By Alys Mumford DISCLAIMER: I work for Jubilee Scotland but am writing in my own capacity.

The world is changing: debt and deficit are front page news, the general public is becoming educated in the language of financiers, and the relative virtues of IMF policies are being discussed down the pub. Well..maybe that’s just the pubs I go to. But the fact cannot be escaped that debt is dominating the global mindset in a way which has not been seen before by my generation.

Traditional discourse around debt cancellation has focused predominantly around poor countries (those formerly known as ‘third-world’) in Africa and South America. Where debt cancellation has occurred, it has done so after adherence to certain conditions pushed by lenders; privatisation of healthcare, say, or the hiring of a foreign firm to complete infrastructure projects. The growing ‘debt crisis’ in the West forces us to change the way we speak about debt and its legitimacy.

As a campaigner working for the cancellation of unfair and unpayable debt, where does this leave me? Is the increased knowledge of the wider issues around money-lending a positive thing for our message, or is it merely a distraction, reinforcing the common response to any development work of ‘charity starts at home’. The global Jubilee movement needs to consider these questions.

I think we must see this, the public perception of the debt crisis, as a positive. To ignore it, or worse, to attempt to use the situation in Europe as a way to highlight how much worst things are for Africa and South America can only lead to a perceived irrelevance of the Jubilee movement. Yes, the Western debt crisis is replicating a situation which has raged for generations in poorer countries, but to suggest that this means we should ignore all debt issues which do not relate to the world’s poorest countries is short-sighted and morally questionable. It does, however. leave us with the question of whose debt are we talking about? Which debt are we trying to cancel? How do we classify an unfair debt? And, taken to it’s logical confusion, should the Jubilee movement be calling for an end to all debt, to the very concept of interest, and lending for profit?

Debt campaigning, though much of it has been led by a desire for poverty irradication and atonement for colonial sins, must at its heart focus on justice. This means fighting both for the cancellation of debt which was created via dictators such as Marcos in the Philippines, or money lost through corruption, but also debt whereby the paying of it will restrict access to healthcare, education and basic infrastructure. This used to mean countries such as Malawi (one of the 40 countries who qualified for debt cancellation under the Heavily Indebted Poor Counties Initiative) where the deprivation was easily recognisable and the public was appalled by the nonsensical system which led to $5 flowing out of the country in debt repayments for every $1 that flowed in as aid.

Now this classification can be applied to Greece, where the International Monetary Fund have enforced such strict austerity measures that the people of Greece have repeatedly taken to the streets in protest. A shocking statistic which features in the recent documentary Debtocracy (watch it free here http://www.debtocracy.gr/indexen.html) is that in every country where IMF policies have been followed over a protracted period of time, average life expectancy has fallen by 5-10 years. Where debts are leading to deprivation and death, that debt must be deemed unpayable, and countries must have the autonomy to refuse to pay where their citizens are at risk.

This is a harder fight to win – it has always been easier to talk about debt in terms of poverty eradication, development, and the traditional language of aid. But fights should always be big enough to be worth fighting for.

Campaigning should be about finding alternatives. Not just cancelling old debts, but calling for an international financial system which doesn’t function by fleecing the poor and making money whatever the consequences. Where responsibility sits squarely with both lender and borrower, and where future generations are not held responsible for the crimes that went before them.

Both the Eurozone crisis and the events of the Arab Spring have highlighted the flaws at the centre of our current system. We must make the most of this – not by using it to show how a few very specific debt should be cancelled, but by using it to ask broader questions about the morality behind money.

Economics on the one hand, and justice and human rights issues on the other hand, are often discussed as separate phenomena; as ways of looking at the world that don’t connect or intersect. But I believe that it’s of fundamental importance that we consider them alongside each other. In this blog I would like to use the example of Egypt’s arms debt to the UK to argue this point, touching on the gaps in international law and the importance of lending in the often violent shaping of the political map.

Jubilee Scotland is campaigning at the moment alongside its sister organisation – Jubilee Debt Campaign – for the cancellation of $100 million is owed by the Egyptian people to the UK government.

We are asking for it to be cancelled because we believe it to be an odious debt. An odious debt is one taken on by an unelected dictator – in this case Hosni Mubarak – the repayment for which is then demanded from the people of the country. This is the moral equivalent of someone breaking into your house and taking out a huge second mortgage against it, which you then have to repay when you get back into the house.

This would be enough to make the debt odious, but in the case of Egypt there is another layer to consider. The debt was used to pay for Rapier and Swingfire missiles, Lynx helicopters and a tank factory, weaponry which would actually have been used to shore up the illegitimate Mubarak regime. So to use our previous analogy, the house owner is also having to pay for the weapons that kept them out of their own house

Unfortunately, international law doesn’t recognise the concept of odious debt. This ties into the wider fact that it only recognises sovereign states and leaders; individuals, or whole peoples even, have no personality in its eyes. To go back to the house example, national law would seek to protect the interest of the party whose house had been stolen, but international law, if it operated the same way, would recognise the existence of the house, but assume that whoever was in charge of the house was the rightful owner – a kind of ‘finders-keepers’ approach to ownership. It is not a Code of Law in the true sense, as first formulated in ancient Babylon, because it does not protect the weak against the strong. It’s a system in which individuals – and whole peoples – are totally exposed to the Great Predators of the global economy: dictators, arms manufacturers, and lenders.

Mubarak’s arms debts are owed to a branch of the UK government called the Export Credit Guarantee Department (now renamed as UK Export finance), who use British tax-payers’ money to underwrite ‘high risk’ exports such as arms deals, meaning that both the arms exporter and the dictator remove themselves from the equation, leaving a debt owed by the people who suffered from the deal to us, the UK taxpayers.

The Export Credit Guarantee Department are the UK’s Export Credit Agency. Every major world power has one of these bodies, whose job it is to promote and support risky investments overseas. By using tax-payers’ money to underwrite deals they totally transform the risk profile of these risky deals, in effect creating a market where otherwise there wouldn’t be one.

For decades, Export Credit Agencies such as the ECGD have been used to set up trading relations with dictators in all parts of the world, including President Suharto in Indonesia and President Marcos in the Philippines. Their activities have provided domestic weapons manufacturers with stable overseas markets, have shored up regimes sympathetic to the West and have ensured a steady flow of debt repayments.

Export Credit Agency lending forms part of a wider portfolio of lending and aid – and it’s worth knowing that to qualify as ‘Overseas Development Assistance’ (the most widely used concept of aid) capital flows only have to have a 25% component of grant finances. This lending has been used for many decades to shape the map of the world, and to ensure that governments sympathetic to lending powers remained in charge of the house.

By sympathetic, we mean sympathetic to the supporting superpower, rather than sympathetic to the people of the country. As Franklin Roosevelt famously said of Nicaragua’s dictator Somoza, ‘he may be a son of a bitch, but he’s our son of a bitch.’

Because the bloody origins of many of these debts are not widely discussed, all debt campaigners are frequently asked whether we should in fact cancel debts to poor countries without being very vigilant on how the money is spent. To my mind this would be shutting the stable door after the horse has bolted. In the case of an Egypt or Indonesia the money for these debts has already been spent by a dictator on arms – often under the lender’s very vigilant eye.

Cancelling the debts is morally essential because it’s wrong to keep collecting money from the people whose oppression we have unwittingly colluded in. But if we are serious about stopping oppression we need to put a stop to bad lending, not just cancelling pre-existing bad debt.

In 1997, when Robin Cook became Foreign Secretary, he spoke of an ‘ethical foreign policy’. This statement was widely derided at the time as being a joke. In 1998, the scoffers were to some extent proved to be right, when the UK’s Export Credit Guarantee Department underwrote a huge sale of jet-fighters to the Indonesian dictator Suharto. The phrase ‘ethical foreign policy’ – even the idea of having an ethical foreign policy – became at this point even more bankrupt.

This trend needs I believe to be reversed. We may view ourselves as individuals, or as citizens of the world, we may campaign or give as individuals, and strive as campaigners to change the international system but we should not ignore the large proportion of our individual global impact which is mediated through UK foreign policy. It’s for this reason that, as well as building individual links with debt campaigners around the world, and while campaigning for an international system through which odious debts can be recognised and cancelled as as such, Jubilee Scotland also campaigns – alongside Campaign Against the Arms Trade and Amnesty International – for the radical reform of the Export Credit Guarantee Department.

Find our more about the campaign to end unfair lending at www.cleanupexports.org.uk and Jubilee Scotland at www.jubileescotland.org.uk

‘Debt cancellation is a call not for charity but for justice’ – Lidy Nacpil.

By Olga Bloemen

‘We have a very fruitful partnership with the Philippines’, says the World bank ‘The World bank owes us for its damaging loans’, counters Filipino campaigner Lidy Nacpil. Jubilee Scotland is campaigning for the Scottish government to set up an international debt arbitration tribunal where creditors and debtors can meet. Thorough debt audits could help solve the debt crisis that is currently keeping developing countries in a poverty trap.

Third world debt seems to have disappeared from the public mind along with Jubilee 2000, Bono and Geldof. In 1998 and 2005, two initiatives pledged the one-off cancellation of the debts of 40 of the poorest countries. But, according to Jubilee Scotland, this remedy is ‘in many ways merely a sticking plaster’, offering too little too slowly: Many countries, like the Philippines, are excluded and debt is only cancelled to what is considered a ‘sustainable’ level, based on the country’s export earnings, while ignoring its domestic spending needs. Besides, the International Monetary Fund (IMF) and the World Bank demanded austerity measures in turn for debt cancellation like cuts on public spending and the privatisation of basic services, which many of the 40 countries have as yet not been able to meet.

This means that in 2008, the world’s poorest 48 countries still had debts totalling US$168 billion, and the 128 poorest together owed a dazzling total of US $3.7 trillion to multilateral bodies, individual countries, private companies, banks and individuals. Over the course of 2008 alone, the developing countries paid $602 billion towards servicing these debts. This year’s figures will be even higher, as the economic crisis has led developing countries to take up more loans. As a result, despite the aid rhetoric and the Millennium Development Goals, money keeps flowing from the Global South to the North instead of vice versa.

Many of the debts still stem from the 1960s and 1970s, when banks and governments in the North were eager to lend the huge amounts of money made from the rising oil prices to developing countries. Looking for Cold War allies, lending parties closed their eyes on corrupt or oppressive regimes and most of the money did not go into responsible hands and into development. In the 1970s and 1980s, the oil crisis led interest rates on the loans to soar. Additionally, falling commodity prices left countries with less hard currency to service the debts. The knock-on impact on exchange rates means that debts, which are most often counted in foreign currency, have skyrocketed in real terms for the affected countries. The debt total of US$3.7 trillion is the result.

Already since the early 1990s, campaigning organisations have called for an arbitration forum of some sort where historical cases of illegitimate or unfair debt can be lodged and solved, as well as unpayable debt relieved. With the 2010 Arbitration (Scotland) Act and the newly set up Scottish Arbitration Centre, Scotland would be a suitable host for such a tribunal. To demonstrate this, Jubilee Scotland organised a mock debt tribunal in Holyrood on the 5th of October. Here, the Philippines and the World bank met. Or, better said, Lidy Nacpil met “John Smith”, an actor who played, scarily realistically, a World bank representative quoting solely from the Bank’s official documents. In the debt tribunal, the legal principle of ex aequo et bono (“from equity and conscience”) was applied, according to which an arbitrator or tribunal has the power to move away from the law as laid down and to consider the case in the light of arguments of natural justice such as fairness and equity.

Lidy presented her country’s case: The New Economics Foundation has calculated that the Philippines need at least 63% debt cancellation in order for the government to meet the basic needs of its citizens, such as health, education and infrastructure, without taxing those living below the ‘ethical poverty line’ of $3 a day. According to a recent study, 107 countries are burdened with an ‘unpayable debt’ like the Philippines.

Former president Marcos, who governed the country from 1965 to 1985, left the Philippines with more than half of its current foreign debt. Although democratically elected, Marcos turned the Philippines into a dictatorship with martial law in 1972. When he fled the country in 1985, the country’s debt had gone from US$1 billion to of US$28 billion, most of it either stolen by Marcos or invested in failed or useless projects. The Bataan nuclear power plant is notorious in this regard. It was built by the US company Westinghouse on an earthquake fault-line at the foot of a volcano and has therefore remained unused. Westinghouse got paid generously nevertheless as the US government credit agency took over the standing debt. In 2007, the Filipino government finally completed paying off the $1.5 billion for the plant’s construction, more than 30 years after it began. As Marcos’ regime devastated the country’s economy, subsequent governments had to continue taking on loans to pay off the old ones.

During the fourteen-year dictatorship, the World bank granted five loans to Marcus. Now, the Philippines still owe the World bank around US $3 billion out of a total foreign debt of US $47,5 billion. The original loans from the World bank have long since been repaid, but because the interest has compounded, 80% of the debt is still owed. If nothing changes, Filipino taxpayers will continue to pay for the illegitimate debts of Marcos until 2025, 39 years after he was overthrown. While ‘Smith’ glorified the loans as an investment in pro-poor development, Lidy Nacpil said there is little evidence that the World bank has had any positive impact at all. ‘Debt cancellation is a call not for charity but for justice’, Nacpil concluded.

Of course, one could argue that debt cancellation would create poor incentives by making future borrowers hope that they will have their debts waived too. Also, developing countries are dependent on loans and if creditors would stop this flow of money due to lack of trust in return, the result could be disastrous, especially now in times of economic downturn. This, however, would relieve Northern countries of responsibility too easily. As we have seen, a major part of the third world debt is the result of the self-interested and reckless lending of first world creditors during the Cold War. Filipino people are currently forced to pay off a loan that was not taken up in their name and went to support an undemocratic dictator. The World bank could have reasonably foreseen this and should thus assume responsibility. Besides, one could argue that the Filipino people themselves never had a contractual arrangement with the World Bank.

The envisioned debt tribunal is just one step in creating a fairer lending system. Future loans should be given responsibly, on fair terms, and in a transparent way that is open to scrutiny by parliaments, media and citizens. Any loans given on unjust terms should be considered the responsibility of the creditor and thus eligible for cancellation in future. Jubilee’s mock tribunal demonstrated that debt arbitration can be done fairly and effectively. Or would it take a Bono to convince the Scottish government?

Concern was over debt incurred under previous governments and for which many Ecuadorians felt they suffered an undue burden. This unrest was based on the belief that this debt was the result of illegal practices under former regimes, and as it turns out, they were right. The audit which aimed to establish the origins and nature of Ecuador’s external debt concluded that owing to the conditions on which they were issued and restructured, much of the private debts owed by Ecuador were illegal under both Ecuadorian and international law.

What followed from this audit was a series of shrewd financial manoeuvres by President Correa. A full scale default would not have been in Ecuador’s best interests. The possibility of being ostracised from world financial markets and the risk of being sued presented serious consequences. The threat of default however was strong enough for President Correa to cut a restructuring deal which resulted in Ecuador paying back only 35 cents in the dollar. This was helped a great deal by the President announcing the default on the very day that the three large hedge-funds which held much of the debt were being forced to liquidise their holdings as a result of the financial crisis. This devalued the debt considerably, allowing Correa to then use a large Ecuadorian bank to buy the loans back at rates high enough to fragment the debt distribution sufficiently to allow an extremely favourable restructuring deal to be forged.

Perhaps most importantly was the response from the multilateral finance institutions who, in not lodging any formal objections, implicitly offered some degree of support for such a process. This was a surprise to many, much of the mainstream media and many financial commentators condemned Ecuador for not playing by the rules and portrayed the step as a political manoeuvring by a renegade president. Their concern was over the precedent this sets, a precedent which allowed Ecuador an effective debt default despite having the ability to pay, and the worry that this will create grey areas over when debt is and isn’t required to be repaid, therefore undermining the principles on which international financial lending was structured.

These opposing reactions has therefore created clear tension and uncertainty regarding illegitimate debt and default. It does however significantly strengthen the call for an international system of fair and transparent arbitration as is advocated by a wide network of organisations including the Jubilee Movement. The adoption of such a system would allow issues of illegitimate debt to be addressed while maintaining security and stability in the international financial system, working out compromises which acknowledge fairness and responsibility.

The call for such a system is continually being strengthened as a result of various countries signalling their intentions to follow the same path as Ecuador. On December the 30th 2009 Bolivian Parliament approved resolution to set up an commission for a review of the external debt of Bolivia. In Paraguay President Fernando Lugo similarly signalled his wish for such a process and in Zimbabwe, civil society has long been calling for an audit to identify the staggering amount of odious debt incurred as part of the post colonial burden. This is an issue of tremendous relevance not only for countries in the developing world, but in the developed world as well. Iceland and Greece are two examples of countries suffering heavily as a result of increasing external debt burdens. Fair and Transparent Arbitration is therefore poised to be an issue of much debate in times to come and an idea which may cement itself as an essential part of the post-crisis financial infrastructure. This would be good news for many, especially for the poor for whom the repayment of illegitimate debt has hampered their countries efforts at poverty reduction for decades.

Drew Ritchie, Jubilee Scotland

1. Creation of a body independent of creditors: the sovereign debt work-out procedure must be independent of any creditor institution or body. This is essential to secure a level playing field and international support for the mechanism. This means that – as creditors – the International Monetary Fund and/or World Bank cannot host such a procedure because they would not been viewed as impartial decision-makers (they have an interest in recovering their claims). This
body may be permanent, for example under the auspices of the UN, or it may be ad-hoc and convene only to examine particular cases on demand. There should be the opportunity to go to mediation as a precursor to a binding arbitration procedure.

2. Independence of arbitrators: decision-makers should be neutral and independent from the
parties involved.

3. Mandated to verify the vailidity of individual claims based on any allegations of illegitimacy: the independent arbitrators will decide on the (il)legitimacy of individual credits based on precedent and clear indicators/criteria of illegitimate debt. For example, has the ex ante loan contraction process closely followed the principles outlined in EURODAD’s Charter on Responsible Financing? EURODAD believes that a sovereign debt work-out procedure must be
able to deal with issues related to the (il)legitimacy of debt, otherwise it cannot be considered a truly fair and comprehensive mechanism. Important gaps will exist.

4. Mandated to deal with generalised sovereign debt repayment problems: independent arbitrators will decide if individual credits are valid. Legitimate creditors’ claims will then be dealt with in one comprehensive process and all creditors will be treated equally and fairly. This will avoid the free rider problem evident from initiatives such as the HIPC Initiative where there is a perverse incentive to hold out. It will also help prevent vulture fund litigation because
it will, as a matter of principle, function on the basis of equal treatment of all creditor claims.

5. Process may be initiated by borrower or lender and the institution of automatic stay will apply: there will be a standstill on all external debt repayments in cases of sovereign debt default or on the individual (il)legitimate loan under dispute while the case is heard.1

6. Assessment of the indebted country’s economic situation by a neutral body: in cases of sovereign debt default, a debt sustainability analysis should be carried out by an independent body, such as a United Nations agency. This means that the IMF and World Bank – as creditors – cannot provide the only assessments of the country’s economic situation, although their databases will certainly be drawn upon by the independent body. The analysis should guide
arbitrators’ decisions on how far each legitimate creditor should take a haircut.

7. Protection of the basic obligations of the state to meet the essential needs and services of its citizens: the state must be assured the resources it needs to carry out its basic duty of care. Both domestic commercial and individual insolvency procedures, as well as Chapter 9 of the US-insolvency code which refers to the insolvency of municipalities, provide examples how”essential means” can be protected during any insolvency procedure.

8. Transparency: sovereign debt negotiations must be public and the results and agreements made must also be made public.

9. Participation: the procedure must be participatory and all stakeholders have the right to be heard. This includes borrowers, lenders and individuals/organisations which represent citizens in the debtor nation affected by decisions taken by the arbitration panel. All must argue, prove and document their points (rather than quibble between themselves which is the current situation). As a rule, proceedings should take place in the debtor country’s capital.

10.  Enforceability: all parties must respect the decision of the independent arbitrators. An international treaty establishing a sovereign debt work-out mechanism ratified by most nations would be extremely helpful; however is not a prerequisite for progress in this area. Current sovereign debt mamangement procedures (such as the Paris Club and HIPC Initiative) also function without any basis in international law. Instead they are based on the political will of of
creditors and the lack of alternative solutions. This underscores why an international sovereign debt work-out procedure must be independent of any creditor institution in order to ensure
broad-based support.

The problem is not therefore one of morality – the moral argument is black and white – but one of definition. Creditors have complex systems for defining and measuring concepts such as sustainability or payability, but how can we approach them asking for cancellation on the basis of legitimacy when there is no collectively agreed definition for that term? In this context the power to define becomes highly political. As one famous radical said: ‘Power is the ability to define things and have them react accordingly.’

The World Bank does an awful lot of defining. EUROAD, the European Network for Debt and Development, recently circulated a World Bank formula for establishing whether or not a debt was odious (a narrow subset of illegitimacy).

This excerpt shows – rather like Swift’s Laputa – how defining things bureaucratically tends to lead us quite quickly into the absurd. A juridical method for defining legitimacy – while producing an outcome that would probably satisfy nobody wholly – would at least create a definition that was meaningful enough to ground a productive debate. And with the bad debts still being collected, it’s vital that that debate happens soon.

‘First, commercial and investment banks don’t want to see it happen. If it did, not only would they see some of their existing debts written down, they would also see the value of any relevant bonds that they or their clients were holding slashed. Their opposition has been completely unambiguous. An alliance of banks including Citigroup, JP Morgan Chase, UBS and Deutschebank responded to the IMF’s SDRM proposal with a statement to the effect that the plan was unworkable in any form. ‘no changes in any specific aspect of the plan’ would alter their ‘serious concern about the proposal,’ the banks said. And they wield immense political clout.

‘Second, despite Paul O’Neill’s support for a bankruptcy-type procedure while he was still in office, no one within the Bush Administration has got behind the idea since his abrupt resignation in December 2002. This is not surprising, given that all variants of this plan would entail the US handing over the de facto control it enjoys through the World Bank and the IMF  to a neutral authority. Multilateralism, as we all know, has not been high up the Bush Administration’s agenda.’ [Hertz, IOU, Harper Collins, 2004]

Reading this power analysis it occurred to me that both of these factors have changed – and changed in our favour. Clearly we have an administration in the US with a greater sympathy for multilateralism (as well as one which – thanks I’m sure to Jubilee USA – has already made a commitment to tackling the issue of odious debt). And as for the banks… well, they owe us one, don’t they? In fact, they owe us quite a few trillion…

Maybe one of the ways they could pay that back is by not interfering when we ask for an FTA?

James Picardo

The location of Ecuador was not chosen at random, for while international delegates made plans the country´s officials and civil society members were finishing an audit of Ecuador´s illegitimate debt, the first time that any country has put together an official and properly-resourced exposé of unjust debt.

It was inspiring to participate, and see how Scottish  debt activism fits into a huge and highly diverse global movement. As the week wore on campaigners from Asia, Europe and the Amercias first got to understand each other´s perspectives and strategies, then to argue with each other, and in many cases to reach powerful agreements. And all this against the backdrop of a country which is beginning to assert itself strongly against the gross imposition of debt.

The two final resolutions that the conference passed were in support of the Haitian people – whose suffering is currently so exacerbated by unjust debt – and also in support of the Ecuadorean debt commission, with a particular hope that their findings would inspire policymakers to renounce and repudiate the country´s illegitimate debt.

As the conference breaks up, however, this final outcome hangs in the balance: the commission does not deliver its report until the 28th of September. And there is the small matter of a national constitution to steer through in the meantime. One thing is for certain – the debt campaigners of the world may be flying out of Ecuador, but they will be watching it extremely closely over the next few weeks. A small country, it could be about to throw a punch at international debt that is well above its weight.

If Malawi had received its debt relief with no hidden reductions and cuts, it would have had $101 million extra per annum free in its budget (the UK, in comparison, gave $180 million in 2006: SID, table 16.2). What it has really had is less impressive even than this. At best Malawi’s debt relief amounts to nothing more than a marginal adjustment to its domestic debt interest bill; at worst it amounts to less than nothing.

In September 2006 Malawi completed the Heavily Indebted Poor Countries process. Goodall Gondwe set out his intention to use the money saved specifically for the benefit of the poor. “Mr Speaker, Sir, and Honourable Members”, he stated, “during the budget review in March, it was proposed to spend these debt relief resources on those social activities that would benefit the poorer segment of the population.” (2007/8 Budget Statement, para. 48 – link now broken.)

But this appears to be impossible, since the terms and conditions of the debt relief Malawi received actually reduce the amount of money available for “the poorer segment”.

Gondwe’s 2007/8 Budget Speech explains that the overall debt stock was reduced from $3.0 billion to $0.5 billion, leading to saving in interest and capital repayments of $101 million in 2007/8; however, Malawi had been receiving $36 million per annum since the year 2000 in interim debt relief; so extra value provided by debt relief in 2006 was around $65 million per annum

However, a large proportion of this new debt relief money was provided under the terms of the deal agreed at the G8 Summit in Scotland in 2005: and under these terms, countries receiving debt relief also get a cut-back in the amount of development loans they receive from the World Bank. One of the terms of the debt relief deal for Malawi was that its World Bank funding would be reduced by $27 million per annum (this is, apparently, because the US won out over the UK during the 2005 G8 Summit debt relief negotiations: download article here). Now, the World Bank provides money to Malawi, it says, specifically to help with reducing poverty; given this, it seems fair to say that this $27 million per annum reduction is money that would have been, and now is not, available to benefit the “poorer segment”.

Malawi has – or had, in 2006 – huge domestic debts; this is because the government under Muluzi shored up its budgets by borrowing large amounts from Malawian and Malawi-resident businesses. An agreement was made with the IMF that a large proportion of the money saved through getting debt relief in 2006 would be directed towards reducing domestic debt. This agreement, set out in the 2006 Article IV Consultation(para. 22) ringfences $26 million per annum for the Malawian budget, and directs the the remainder to reducing domestic debt.

This means that only $26 million per annum is available for spending specifically on projects that benefit “the poorer segment of the population”. But we have already seen that the World Bank is reducing the money available for reducing poverty by $27 million per annum So Malawi had less, not more, money available for spending against poverty as a result of getting debt relief.

Certainly, by reducing domestic debt, the Malawi government will have a lower domestic debt interest bill to pay, and this will improve its financial situation overall. The IMF Article IV consultation says it will reduce domestic debt by 1.4% GDP; I have not tried to calculate the significance of this for the annual domestic debt interest bill. However, the claim made by governments and NGOs alike, was that debt relief money would go directly to pro-poor spending. “The debt relief to be provided as a result of reaching completion point will provide a great push to Malawi’s poverty reduction efforts”, said Michael Baxter, World Bank country director for Malawi.

This is a tremendous overstatement. If Malawi had received debt relief without these underlying conditions, it would have made less difference than an ungenerous donor. As it is, the debt relief will result in less money available specifically for “pro-poor” spending, but with some circumstantial reduction in the pressure of the domestic debt interest bill.

Debt relief is a noble cause: but delivered in this form it is vitiated.

Jubilee Scotland

Our discussions about Indonesia continued well into the evening with Kusfiardi remarkably showing no signs of jet lag (considering the flight from Jakarta had taken 15 hours to get to Scotland) and we looked forward to showing him a little of Edinburgh the next day as an introduction to Scotland.

The next morning our first visit was to show Kusfiardi the best view of Edinburgh, from Arthur’s Seat and the Crags, then we drove to East Lothian to North Berwick to walk on the beach and talk more about debt and the Jubilee Scotland campaign to cancel Indonesia’s arms debt owed to the UK.

Time and again Kusfiardi impressed upon us just how devastating the impact of debt was having in Indonesia not just by taking resources away from the government’s budget but also because of the lack of disbursement of loans in the first place. Not only is Indonesia having to repay the debts but it has never received the full amount that was owed to them in the first place!

It is Kusfiardi’s belief that is this that makes the issue of debt an issue of political control, with the creditors and multinational corporations having the power to control the destiny of Indonesia.

Kusfiardi also told us about the current political situation in Indonesia where the government that day were about to increase fuel prices, a development that was being driven by the oil multinational corporations based in Indonesia and the impact this would have on everyday life.

But he remains hopeful that by coming to Scotland and campaigning with Jubilee he can show the Indonesian government that there is concern for Indonesia’s debt issue in the international community and that the people of Scotland are determined not to continue to be party to the injustice of the arms debt owed to the UK government.

Tomorrow, the tour begins in Inverurie where Kusfiardi will be talking  with local campaigners and the public on Indonesia’s debt and encouraging them to take part in the Jubilee Scotland campaign. There will also be a screening of John Pilger’s ‘New Rulers of the World’ .

The dates and venues of the tour are:

Monday 26th May  – Inverurie
Tuesday 27th May – Kilmarnock
Wednesday 28th May – Edinburgh
Thursday 29th May – Dumbarton
Friday 30th May – Kirkcaldy 

 For more information about these events click here

Here’s an update on our speaker tour with Kusfiardi:

Inverurie 26th May – The Acorn Centre, West Church

Our first stop on the speaker tour was Inverurie and what an opener! A packed hall gave their full attention to Ardi’s presentation and there followed a good discussion afterwards on the issue of Indonesia’s huge odious debt. The audience were also keen to take action and find out what they could do to support justice for Indonesia so the Jubilee Scotland campaign received lots of petition signatures as well as support for lobbying the local MP Malcolm Bruce.

For Ardi, the evening was a sign that Scotland was prepared to do what it could to support his movement in Indonesia and a real encouragement for the rest of the speaker tour.

A thousand thanks go to the organisers at the Acorn Centre who fed, hosted and gave us a bed for the night. Special thanks goes to Ian Groves and good luck to all at West Church!

Kilmarnock 27th May – St. Kentigerns Church
After travelling down from Inverurie and stopping off for a couple of hours in Edinburgh the speaker tour was on the road again, this time to the western town of Kilmarnock. It is amazing to see how people engage with both Kusfiardi and the John Pilger documentary film we show, this combination really translates well the injustice that Indonesia continues to face under the mountain of debt. The discussion continued after the event on a whole range of issues to do with food security, sovereignty and positive conditionality. Thanks to Grant Barclay for all his help on the evening.

Edinburgh 28th May – Scottish Parliament
Kusfiardi had the opportunity to address the International Development Group (IDG) at the Scottish Parliament with Patricia Ferguson MSP and impress upon them the issue of Indonesia’s debt. A small meeting, but helpfully arranged by Patricia at short notice to give Ardi the chance to speak to the IDG. There was a good discussion, displaying the depth of knowledge that many of the Group members bring, and Patricia called for the group to review the situation with Indonesia’s debt and to return to it later in the year. This Parliamentary group is one of the most important forums for development and politics in Scotland, and it was great to be invited to it (the photo shows Ardi with Patricia Ferguson MSP, convener of the Group, and former Minister with responsibility for international development in Scotland – plus Adriana Sri Adhiati of Down to Earth, and other members of the Group).

 Edinburgh

Wednesday evening, 28th May. Ardi spoke at Augustine United Church, along with Adriana Sri Adhiati, and David Lunan, the Moderator of the Church of Scotland. “Evil debts” – so David Lunan called the vast sums which function to enslave the developing world.

We were there to discuss the effects of debt on Indonesia. A vast country, tremendously rich in natural resources: “The greatest prize in Asia”, Richard Nixon called it, quoted in John Pilger’s film “The New Rulers of the World.” Adriana showed us a map of “Indonesia Incorporated”, compiled by Friends of the Earth Indonesia. Vast swathes of the country were blocked out in red for mining, brown for logging, and the like — vast swathes: and this in a country longer by far than the breath of the USA (Indonesia is the fourth most populated country, after China, India and the US.

Ardi, James and Adriana at the Edinburgh Witness to Injustice event.

In theory, foreign loans are a good way for a country to develop. If a neighbour has a surplus, why not invest that surplus and take a return from the proceeds of their augmented labours? But Ardi underlined, through multiple examples, the difference between the theory and the reality. The reality is that loans come under certain economic conditions, that they entrench the power of certain elites, and that the financial mechanisms that underpin them serve to pipe wealth out of the country. A comfortable recitation of the theory, it seems, will never give us the whole story of the political economy of debt.

Ardi speaks with David Lunan, Moderator of the Church of Scotland 2008.

A few pictures from the event in Dumbarton, at the wonderful St Augustines Church.

The last day of Ardi’s tour of Scotland: Friday 30th May. A day of political meetings. In the afternoon Ardi met with Mark Lazarowicz, MP for Edinburgh North and Leith, and a long time supporter of Jubilee Scotland. Mark asked Ardi about the Indonesian government’s views on debt cancellation, and whether that government would be able to use the money wisely. Ardi pointed out that there is a public budget process in Indonesia, and that the use of funds is open to public scrutiny.

In the evening James, Westaly and Ardi went to Kirkcaldy, seat of the current UK Prime Minister Gordon Brown, for a meeting in the city council chambers. The audience was small, but comprised Kirkcaldy’s most committed and influential campaigners, as well as Marilyn Livingstone MSP, a member of Fife Council, and a researcher from the Prime Minister’s own constituency office.

This event closed the speaker tour in Scotland. Ardi had spoken at evening events in Inverurie, Kilmarnock, Edinburgh, Dumbarton and Kirkcaldy, at the Scottish Parliament and at a campaign planning meeting with other NGOs; VIPs he met included the Moderator of the Church of Scotland, Patricia Ferguson MSP, Mark Lazarowicz MP, Marilyn Livingstone MSP, Fife councillors and a researcher for Gordon Brown: and many of the most heartfelt, wise and committed campaigners in Scotland (one hundred and sixty or so people came to an event during the week).

The next job for Jubilee Scotland is to organise lobbies of the most relevant Scottish ministers to press home the points from the “Witness to Injustice” tour. We still have live hopes of cancelling Indonesia’s arms debts, and setting new rules for international finance.

Ardi, in the meantime, has gone to London for a few days, prior to returning home.

On 3rd June I accompanied Kusfiardi to a meeting of the All-party Parliamentary Human Rights Group in Portcullis House, Westminster. 

Jubilee Scotland’s main reason for wanting to attend this meeting was to keep our campaign engaged with civil society perspectives on the human rights situation in Indonesia. Earlier in the year Ben and I had met with Richard and Benny from the Free West Papua campaign, and had been horrified to learn of the extent of continuing human rights violations in West Papua. What would be the consequences of cancellation in this context?

Meeting Ardi made a huge difference to my understanding of the links between debt and human rights. The point that he made, strongly and repeatedly, was that it was at the point of bad loans being issued that they shored up the impunity of odious regimes, as the projects to which they were attached presented ample opportunities for corrupt elites to skim off money. Debt cancellation, by making more money available to the scrutiny of civil society and parliament, serves instead to increase the sovereignty of the people. 

After the meeting – which was attended by several MPs and one Lord – Ardi confessed to me that at points he had felt uncomfortable about some of the language in which the discussion was couched, particularly the way in which the UK government was asked to ‘save’ people from the villainies of the Indonesian government. In his contribution to the discussion he preferred to look at the role of the Western backers of the ‘comprador’ Indonesian regime, at the activities of multinationals like Rio Tinto and BP, to whom Suharto was bribed to open Indonesia and its economy, and who now preside over the environmental and human despoliation we see in West Papua. By extension, he also perhaps led us to look at the possibility of using leverage on Western economic institutions – corporations, IFIs and Export Credit Agencies – to bring about positive change in the field of human rights.

It was a real privilege to meet the Indonesian and UK campaigners who battle – often at great personal risk – for the human rights of people in Indonesia. It was also exciting to see how much Ardi brought to the table. When global justice campaigners look at individual national cases many difficult questions are thrown up, which can be side-stepped when one talks in general terms about ‘the world’s poor’. But this meeting showed that by engaging with these issues head on campaigners who traditionally ply different paths can enrich and strengthen each others work. I hope that the alliances forged at this meeting play a strong role in the future of Jubilee Scotland.

Kusfiardi’s last engagement was on Thursday the 5th of June, when we went with our colleague Sarah Williams from Jubilee Debt Campaign to meet officials from the Export Credit Guarantee Department, the UK government department who ensured – and are currently collecting repayments for – the bad loans that are the focus of our campaign.  

I had noticed throughout the speaker tour that the more confrontational and technical his interlocutors, the more Ardi rose to the challenge, and this meeting was no exception. He refused to be intimidated by the plutocratic architecture of Canary Wharf – ‘the elevator is speaking to us’ he remarked with a smile as we disembarked on the 13th floor of Exchange Tower – and repeatedly brought the discussion back to the core concerns of our campaign.

Ardi stressed the difficulty the people of Indonesia had in finding their feet when around 60% of their taxes went to debt repayments. He did not beg, but stressed the growth of a strong grass-roots movement in his country that was increasingly pushing the Indonesian government to de-recognise it’s illegitimate debts. Within this context I suggested that the Jubilee ‘Lift the Lid’ campaign, with its emphasis on an international and multilateral consensus on odious debts, was worthy of their serious attention.

It’s difficult to gauge how much of this serious attention we got. Certainly the meeting room was stuffed with officials of some seniority, including the CEO – Patrick Crawford. We encountered some of the usual red herrings – including the obligatory statement that it is pointless for the UK to clean up its own act when China behaves in the way it does. We were also told that standards had improved in the last few years, and that no new deals are being made to Indonesia. 

While these last statements are possibly true, they are impossible to verify as long as so many ECGD-backed deals remain shrouded in commercial confidentiality. And while it felt exciting to expose this most business-minded of departments to the views of a campaigner from the Global South, it will clearly to be difficult for our campaign to make headway while the accounts of this secretive organisation remain closed to the public. To lift the lid, in other words, it may first be necessary to open the books.