Lifting the Lid on UK debt

Lift the Lid on Bad Loans

Research on UK debts April 2007

The debt campaign is entering new terrain. Coupled with the HIPC initiative, the Gleneagles debt deal in 2005 has provided debt relief for 22 countries so far with another 9 in the pipeline. Some countries like Malawi will have 90% of their debts cancelled and this has to be recognised as a success for the Jubilee debt campaign worldwide.

But the campaign has to also recognise that there are issues of debt justice that have less to do with the headline grabbing billion dollar debt relief packages and more to do with uncovering the whys and whats of the loans in the first place. Debt cancellation in many ways covers over some uncomfortable truths about the origin of the debts and their legitimacy. For example Rwanda has had a large proportion of its debts cancelled – and quite rightly so, but how much has this distracted attention from rumours that UK companies were supplying arms that fuelled the Rwandan Genocide in the early 1990s? How much of Uganda’s debt (cancelled in 1998) was due to lending made to Idi Amin and should be investigated? It are these uncomfortable details that the G8 and international institutions are keen to avoid as this would highlight their own co-responisibility in the horrors that debt has caused. It is time to lift the lid on bad loans and begin uncovering the truth about debt.

It is in this vein that Jubilee Scotland are researching into outstanding debts owed to the UK. Despite the UK government taking the international lead on debt relief they have so far been reluctant to recognise theirbad lending in the past. The research began with a series of Freedom of Information requests to UK government departments that are or have been creditors to developing countries. We narrowed our requests down to a selection of relevant countries where there was suspicion of bad lending. These countries were Indonesia, Kenya, Lesotho and Tanzania.

Indonesia, Kenya and Lesotho have not received debt relief because they are deemed not to be ‘poor’ or heavily indebted enough. The Jubilee movement calls for debts to be cancelled not just if a country cannot afford to pay them but also if these debts are deemed to be illegitimate in the first place. By looking at countries that are not due debt relief we aim to highlight how the unethical nature of their debts should warrant cancellation.

We are using Tanzania because of a bribery and corruption case that is being investigated between the Government of Tanzania and the UK arms company BAE systems.

The Freedom of Information request was sent to two UK government departments. One to the Department for International Development (DFID) and the other to the Export Credit Guarantee Department (ECGD) which is part of the Department for Trade and Industry (DFI). UK bilateral debt is split between these two institutions and require separate analyses.

Each request asked for a breakdown of outstanding debt owed by the four countries. The following information is required to begin the research.

 

FOI request to DFID

Indonesia
Kenya
Tanzania
Lesotho

For each country please provide details of

1. Outstanding UK bilateral debt

2. How much of this is ECGD Debt

3. How much is CDC debt

4. How much is other bilateral debt

 

For each CDC debt please detail:

Date of contract

Name of borrower

Purpose of loan

Original amount of debt

Outstanding debt owed

Of this what is made up of interest and what of penalties

 

UK bilateral DFID debt

 

Dfid Response:

 

Outstanding Bilateral Debt (excluding any ECGD Debt) owed to the UK is as follows:

 

(£,000) DFID Aid Loans World Bank Loans with DFID as a co-Creditor CDC Loans Total





Indonesia 0 553 16622 17175
Kenya 0 1450 292 1742
Tanzania 0 0 0 0
Lesotho 0 217 0 217

DFID Aid Loans

There is no debt currently owned in the form of DFID aid loans by Indonesia, Kenya, Tanzania and Lesotho.

 

World Bank Loans with DFID as a Creditor

These World Bank loans, the bulk of which were to Low Income Countries, were originally funded by the UK and other then EEC creditors in the 1970s. Although they are administered by the World Bank, these loans were classified as bilateral loans in 2005.

The UK would wish to grant relief on these loans. However, it is only possible to give such debt relief if all eight creditors agree to do so. Debts held by Heavily Indebted Poor Countries (HIPCs) are cancelled in full when they reach HIPC Completion Point, with any payments made to the UK since 2000 returned to them. We are in the process of negotiating debt relief on loans to Decision Point HIPCs (again, any payment to the UK since 2000 will be returned to the country). The UK is not currently able to provide debt relief on our share of the loans to non-HIPC Low Income Countries because we have not been able to secure the agreement of the other creditors. We are continuing discussions and hope to be able to offer debt relief on these loans soon.

CDC Loans

No debt is owed directly by any government to CDC Group plc, which only lends to commercial organisations. However, some loans by CDC to parastatal and quasi-governmental organisations were guaranteed by their governments, and details of these loans are recorded in the attached table (below).

 

Government of Republic of Indonesia
1 Name of Loan – Rescheduling Deed
Date – 19 July 2002
Purpose – Rescheduling of amounts owing under 4 earlier loans;
three of the original loans were in support of agricultural projects,
one was for a hydro project; they were extended between 1982-85
Original amount of debt – £12,365,217
Amount outstanding at 31 Dec 2006 – £9,868,268
2 Name of Loan – Rescheduling Deed
Date – 15 September 2003
Purpose – rescheduling of amounts owing under 4 earlier loans;
three of the original loans were in support of agricultural projects,
one was for a hydro project; they were extended between 1982-85
Original amount of debt – £5,338,371
Amount outstanding at 31 Dec 2006 – £5,338,371
3 Name of Loan – Rescheduling Agreement
Date – 29 September 2005
Purpose – rescheduling of principal and interest owing in 2005 on
above two loans. This concession was designed to free-up Govt
resources so it could better respond to the tsunami.
Original amount of debt – £1,651,507
Amount outstanding at 31 Dec 2006 – £1,415,578
Government of the Republic of Kenya
1 Name of Loan – Rescheduling Deed
Date – 21 Feb 2003
Purpose – Rescheduling of amounts due under an earlier loan to
Housing Finance Co of Kenya originally extended in 1988
Original amount of debt – £303,125
Amount outstanding at 31 Dec 2006 – £291,818

 ANALYSIS:

Indonesia: CDC’s investments

 We began to look at the four loans made to Indonesia by CDC. Without the specific details of each loan we looked for the projects that CDC have been part of in Indonesia

CDC has invested in a wide range of businesses though its main investment sector is agribusiness. They have made multiple major investments in Indonesia, hence it is hard to determaine which of these investments account for the £16.6m, recorded in DFID’s account of Bilateral Debt still owed to the U.K.
Projects that CDC have invested in that may still exist as debt include, PT Agro Indomas (AI) in Central Kalimantan and PT Harapan Sawit Lestari (HSL) in West Kalimantan. Both investments were agreed with the government without the local people’s prior knowledge. As a result, some local people have found their lives in upheaval, their customary land rights denied and their livelihoods destroyed. These reports have called into questioned CDC’s decision to invest in these conflict-ridden projects given the agency’s close ties to the British government’s overseas aid agency, DFID. DFID, which promotes environmentally and socially responsible development and stakeholder involvement in decision-making in its own forestry sector projects, is currently CDC’s sole shareholder.
There are many question marks over where the outstanding debt to the U.K came from and until DIFD publish a complete breakdown of the figures, stating specifically what the loan spent on, judgements on how ethical the loans were is purely conjecture. Hence we must look to those who have been involved in the projects at some level to shed light on their content and state.

END

if you have any information that would help with our research then please get in touch by either emialing me at david@jubileescotland.org.uk or posting a comment. As the research comes in i’ll try and get it posted. more soon…

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One Response to Lifting the Lid on UK debt

  1. YOUR CSR DEVELOPMENT PARTNER…

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