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Who Should Pay Zimbabwe’s Illegitimate Debt?

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by Sen. Obert Gutu

30 Mar 09 | ZimDaily

Odious debts are defined as those debts incurred by the State, which debts are not for the needs or interest of the State but merely to strengthen the State’s despotic power as well as to repress the population that fights against despotism.

The legal doctrine of odious debts was essentially established by the writings of Alexander Nahum Sack; a quarter of a century after the settlement of the Spanish–American War.

Sack was a former Minister of Tsarist Russia and after the Russian Revolution, he became a professor of law in Paris, France.

Sack authored two major works on the obligations of successor states and these works are: “The Effects of State Transformations on Their Public Debts and Other Financial Obligations” and “The Succession of the Public Debts of the State”.

Thus, as far back as 1927, the world’s pre-eminent legal scholar on public debts, Alexander Nahum Sack, defined the doctrine of odious debts, which remains the ultimate legal source on that subject.

More than eighty years afterwards, Sack’s doctrine of odious debts brings clarity to today’s complicated developing world’s debt crisis were innocent citizens have to continuously pay debts whilst corrupt and negligent borrowers and lenders get away scot free.

Such a situation has been the rallying point for the moral justification to cancel most, if not all, of the developing countries’ foreign debts.

It is beyond debate that the overwhelming majority of the developing world’s foreign debts are odious in law. Naturally, Zimbabwe being part of the developing world, is inevitably caught up in this odious debts fiasco.

As at December 1, 2008, Zimbabwe’s external debt stood at USD5.255 billion, with a current account balance of — USD597 million. Put simply, the Republic of Zimbabwe is bankrupt since it has no capacity to service the afore-mentioned debt.

In his inaugural address after being sworn into office on Wednesday February 11, 2009, Prime Minister Morgan Tsvangirai advised the nation that the all-inclusive government’s main priority was to heal the broken economy and supply food for the hungry millions of Zimbabweans.

Prime Minister Morgan Tsvangirai stated that’; “For too long, our people’s hopes for a bright and prosperous future have been betrayed. Instead of hope, their days have been filled with starvation, disease and fear. A culture of entitlement and impunity has brought our nation to the brink of a dark abyss. This must end today”.

With these very solemn words, the Prime Minister must have been acutely aware of the state of hopelessness and indeed, utter destitution, amongst the millions of ordinary Zimbabweans.

The all-inclusive government inherited approximately USD4.7 billion external debts owed to bilateral, multilateral and commercial creditors. This paper shall seek to interrogate the notion that Zimbabwe’s external debt is legitimate and therefore; enforceable at law.

It is a notorious fact that as at the time of the formation of the all-inclusive government, Zimbabwe was virtually a failed state. This is so because the government had ceased to operate as a normal functional authority.

The economic challenges facing the country were such that the former government was clearly unable to meet essential state obligations such as the payment of civil servants’ salaries as well as the general running of public hospitals and public schools.

The country was virtually on auto-pilot. This paper adopts the view that Zimbabwe’s external debt of around USD5 billion is largely illegitimate and therefore odious. We have an inverse relationship in Zimbabwe, whereby the country’s debt continued to balloon simultaneously with the escalation of poverty and destitution, particularly amongst ordinary Zimbabweans.

It is therefore necessary to interrogate how Zimbabwe’s odious debts contributed significantly to the spread of poverty, destitution and squalor.

Whilst Zimbabwe is on record as seeking at least USD5 billion in order to jump start its comatose economy, the country has an external debt of around the same amount. It is therefore necessary to analyse how the external debt of around USD5 billion arose and who exactly benefited from such debt.

Like most developing countries, Zimbabwe is caught up in a debt trap. Zimbabwe is burdened with both short and long-term external debts which inevitably militate against efforts to jump-start its economy.

There is no doubt that the former regime run by ZANU (PF) incurred the external debt largely at the expense of the development of the ordinary Zimbabwe citizenry.

Whilst we have a few US dollar billionaires in Zimbabwe, more than 90% of the population lives in poverty, our unemployment rate is over 80%; life expectancy for women is 32 years and that for men is 34 years. At least 3 000 people perish every week due to HIV/AIDS related illnesses.

This is exacerbated by the fact that the public health delivery system has virtually collapsed.

Zimbabwe has no choice but to adopt the modern approach to international relations; which approach essentially dictates that developing countries should be given a platform where they can challenge the legitimacy of their debts to creditors with a view to ensuring that their development is not stifled by otherwise odious and/or illegitimate debts which militate against sustainable development.

The all-inclusive government in Zimbabwe should therefore clearly come out in the open and join the global voice that seeks the establishment of an international debt arbitration mechanism within the auspices of the United Nations. Put simply, the new all-inclusive government in Zimbabwe should urgently call for the establishment of an international debt arbitration mechanism whose core mandate is to deal with disputes centered on odious debts.

This paper is not advocating the position that Zimbabwe should arbitrarily repudiate all the financial obligations of the former government run by ZANU (PF).

The argument is put forward that Zimbabwe should advocate for a system that seeks to provide a forum where the all-inclusive government shall have the onus to prove that the external debt that it inherited from the former ZANU (PF) government do not attach to the state but to the previous regimes of both Zanu (PF) and Ian Smith; to the extent that these obligations were not incurred for the benefit of the people of Zimbabwe but for the individuals who administered the previous regime(s).

The lenders themselves are also to blame for this in that they lent monies to these despotic and corrupt regimes fully aware or at least reckless as to whether or not the monies advanced were used for the good or for the bad.

There is already some evidence that the former government of Zimbabwe might have incurred some odious debts. The country has been the recipient of balance of payment support from multilateral institutions such as the International Monetory Fund (IMF) and the World Bank.

However, this balance of payment support was stopped about ten years ago owing to a combination of various factors amongst them economic mismanagement on the part of the government, political instability and payment arrears.

The situation was not made any better when, in 1997, the former government run by ZANU (PF), deployed troops into the Democratic Republic of Congo (DRC) to prop up the beleaguered regime of Laurent Kabila. This military escapade into the Congo did not have any budgetary support and it drained millions of dollars from the treasury thereby increasing Zimbabwe’s external debt.

The new all inclusive government in Zimbabwe should unequivocally declare that it will not honour any debts that are proved to be odious. In this context, Zimbabwe should learn from the examples of other countries that used to be run by corrupt dictatorships.

For instance, in Indonesia, a concerted effort is being made by various non-governmental organisations (NGOs) and academics; gathering evidence and building arguments to prove that a significant portion of Indonesia’s foreign debt is legally illegitimate and therefore unenforceable at law.

In his paper, “Criminal Debt in the Indonesia Context”, Jeffrey Winters argues that Indonesia can demand debt reduction based on the illegal and reckless behaviour of its creditors particularly the World Bank. Accordingly to Winters, the World Bank’s articles of agreement impose a fiduciary duty on the bank to ensure that the proceeds of any loan are used only for the purposes for which the loan was granted.

Winters presents overwhelming evidence that the World Bank breached its fiduciary duty by granting loans which it knew would be used for corrupt purposes by the regime of General Surharto.

The most damning evidence comes from a leaked World Bank memorandum entitled, “Summary of RS, Staff Views Regarding the Problem of Leakage From World Bank Project Budgets”.

The memorandum estimates that at least 20-30% of the government of Indonesia’s development budget funds were diverted through informal payment to Indonesian government bureaucrats and politicians. The memorandum further states that World Bank controls have little practical impact on such corrupt practices.

Winters concludes by suggesting that the Indonesian government should demand the cancellation of these odious debts at an international tribunal or at the International Court of Justice (ICJ).

Needless to state, the all-inclusive government in Zimbabwe should clearly be persuaded to follow the argument propounded by Jeffrey Winters in the Indonesian context. It is frightening to note that some of the Bretton Woods institutions’ neo-liberal lending policies have hardly been helpful to the development agenda of less developed countries (LDCs).

These Bretton Woods institutions are hardly the best friend of developing countries. They will prescribe one-size-fits-all economic policies to the developing world.

They robustly encourage governments in the developing world to cut down on public expenditure, reduce the subsidisation of strategic parastatals and generally discourage government spending on social and other related key services.

Most of the economic blue prints prescribed by the Bretton Woods institutions have dismally failed to work in developing countries.

Senator Obert Gutu of Zimbabwe’s Movement for Democratic Change Party (MDC) is the MDC Chief Whip in the Senate. He is a trained lawyer, member of the MDC National Legal Committee, member of the Parliament of Zimbabwe’s Standing Rules and Orders Committee, as well as the MDC National Information Committee.


Written by Editors

31 March 2009 at 1:48 pm

Posted in Africa, Global, Opinion

Tagged with , , , , ,

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