Debt around the world – winter 2013

9 December 2013

Below are some developments from the world of global debt over the past few months.

1. The Scottish Government launched its White Paper ‘Scotland’s Future’ on the 26th November. In this, debt relief is highlighted as a priority for international development, with the statement:

“The Scottish Government will give careful consideration to the question of ‘unjust’ debts; will work to ensure that Scottish export politics do not create new unjust debts; and support moves to establish Scotland as an international centre for debt arbitration.”

While remaining neutral on the issue of Scottish independence, Jubilee Scotland is welcoming the Government’s recognition of sovereign debt as a key issue for Scotland’s international development policy. This is a great campaign success. It is recognised however that in either scenario following the referendum Jubilee Scotland’s work must continue to ensure unjust debts are given full consideration through an audit of Scottish and UK debts and a commitment made to cancel all those deemed to be unjust.

Jubilee Scotland’s paper outlining their asks for debt justice in both a yes and no vote, and responses by the Yes Scotland and Better Together campaigns can be found here.

The Scottish Government’s commitment appears in chapter 6 of the white paper.

2. Egypt has been revealed to be the most indebted country in the Middle East and Africa, seventh in the World. (Argentina remains in first place globally as the country least likely to be able to pay its debts.) Egypt’s debts now make up 79.8 percent of its GDP, totalling $234.4 billion which is the equivalent of $2600 for every Egyptian citizen. The likelihood of Egypt being unable to pay its debts has now risen to 37.9 percent. Egypt is a key case for Scotland and the UK with many debts owed by the country being to UK Export Finance for loans made during the Mubarak regime and for arms. Meanwhile, Kuwait plans to buy $2 billion of Egyptian bonds as part of a second aid package having already pledged $15 billion in aid alongside Saudi Arabia and the United Arab Emirates earlier this year.

Read more on Egypt’s debts here.

3. Greneda is making plans to lower its income tax threshold on the recommendations of the International Monetary Fund (IMF) and as part of its debt restructuring programme. Grenada is currently seeking to hold a conference with all of its creditors to come to a mutual agreement about how to meet its debt obligations.

4. The IMF Fiscal Monitor Report estimates that Pakistan requires $76.9 billion, the equivalent of 30 percent of its yearly GDP to pay off its existing debts. This places it at the top of the of the list of indebted emerging countries and suggests it is going to find itself borrowing more in order to meet its repayments.

5. Several developing countries, including Jamaica, El Salvador and Pakistan, are failing to meet international development goals after rich countries reneged on a pledge to deal with their debts. Moreover, unjust debts in countries such as Greece, Portugal and Latvia are now increasing poverty at an alarming rate. These findings are part of Jubilee Debt Campaign’s ‘Life and debt: Global studies of debt and resistance‘, published in October 2013. The report compares debt crises in nine countries: Egypt, El Salvador, Greece, Jamaica, Latvia, Pakistan, the Philippines, Portugal and Tunisia.

Key findings include:

  • Jamaica pays more on its foreign debt repayments than Greece at a staggering 33 percent of its revenue.
  • Greece is spending 29 percent on its revenue on debt repayments.
  • El Salvador continues to spend 25% of government revenue on foreign debt payments, the debt originating from lending by the western world to the vicious military junta in the 1980s, whilst hunger and extreme poverty are increasing.
  • Pakistan is unlikely to be able to meet many of the Millennium Development Goals because of its debts, including those aiming to halve the proportion of people going hungry, eliminating gender disparity at all levels of education, and reducing by two-thirds the child mortality rate.

The report also gives inspiring examples of the campaigns in countries for debt justice, for example calls in Tunisia for a debt audit.

6. At the Commonwealth Heads of Government Meeting in Colombo, Sri Lanka, 15-17th November 2013, on the issue of debt it was minuted that:

‘Heads welcomed the report of the Commonwealth High Level Mission on the debt and financing challenges of Small States. Heads emphasised the need to continue advancing global awareness of unsustainable Small States’ debt and the accompanying financial challenges they confront, building on the Mission’s recent work. They endorsed the recommendations of the Mission’s Report, underlining the importance of continued collaboration within the international community to address these debt and financing challenges and to build small states’ resilience as well as continued engagement on innovative solutions such as the Mission’s proposals for debt reduction and the inclusion of a vulnerability criterion in debt alleviation interventions and allocation procedures of international financial institutions. Heads reaffirmed their support for the Commonwealth Secretariat’s current debt management and recording work.’

It is reassuring to see sovereign debt maintaining a place on the agenda of the Commonwealth Heads of Government. The report to which they refer includes recommendations on the need for integration of resilience building of small states, provision of grace periods for debt repayment during times of natural disasters or other external shocks and provision of countercyclical loans. Whilst these are valuable contributions to the pursuit of debt justice, Jubilee Scotland believes these efforts must go further if they are to tackle the unjust economic systems which support existing lending and borrowing principles. Equally, more attention must be paid to the concept of ‘unjust debt’ and its necessary cancellation.

7. The IMF wants Sri Lanka to boost its tax reveunes to cut both its budget deficit and public debts, a further demonstration of the IMF seeking to impose its economic policies on developing countries. Read the full story here.

8. Qatar has agreed to provide $150 million in debt relief to Palestine. This was announced by US Secretary of State John Kerry during Israeli-Palestinian peace talks in October although no further details were provided.

9. A new Eurodad report, ‘The new debt vulnerabilities. 10 reasons why the debt crisis is not over’ was published in November 2013. It finds that debt vulnerabilities have changed, but overall have not been substantially reduced. The number of bank failures has dropped since the height of the financial crisis which is good news. However, the downside is that governments have paid a high price to stabilise the financial sector, and sovereign debt levels have surged. It states that:

Debt has not been canceled or paid off, it has simply been shifted from one balance sheet to another, and primarily from the private purse to public or government coffers.
The opportunity to use the financial crisis for fundamental reforms in nation and international debt management and debt crises prevention and resolution has largely been wasted.

To read a summary of the report and its recommendations as well as download a copy you can visit the Eurodad website.

10. A Bank of England report has criticised existing methods of dealing with sovereign debt crisis. Referring to bailouts in Greece, Ireland, Portugal and Cyprus, the authors say using public money to bail out nations leaves taxpayers shouldering an “inequitable” burden. They suggest that private creditors, those who lent indebted nations the cash in the first place, should instead foot the bill for any rescue.

Whilst acknowledging that current trends in ad hoc bailouts in response to debt crises are poor, the report pays no attention to considering alternative longer-term solutions to debt workout upon which Jubilee Scotland campaigns. It maintains a commitment to bailouts and simply shifts emphasis from public to private rescue plans.

Note: in a disclaimer the report states that the views are not necessarily the official view of the Bank of England, rather the authors of the paper.

11. US American Brooking Institution recently published a new paper on sovereign debt restructuring entitled ‘Revisiting Sovereign Bankruptcy’. It highlights creditors’ role in irresponsible lending, a positive statement in shifting focus away from placing blame on debtor countries for their debt burden. It also promotes the contribution of stakeholders, including NGOs and civicil soviety, in discussions of debt restructuring. Jubilee Scotland welcomes these commitments. On the downside, however, there are only very weak proposals for a reformed scheme. Whilst understanding the need a statutory insolvency framework for sovereign states – a system through which debts can be restructured – rather than presenting alternative ways in which this can be done they point largely only to a wide range of challenges which are presented.

Read a full account written by Jürgen Kaiser of Erlassjahr, a Eurodad member and a partner organisation of Jubilee Scotland.


Illegitimate Greek Debt

13 June 2013

By Alice Picard, Jubilee Scotland Volunteer (All posts are the views of the author, not Jubilee Scotland as an organisation).

I don’t know what you were up to this Tuesday 11 June 2013 but I was demonstrating in front of the Edinburgh International Conference Centre. Well, almost. Because despite long negotiations with the police, we never made it through to the entrance of the building where the TEDGlobal Conference was taking place. No, we were not trying to get there without paying the £6000 admittance fee. We were rather chanting our opposition to George Papandreou giving a speech in the first session of the conference.

Image “Papandreou, who’s that?”, you ask. Well, you know, the former Prime Minister of Greece, elected in 2009 who served a two-year premiership during which time he was supposed to put an end to austerity measures. “Oh, so that’s why he was invited. To tell attendees how he managed that.”, you naively assume. Well, not exactly. By the way, I thought you were aware of the dreadful current situation in Greece! Mr. Papandreou “drew lessons from the Greek crisis”. I assume the many Greeks who took part to the protest were perfectly able to do that. “We know the lessons from the crisis firsthand. We don’t need lectures from the bosses”, their banner read [1].

ImageLet us imagine anyway how George Papandreou’s speech sounded like.

“Ladies and Gentlemen, thank you for being here today. I understand you are expecting me to draw lessons from the Greek crisis. When I came into office in 2009, I inherited a fair amount of debt, to say the least. After meetings with my European colleagues and elected – but mostly non-elected – officials, I got convinced that the best way to tackle the Greek debt and deficit was to get the country into deep recession. The best way to achieve such a result was of course to implement austerity measures, designed in agreement with the Troika, that is the European Central Bank (ECB), the International Fund (IMF) and the people of Greece. I’m kidding, I meant the European Commission (EC).

Of course it did not matter whether or not the same people who had voted me in agreed with these measures. They were quite opposed to it by the way. As soon as we started reducing the minimum wage and pensions, cutting public spending, privatising and making civil servants redundant, they responded by organising massive protests and general strikes. I had a ready-to-use solution though. It was not the first time such policies were imposed against the will of the people. I could count on the IMF’s decades-old experience with Third World countries and on my own country’s history for that matter [2]. Now, if you find yourself faced with opposition, do not slow down the process and keep going. Ideally you would even buy state of the art military equipment and show no mercy for the protesters. Do not forget to criminalise workers’ ability to defend their rights. Naomi Klein calls this efficient combination the “shock doctrine”. In the end, your opponents should grow tired and look powerlessly at the social fabric of the country being ripped apart [3].

How can you assess my success? Not only Greece fell into a deep recession, it is now also facing a humanitarian crisis. Thanks to widespread poverty, people can no longer afford medication, to heat their home, to go to the hospital or to send their children to school. 21% of people now live in poverty and 62% of young people are unemployed. But it is the price they pay for the collapse of the international financial system, bank bail-outs, speculation, the euro and the failure of the successive Greek governments to implement a fair and effective tax system. As you know, “we’re all in this together”. In addition, we cannot be expected to cut on military expenditures, this money goes into the pockets of French and German military industries. So, in addition to reduction in wages for those lucky enough to have a job, we decided to sell out water, energy and railways and to increases taxes, for everyone. Isn’t it a brilliant idea? We ask the average population to pay more with less money. Hence the rise in the number of people committing suicide and the rise of the far right .

Image I am happy to announce that Golden Dawn had Members of Parliament elected in the last elections. With massive support for the party within the police, racially motivated violence can go on with impunity. You can also add to my record that life expectancy is due to fall and the Greek debt to go up this year. Let’s be honest, the point of all that was not really to reduce it anyway. [4]

Fair enough Mr. Papandreou. Now, I know most countries in Europe are tempted to follow suit. However, in a democracy, you should take people’s opinion into account before you go ahead with measures which seriously undermine human rights. If the only way you found to pay back the debt is to cut on healthcare and education and to increase poverty, then it certainly means it is unpayable. As such, it should not be repaid. All the more that if a debt audit is to publicly uncover where the debt came from, who benefited from it and whether and how it should be repaid. Should the Greek people pay for the 108 billion euro required to bail out the banks for instance? Finally, if force has to be employed to push the austerity measures through, this is another indication that the debt is illegitimate. Illegitimate debt actually builds on the concept of odious debt, presented for the first time in 1927 by an economist called Alexander Sack. Odious debt is also based on three prerequisites. First the loan has to be received by a government without the approval and knowledge of the people. Secondly the loan is not spent on activities beneficial to the people and finally the lenders know of this situation. Ironically, this concept has been used several times by the United States to repudiate debt, most recently in Iraq. That the members of the Paris Club asked for the concept not to be officially mentioned was not a reason not to appeal to the concept. Instead Mr. Papandreou, you gave up the sovereignty of Greece and defaulted on the Greek people.

You did not get out of the building Mr. Papandreou in spite of us chanting “Papandreou get out! We know what you’re all about: cuts, job losses, money for the bosses!”.

Image You cannot deny you – and your successors – implemented the cuts and the job losses. As to the “money for the bosses”, two examples will speak for themselves: the national lottery was privatised despite the fact that it was highly profitable and one gold mine in the north of the country was sold for £9.5 million whereas it is believed to have gold and copper worth £8 billion. Other leaders showed more boldness than this though.

Some governments have refused to pay the debt. Countries such as Ecuador, Argentina or more recently Iceland defaulted, audited their debts or insisted their own terms for repayments. In Argentina, it took the President having to flee in helicopter under popular pressure. Not surprisingly, these countries all fare better than Greece, Spain or Portugal. Ecuador even went further and passed a constitution which prohibits the socialisation of private debts. Beforehand, an audit reviewing all debt contracts from 1956 to 2006, had proven the debt was odious, illegitimate and unconstitutional. During the 1980s and 1990s, Ecuador had spent 50% of its budget on debt repayments and 4% on healthcare. Rafael Correa, elected in 2006, decided debt repayments would no longer prevail on life. Thus, Ecuador declared the cessation of payment for 70% of Ecuador’s debt in bonds. But I guess you were not really willing to go against the neo-liberal agenda. People are though. They are prepared to take to the street. They already have in Scotland to call for the bedroom tax to be axed and it is no surprise people here were keen to hold you accountable Mr. Papandreou. It is not worth putting the blame on Brussels and financial markets [5], you also share some responsibility.

[1] Helen Walters, “Protesting Papandreou: Anti-auterity demonstrators at TEDGlobal 2013”, TED  Blog.

[2]  Katerina Kitidi and Aris Hatzistefanou, Debtocracy, 2011

[3] Nick Dearden, “Nick Dearden blogs from debt campaigner delegation to Greece”, Jubilee Debt Campaign.

[4] Nick Dearden, “Nick Dearden blogs from debt campaigner delegation to Greece”, Jubilee Debt Campaign.

[5] Helen Walters, “The failure of leadership in politics: George Papandreou at TEDGlobal 2013”, TED Blog.


EXTRENAL DEBT AUDITS AND FAIR AND TRANSPARENT ARBITRATION – THE CASE OF ECUADOR

11 March 2010

On the 15th of December 2008 Ecuadorian President Rafael Correa took the unprecedented step of declaring that Ecuador would stop paying interest on commercial bonds owed by the government on the basis that they were ‘obviously immoral and illegitimate’. The decision came as a result of a comprehensive debt audit for which Ecuadorian civil society had been campaigning for a number of years.

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


Malawi’s debt relief enigma

14 July 2008

What was the value of Malawi’s debt cancellation (received in September 2006)?

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


Jubilee Scotland and Jubilee Debt Campaign meet the ECGD

12 June 2008

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.


THE EUROPEAN INVESTMENT BANK by Cornelia Trogmann

25 April 2008

Previously we examined the role of the Export Credit Guarantee Department (ECGD) and its role as the major UK government debt generator. Cornelia Trogmann here turns the spotlight on another lender funded by the UK government. The European Investment Bank (EIB)

The European Investment Bank was established in 1958 as the long-term lending institution of the European Union. It is mandated to provide financing in support of all policy objectives of the EU (CEE Bankwatch Network: The European Investment Bank. Promoting Sustainable Development “Where Appropriate”. November 2007). With an annual lending portfolio of more than €45 billion, the EIB is probably the largest public international financial institution. But it also is the least transparent European institution. It operates worldwide in a wide range of projects – in 2006 alone, the EIB distributed €5.9 billion to projects outside the EU – yet it does so without clear environmental, social or development policies in place. (Bank Watch 2008)  

 

But while the World Bank and the IFC operate with a single overarching mission in all their countries of operation, the EIB operates with distinct regional mandates outside the EU, as defined by the European Council. Acting outside of the EU, the bank is charged with implementing European Commission policy in the sphere of development cooperation. As a European Institution it has the duty to promote human rights and social principles outside the EU. But it still lacks specific operational policies on key social development and safeguard issues such as potential risks and impacts, public participation and information, health and safety, independent experts, meaningful prior consultation with affected communities, core labour standards, gender equality, and resettlement  (Tom Griffiths 2006) Instead, the main focus seems to lie on the European companies’ profit. Certainly, their controversial projects display a strong lack of expertise and an even stronger interest in lucrative investments. (The Guardian 2008)

The EIB is rather secretive about its projects. Minutes of its meetings are never published, so it is widely suspected that there is a culture of swapping favours between the countries. The EIB doesn’t even publish staff contact information and the evaluation of individual projects is considered as internal information and is not made public in principle. (Bank Watch 2007).

Counter Balance and Bankwatch have recently had a closer look at some of the projects the EIB has helped to fund, and the findings are worrying. One the EIBs more controversial recent involvements has been with the Gilgel Gibe hydro power project in Ethiopia, to which it contributed millions of euros (the remainder of the project was financed by the World Bank, the Austrian Development Cooperation and the Ethiopian Government). This project dates all the way back to 1985, but is still being implemented in 2008. The EIB has so far leant €41m for the construction of Gilgel Gibe I and €50m for Gilgel Gibe II. The bank has been formally approached by EEPCo for a new loan for Gilgel Gibe III, an offer that the World Bank has flatly refused to accept because of criminal proceedings that are hanging over the head of Salini Costruttori, the Italian construction company responsible for the building of the Gilgel Gibe II dam. Nevertheless, the EIB is still considering a multi-million euro loan for the construction of this third dam.

The EIB’s participation in the operations raises various concerns about the coherence and the compliance with international standards and best practices (the Gilgel Gibe III Dam does not comply with any of the seven strategic priorities of the World Commission on Dams), as well as with EU policies and with the bank’s own operational policies. For example, the EIB has apparently failed to consider that the energy generated by Gilgel Gibe III is fully export oriented. This will certainly not help the cause of Ethiopia, which already has one of the world’s lowest levels of access to modern energy services, and relies primarily on traditional biomass, which is responsible for massive deforestation that in turn causes severe erosion and loss of topsoil in many of Ethiopia’s river basins. While EEPCo (fully state-owned and currently the sole electric utility in the country) claims to have increased energy access from 17 percent to 22 percent between 2005 and 2007, figures reflecting direct access to electricity remain at only 12 percent of the population, and there is a great disparity between the access rates of urban and rural residents (Counter Balance 2008)

Also, the project cannot be considered as one of poverty reduction. Rather than bringing social development and an alleviation of poverty, the creation of the reservoir has resulted in the displacement of an estimated 10000 civilians. Of these, many were resettled on swampland, which was of poor agricultural quality and which had no electricity supply, despite being crossed by the high voltage transmission line. (CEE Bankwatch Network and International Rivers 2007).

 Neither did the EIB consider Ethiopia’s hydrological vulnerability to drought or climate change. The dam’s impact on animal disease, child and health nutrition, environmental health and ecology, epidemiology and infectious disease and soil fertility is still being analysed. (Counter Balance 2008)

The European Investment Bank, as well as the other main donors supporting the Ethiopian energy sector, justifies its investments by the projects’ potential for exporting to neighbouring countries. But from the evidence given above, the difficulties that this particular project has brought to the Ethiopian population are very clear to see. And this example is far from unique, in fact, a recent report of Counter Balance, which focussed specifically upon the Gilgel Gibe I, II and III large hydro projects, showed how goals to eradicate poverty and support local communities are most often compromised when major corporations and political elites are intent on maximising profits ( Counter Balance 2008)

Other examples of the EIB’s involvement in controversial projects include:

 Water privatisation in Indonesia. Since 1993, the EIB has granted almost €300 million in loans to projects in Indonesia, mainly in the gas and water sector. But rather than helping the poor to safe or more accessible water, these investments helped the private sector companies to increase profits at the expense of millions of consumers. (CEE Bankwatch Network 2006)

Bolivia-Brazil gas pipeline. Constructed in the late 1990s, this pipeline crosses several important ecosystems. The EIB granted a €55m loan for this project to a consortium including Enron and Shell. The EIB ignored the fact that gas is not a renewable energy, proof to many of the lack of respect the EIB shows towards EU environmental law in its projects. (CEE Bankwatch 2006)

Chad-Cameroon oil and pipeline project. In 2001, the EIB granted loans to the Chadian and Cameroonian governments and to Chevron and Exxon. Amnesty International found that the Chadian security forces carried out large-scale massacres of unarmed civilians in the oil-producing region in the late 1990s at the time of intense project preparations. The scandal was deepened further by the fact that Chad used part of the loan to purchase weapons. Nevertheless, the bank ignored the severe human rights abuse and corruption in these two countries. Negative effects include the loss of biodiversity along the pipeline route, and the poor waste management of the oil and drilling fluids threaten groundwater supplies. (CEE Bankwatch 2006)  

Mining in Zambia. The following year, the EIB granted a loan of €14m for the construction of a large mine without asking for an Environmental Impact Assessment prior to its approval of the project. This mine is a major source of air and water pollution in the local area. (CEE Bankwatch 2006).

 So what can be done to prevent the EIBs continued involvement in such controversial projects in future? Opposition parties have provided many answers, though all effectively seem to come to the same conclusion. Counter Balance, for example, has suggested that the EIB has to adopt clear and binding standards that are coherent with EU policies, and must also become more accountable for the catastrophes that are brought by their actions. (Counter Balance: European Civil Society Concerns About Inadequate Policies and Practices of the European Investment Bank. Memo for European Parliamentarians. February 2008). As Tom Griffiths has suggested, the EIB as a European Institution has a duty to promote human rights and social principles outside the EU as enshrined in European external policies and in European development co-operation treaties.  (Griffiths, Tom: 2006) Similarly, Bankwatch has suggested that the European Commission and Parliament have to exercise more control over EIB operations in poorer countries and ensure compliance with long-term sustainable development objectives. (CEE Bankwatch 2006).


January Campaign Update on Indonesia

1 February 2008

Jubilee Scotland is currently trying to convince the UK government to cancel the >£500 million it’s owed by Indonesia. This is a small goal within a much broader international objective, which is to promote the doctrine of ‘odious debt’.

‘Odious debt’ is a concept which enjoys some international credibility, but not nearly enough! Put simply, it is based on the idea that, if a dictator takes out loans for violent, abusive or simply frivolous purposes, his people should not be required to pay back the debt after he has gone. Every victory of debt-cancellation on this basis – and there are many such campaigns all over the world – strengthens this important doctrine.

Why is there any need for this? What was wrong with campaigning for debt cancellation solely on the basis of a country’s poverty? Here are a couple of reasons to be going along with, although there are plenty more.

Firstly, the existing debt-cancellation mechanisms demand that a country be branded as a ‘Heavily Indebted Poor Country’ before it qualifies for debt relief. It is obvious why this is demeaning.

Secondly, if debt cancellation is enacted on the basis of bad lending, it turns the spotlight back on the lender, and perhaps makes them think twice about dealing with dictators in the future.

This is a global movement within which Jubilee Scotland plays a small part. Jubilee USA are campaigning, for example, on cancelling the debts extended to Haiti’s infamous Duvalier regime, the European anti-debt coalition EURODAD is working to get government’s to sign a declaration of responsible lending, while the Norwegian government has already cancelled its debts to Ecuador and other countries on the grounds of illegitimacy.

More to follow…