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Today's Third World Stimulus Packages Will Be Tomorrow's Odious Debts

by Patricia Adams

In the frenzy to resuscitate the failing global economy, the World Bank and IMF are planning to rescue the Third World’s poor, whom they describe as the innocent bystanders to a problem that originated in the rich north.

                                                                                
“Developing countries face a financing shortfall of $270-$700 billion this year,” stated the World Bank in its March 8 press release. Agencies such as the Brookings Institution are in support: Declare a “development emergency,” it urges. High-income country borrowers will crowd out developing country borrowers, borrowing costs will be higher, capital flows lower, aid flows more volatile, and the poor will get poorer, they all warn.                                                                          

These organizations say nothing about the harm to the Third World that past borrowing from the World Bank and the IMF has caused, and nothing of the harm that could come from more irresponsible lending.                                  

To meet the Third World’s financing shortfall, the World Bank and IMF are ramping up their borrowings and dispersals as never before. The World Bank recently launched its largest-ever bond issue, raising US$6 billion in just two days. It intends to triple spending this year alone and will commit an extra $100 billion over the next three years. In January, World Bank president Robert Zoellick called on donors to commit 0.7 per cent of their stimulus packages to a “vulnerability fund,” to help developing countries cope with the crisis, to be managed, of course, by the Bank.

The IMF, meanwhile, wants to expand its powers to include the ability to issue bonds (the IMF now depends on loans from its member countries for its financing). It hopes to double its lending ability to $500 billion and to relax its terms to make its loans more attractive. The Japanese and, it seems, the G-20 want the IMF to massively expand its “Special Drawing Rights.”

To move all this money, fast, the Washington-based Center for Global Development urges that these international financial institutions relax their procurement rules, environmental standards, and other safeguards that would delay their disbursements. The IMF SDR credits to governments, says the Wall Street Journal, would be made available without strings attached. “All governments qualify, including those that lock political dissidents in dungeons and steal from their own people.”                                                             

The Journal has it exactly right. For 65 years, these institutions have loaned billions of dollars to Third World governments without adequate public oversight and in the absence of market discipline. In the process they financed dictators, spawned corruption, harmed the environment, wrecked economies, and then forced the Third World’s hostage public to pay the money back. In law, these debts are known as “odious” and the Third World’s public and lawmakers are organizing to expose them as such through audits and arbitration. The Norwegian government has already written off some of its claims against five poor country borrowers under a cloud of “odiousness,” the Ecuadorean government launched an audit of its public debt in order to determine its legality, the Philippines Congress has proposed a Congressional Audit Commission and in other countries where governments would rather suppress such talk, citizen audits are underway.                                                

The goal is to use the rule of law and due process to expose the money trail and to challenge creditors to prove that their sovereign loans were indeed used in the interest of the state. Even the most preliminary evidence now indicates that at least one-third or $100 billion of the World Bank’s loans, for example, have been used corruptly.                                          

Giving these same international financial institutions more money now in a false rescue operation will only magnify the harm and sink the Third World’s poor deeper in debt and despair.                                             

Patricia Adams is the Executive Director of Probe International, a Toronto-based environmental organization and author of Odious Debts: Loose Lending, Corruption and the Third World’s Environmental Legacy (Earthscan 1991).

Reprinted with the author's permission.                                                                

Posted  April 23, 2009

URL:  www.thecitizenfsr.org                     SM 2000-2011 

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