The right to adequate food, clothing, shelter, access to medical care
and education are primary rights that have priority over other rights,
including the right of the creditors to repayment.
b) A governments first responsibility is to the well-being of the
people, particularly in terms of the primary rights mentioned in the previous
paragraph. Therefore a government has a responsibility to provide for
these basic rights before making repayments to creditors. A certain portion
of the budget of each country should be considered sacrosanct and out
of reach to creditors. This amount should be determined according to rights
already defined in UN documents and should include a prudent reserve to
deal with natural disasters, etc.
c) Governments also have the responsibility to maintain a certain degree
of autonomy for the country so as to enable the people to live without
sliding into servility. As well as requiring the avoidance of any form
of tyranny within countries, this means that governments have a responsibility
to avoid servile political or economic dependence on other countries or
institutions. This responsibility to maintain a certain level of independence
and self-governance also overrides the responsibilities that a government
has to creditors. This means more than just that there should be limitations
to the imposition of policy by creditors. It means that a certain portion
of each countries budget should be reserved as funding to promote development
so that a sufficient level of self-reliance is maintained. This development
is necessary to ensure that the well-being of the people is achieved through
active participation and not passive dole-outs. This portion of the budget
too should be out of reach to creditors since it pertains to a responsibility
of governments that overrides their responsibility to creditors.
The above are all grounded in the understanding i) that the raison detre
of governments is the well-being of their people, and ii) that the right
of ownership is not the most fundamental right and there are certain human
rights that override it. Governments have a primary responsibility to
protect those most fundamental rights. Only when they have allotted sufficient
resources to meeting those requirements do the even have the right to
respond to the demands of creditors. This basic principle is recognized,
for example, in United States Chapter 11 Insolvency Law where states,
cities, counties, etc., can apply for bankruptcy protection without exposing
their citizens to loss of well-being or property. The suggestion here
is that the principle be made to apply at all stages of the debt-servicing
process, not merely at the stage of bankruptcy.
Clearly a loan to a government is not to the same as a loan to an ordinary
economic actor such as a business corporation. The government, because
its concerns include fundamental human rights, will always have responsibilities
that override its responsibilities to creditors. Therefore an international
lending regime is required that is compatible with these fundamental responsibilities
The logic of lending is that the recipient of the loan invest the money
in some project and earn a sufficient profit from it to both repay the
loan and the interest and retain a certain profit. When such profits are
not earned, then debt crises occur. To the extent that a loan is not likely
to generate a profit, it is likely to generate a debt crisis. Governments
cannot operate like other economic agents not only because they have other
overriding responsibilities, but also because they require financing for
projects and programmes that are not likely to generate profits. Ordinary
businesses do not have a primary responsibility to provide health services,
education, disaster relief, infrastructure, etc. Governments have these
as a primary responsibility and if financing for these is provided through
loans at ordinary market rates, then debt crises are inevitable.
Finance to governments or government bodies, or loans for which a government
is likely to become responsible, should therefore be classified according
to the degree to which, by the nature of its use, the financing is likely
to generate income..
l Finance for uses that are not income generating, especially in the case
of poor countries, should be provided in the form of grants. In fact,
UNCTAD has for many years now asked that ODA be given in the form of grants,
not of loans, so this is anything but a new suggestion. However, one still
hears of cases of donors offering loans for such things as fighting AIDSa
use to which profit is clearly not going to accrue. Such loans are predetermined
to become debt crises. Such financing should be in the form of grants.
In most cases, such grants could be considered reparations for colonialism
or redress for inequalities and therefore as demands of justice, not as
acts of charity.
l Uses of finance for such things as infrastructure development may be
indirectly income generating. Depending on the level of economic resilience
of the country, such finance could be grants, or could be loans free of
interest, or at loans concessional interest rates with a stay on payments
until the project has actually begun to produce profits.
l Loans for projects that are expected to be profit making could be made
at market interest rates, but such loans should not be government guaranteed.
If a loan cannot be made according to the logic of the market, it should
not be serviced according to the logic of the market. If government guaranteed
loans are indispensable then measures should be taken to reduce the governments
vulnerability by taking such measures as putting limits on the accumulation
of compound interest as well as recognizing the governments other primary
Finally, the current debt crisis has made it clear that there is a serious
need to see that accountability for debts is apportioned according to
real responsibility. This applies to more than just odious debts and debts
that are the result of corruption. Parts of the current debt crisis are
the result of the failure of development projects which, even if misguided,
were well intended. Even in these cases it is not fair that the whole
burden of repayment fall on the shoulders of the recipient country. In
many cases, development projects have been carried out under the initiative
and guidance of international donors and experts. Yet the donors, the
creditors, the expert advisors are not held accountable at all. Power
without accountability is an invitation to corruption.