New fact on the debt issue, even within Europe, creates the Norwegian Government’s decision to launch on August 15, 2013 official audit on whether the debt that a number of developing countries owe her, is legitimate. The “new” fact that the Norwegian Government introduces concerns the liability of the creditor. Also, it highlights, the moral obligation of the creditor to prove that the debt owed by other governments is indeed legal! This is a big step forward, which if it is applied by other governments, it may mark a radical change in the debt chart within the eurozone. A chart, that as it is now configured, is against the peripheral countries, who have been turn into debt colonies in the benefit of the center countries, who keep draining them. For instance imagine, the consequences of an audit of the debt that Greece owes to Germany, especially when it will examine the compatibility of the two loan agreements with the international law, with which Greece has been tied up, or the possibility of setting off what Greece owes today with the (multiple in value!) amounts that Germany owes to Greece since the Second World War. Indisputably, the move of Norway makes it difficult for Germany and the other countries who have loaned Greece to save their banks. It also gives new support to the countries that face debt crisis, to request debt audit, as a means to cancel part or even all of the public debt.
INTERVIEW BY LEONIDAS VATIKIOTIS
– Can you tell us a few words about your work on the Norwegian Coalition for the Debt Cancellation? What have you done till now?
– The Norwegian Coalition for Debt Cancellation (SLUG) is an umbrella organization with over 40 affiliated Norwegian organizations. SLUG was established in 1994 to fight for debt justice for developing countries nationally and internationally. We work for the cancellation of illegitimate and unsustainable debt.
Illegitimate debt is the product of irresponsible lending to illegitimate regimes. This includes knowingly lending to corrupt governments for political purposes, and without ensuring that the loans will benefit the people of the country. Illegitimate debt can also be the results from irresponsible projects that failed to serve a greater purpose or caused harm to the people or the environment. We work to uncover cases of illegitimate debt, and we believe that all such debt should be cancelled.
Debt service payments take resources that impoverished countries could use to secure the basic human rights of its population instead. While the world gives 141 billion dollars in aid to developing countries, countries pay back 464 billion dollars each year that loan payments. That means that flow of money goes from the South to the North. We work to halter and reverse this flow of money through the implementation of Principles for responsible lending and borrowing, and for an fair and transparent international debt work-out mechanism.
The main victories for debt justice here in Norway was the 2007 cancellation of the debt stemming from for a number of failed development projects in the 1970s called the Ship Export Campaign. The Norwegian government cancelled the debts on the basis of its co-responsibility, unilaterally and without reporting it as ODA.
Now, six years later, the government has commissioned an official audit to evaluate whether there is more developing country debt owed to Norway that resulted from irresponsible lending. This is groundbreaking, as it is the first time such an audit has been commissioned by a creditor, breaking with the historical legacy of placing full responsibility for debts on the debtor alone. As some developing countries are suffering from unsustainable debt burdens, the Norwegian audit is seen as a welcome initiative by many campaigners for reform of the global financial architecture and poverty eradication.
– What has done your government till now about international debt?
– In addition to the previous mentioned victories, the Norwegian government is in the forefront of promoting responsible lending. The Norwegian audit was conducted by a contracted financial service firm which closely examined 33 concessional trade credit agreements from 1970-2000 in order to assess whether they were in compliance with national guidelines and the newly established United Nations Conference on Trade and Development (UNCTAD) Principles to Promote Responsible Sovereign Lending and Borrowing. Norway has been a supporter for formulating these Principles, and the audit marked the first concrete use of the Principles.
Norway has also supported UNCTAD’s current work on designing a new mechanism for the resolution of sovereign debt crises. As many countries are hampered by odious and unsustainable debt burdens, the work on establishing a new, fair and independent debt resolution mechanism is pivotal to resolve current crises.
– Recently you began a debt audit about the loan agreement that has signed your government with Indonesia. Which are your arguments in favor of this audit? What exactly you ask?
– The Norwegian debt audit looked at 33 concessional trade credit agreements from 1970-2000 to Indonesia, Myanmar, Egypt, Pakistan, Sudan, Zimbabwe and Somalia. SLUG’s shadow report evaluates selected claims to Indonesia, Egypt and Myanmar to evaluate whether Norway has acted as a responsible lender.
In the case study on Indonesia, we have looked at two projects that involved selling environmental technology to Indonesia in the mid-1990s. In the report “Is Indonesia’s debt to Norway Illegitimate?” (2009), these projects were described as a development failure and the Norwegian exporters failed fulfil the contract. Instead of a wave power plant, and technology to monitor changes in the marine environment, the people of Indonesia were left with debts from projects that never yielded any developmental benefits, and that had been contracted by the illegitimate regime of Suharto. These projects illustrate striking weaknesses in the mechanisms that allowed for the commissioning of the projects, and the lack of a proper mechanism to find a solution when the Norwegian exporters failed to deliver. The Indonesian debt resulting from these projects is clearly illegitimate; The loans were granted to the repressive and illegitimate regime of Suharto impact assessments and risk assessments were severely flawed, and for both projects there was a clear breach of contract, as the Norwegian exporters did not deliver the goods. For these reasons we believe that the debts to Indonesia should be cancelled.
– Do you hope that Norwegian government will accept your conclusions and suggestions?
– We hope the Norwegian government will cancel the claims that originate from irresponsible lending, including the debts of Indonesia. We also hope the government implement the UNCTAD Principles, as interpreted in our report, to all forms of lending, including lending through the purchase of government bonds. Norway should also use its membership in multilateral development banks to promote their compliance with responsible finance principles. We are happy to announce that the Norwegian government together with us, the European Network on Debt and Development (Eurodad) and Jubilee USA are hosting an event at the UN General Assembly in September launching the Norwegian debt audit internationally as well as discussing the UN principles for responsible lending and borrowing, and a debt resolution mechanism.
– Do you believe that UN principles must be respectable in every loan agreement?
– Clearly, the UNCTAD principles did not revolutionise lending when they were launched in 2012. However, the fact that such international principles have been defined and launched is an important first step towards more responsible lending and borrowing practices. The principles recognise the responsibilities of the sovereign lender, which in itself constitutes a positive development. Many of the principles are aimed at improving transparency and accountability on the part of both the lender and the borrower, which can contribute to more responsible lending.
UNCTAD is currently working on gathering widespread support for the principles. At the moment, the following 13 countries have endorsed the principles: Argentina, Brazil, Cameroon, Colombia, Gabon, Germany, Honduras, Italy, Nepal, Norway, Mauritania, Morocco and Paraguay. For the principles to take root, it is necessary that more countries recognise the principles and publicly state that they intend to abide by them.
Unfortunately, the principles are not binding, thus sovereigns that fail to abide by the principles cannot be sanctioned. But we hope that with time, the Principles will move from being soft law, to hard law, and be implemented in bilateral and multilateral loan contracts.
– Do you believe in creditor’s responsibility? What that it means in nowadays relations between creditors and debtors?
– Throughout the years, full responsibility for debts has been placed on the debtor alone. The term creditor’s co-responsibility breaks with the idea of the debtor being responsible for debt burden consisting of both odious and unsustainable debt. Creditor’s responsibility involves creditors conducting audits of claims to ensure that they are not receiving down-payments on illegitimate debts, to cancel claims that may have originated from irresponsible lending, and to implement principles for responsible lending in all forms of lending.
– In Greece we ask the formation of a debt audit committee as a means to cancel at least a part of the sovereing debt. Governments of Greece have rejected our demand saying that it’s a matter of honor for Greece to repay its debts. In practice they have given this right to creditors. As a result after to mini (3.2011 and 11.2012) and a giga-reconstruction (3.2012, known as PSI+) Greek debt is is still unviable (180% of GDP) and the discussion of a new haircut is again on the table. Do you believe that an audit committee is applied only on developing countries?
– I believe that debt audits is an important tool for both developed an developing countries, as well as debtor and creditor countries, to make clear which loans are illegitimate. All parties should conduct audits in accordance with principles for responsible lending and borrowing in order to make sure that they are not recieving downpayments (or paying down on) illegitimate debts”