John Dillon and other members of the Ecumenical Coalition for Economic Justice prepared this article on behalf of the Canadian Ecumenical Jubilee Initiative.
Frank Gue raises important questions concerning the Jubilee 2000 campaign for debt remission in his letter, Serious Pitfalls (December letters).
We welcome Mr. Gue’s thoughtful contribution to the debate. Mr. Gue is concerned some of the debt ‘went to build palaces for kleptocratic dictators whose people were starving’ and ‘into (their) personal accounts.’
There is no doubt tyrants like Ferdinand Marcos and Baby Doc Duvalier absconded with some funds lent to their countries. Exactly how much is hard to say because of the inadequacy of international financial statistics and bank secrecy laws.
The Jubilee 2000 debt campaign maintains that innocent people of the Philippines and Haiti should not have to pay debts incurred by former dictators.
Precedents exist under international law for cancelling ‘odious debts’ contracted by despotic regimes. Authorities in countries like Switzerland are beginning to collaborate with police to track down ill-gotten gains of drug lords, arms smugglers and corrupt officials. But progress has been slow and more needs to be done to seize stolen money while protecting innocent people from having to pay. Mr. Gue questions ‘how much of the debt paid for utterly foolish investments.’
Again no accurate data is available. One estimate by John Cavanagh, a former United Nations economist, is that about half the money lent to Latin America in the ’70s and ’80s cannot be repaid because it was never invested in projects that could generate revenue.
Private lenders did not scrutinize their loans to Latin governments carefully because they believed countries could not go bankrupt. Mr. Gue questions who will ask ‘banks and other investors who took too big a risk’ to take their share of losses. Indeed private lenders must assume the consequences of unwise lending.
The recent bailouts of Asian and Latin American countries by the International Monetary Fund primarily benefit foreign investors from North America, Europe and Japan. Ordinary people in South Korea, Thailand, Indonesia and now Brazil have to make huge sacrifices so their governments can pay back every penny of those loans. An international insolvency tribunal under the United Nations would be an important step towards meeting the challenge posed by Mr. Gue’s question concerning ‘what international organization [would] orchestrate the … complex negotiations.’
Such a tribunal would act like bankruptcy courts in Canada which require imprudent lenders to assume a share of the cost of debt restructuring. An insolvency tribunal would also help deal with Mr. Gue’s concern over encouraging more imprudent lending and ‘rewarding profligacy.’
If private lenders knew they would have to absorb losses without government bailouts, they would be much more careful to lend for productive purposes instead of engaging in unproductive speculation. Mr. Gue ‘s question of how we avoid the same cycle in 25 years is most important.We have several proposals.
First, debt remission must not be linked to orthodox structural adjustment programs which stifle economic development.
Second, debt relief must be deep enough to allow genuine development to resume.
Third, speculative flows of hot money must be cooled through such measures as taxes on foreign exchange transactions.
Fourth, the revenues from such taxes should be used for genuine social and economic development.
These measures complement our call for debt remission because, as Mr. Gue concludes, simply cancelling the debt is ‘too simplistic.’ The Jubilee call takes us beyond a simple campaign for debt remission. It summons us to right other wrongs. Nevertheless, we should not delay the urgent need to lift the burden of debt from millions of the poorest people on earth because of the wrongs of a few.