"IMF Recognizes Somalia": A Headline That Says It All

The International Monetary Fund (IMF) announced Friday that it will recognize Somalia's government for the first time in twenty-two years, a sign that the country is starting to emerge from the anarchic hell it has known since the fall of the Siad Barre dictatorship in the early 1990's.  (Barre's rule was nominally preferable to the anarchy: he once imprisoned medical students for building a hospital because it interfered with his corrupt business practices.)  This headline ("IMF Recognizes Somalia"), however, says a lot more about Somalia's past than it does about its future.  While foreign institutions have spent the past twenty years botching Somalia's nation-building and worse, the northern province of Somaliland has forged an enduring climate of peace and stability without any formal international recognition.  All of which should lead us to question the dominant western narrative regarding Somalia, that of a nation in chaos desperate for international salvation.

The fact is, international intervention, beginning with the U.S.-led fiasco Operation Restore Hope in 1992-1993, made famous through the "Black Hawk Down" incident, has brought increased ruin for Somalia and its people.  While numerous peace conferences failed to bring about a legitimate government that could represent the Somali people, U.S. counter-terrorism policies radicalized the Somali population and at one point led to the ouster of one of the few stabilizing forces in Mogadishu: the Union of Islamic Courts (ICU).  After the ICU freed Mogadishu from the stranglehold of mafia-style Somali warlords, the CIA turned around and funded those very same warlords to kidnap suspected militants and hand them over to American authorities.  Some of those so-called militants were nothing more than peaceful Islamic scholars, but as the Americans paid the warlords bounties regardless, the kidnappings continued.  

A disastrous Ethiopian invasion, backed by the United States, the blow-back emergence of Al-Shabaab, and an entirely preventable famine followed.  The ICU, whatever its faults, had cleaned up Mogadishu, re-opened its airport, and evicted the warlords.  After the Ethiopians invaded, and then promptly left, Al-Shabaab took over large swaths of the country, further exacerbating the ensuing famine by denying access to relief agencies and even holding Somalis hostage in famine areas, preventing them from reaching refugee camps across the border in Kenya.  All of this followed several decades of alternating U.S. and Soviet support for the brutal dictatorship of Siad Barre, support aimed at winning cold war allegiance regardless of the cost to the Somali people.

Today, as Somalia's government begins to finally establish the formal trappings of a functioning state, western institutions are lining up to offer their endorsement of its existence, in essence asserting that Somalia is finally ready to be a mature and functioning member of the community of nations.  This paternalistic attitude would be insulting enough even without a recounting of the history of foreign intervention in Somalia.  And such endorsements always come with self-interested motives in tow.    

As the IMF re-engages with the Somali government, for instance, it does so with the understanding that the Somalis will be paying back the hundreds of millions of dollars they supposedly owe the IMF, money that was borrowed during the Barre dictatorship.  Those loans were almost certainly spent either to enhance the security system that repressed the individual liberties of the Somali people or to fund the corrupt patronage system that kept Barre in power, or both.  The prospect of fresh IMF loans will undoubtedly be attractive to Somalia's new leaders, who will inevitably benefit from the influx of foreign cash in any number of ways.  That the Somali people, impoverished from half a century of dictatorship and anarchy, will pay this ransom speaks volumes about the international system of finance that the IMF embodies. 

Meanwhile, in the north of the country, numerous Somali clans sat down together almost two decades ago and worked out a peace agreement that led to the formation of the Somaliland Republic.  Somaliland has democratic elections and is at peace, but is unrecognized by the rest of the world.  No UN peacekeepers were needed to bridge the supposedly tribal and atavistic differences between its various clans.  No IMF loans fund its economic development.  Nobody really talks about it, either.  Grassroots democratic peacemaking doesn't attract readers the way an article about, say, Madonna's spat with the Malawi government does. 

The IMF "recognizes" Somalia.  To paraphrase James Ferguson, institutions like the IMF cannot imagine how things can ever get better except through their own expertise.  Somalia is a country that sadly needs many things.  The IMF is not one of them.   

Kenya's Elections: Tribalism? Really?

As opposition candidate Raila Odinga's challenge to Kenya's recent presidential election results proceeds in the Kenyan court system, the international media continues to dance around the issue of ethnicity or "tribalism," at times trying desperately to avoid the "T" word and at times sinking into the depths of racist stereotypes, intentioned or not.  Michaela Wrong writes in the New York Times, for instance, of the difficulty of writing about Kenya's elections without talking about tribalism given the apparent ethnic divide between the two major electoral coalitions.  Mukoma wa Ngugi criticizes Wrong in the UK Guardian, accusing her of defending a "discredited analytic framework," and challenges western media outlets to accurately cover African issues in a meaningful way or risk being completely ignored by Africans generally.  The general critique seems to be that the Western media seems to focusing intently on the so-called "tribal" divisions within the Kenyan electorate while breathlessly awaiting a repeat of the 2007 election violence, despite the fact that it seems unlikely to materialize.  For the vast majority of Americans, who likely know little about Kenya beyond the "tribal warfare" narrative of the tragic 2007 elections that was forwarded by the mainstream American media, the images of Kenyans hacking each other to death over an election speak for themselves: "tribal" or not, these are inexplicable events happening in an inexplicable place that is beyond the realm of what is "normal."

All of this serves to further alienate human beings from one another through the time-honored method of ignorance.  To the extent that journalists should know better and report better, it is their fault.  Wrong notes in a dispatch for the New York Times, for instance, that she is constantly told that "we Kenyans are totally tribal."  She correctly notes that this "tribalism" is not "irrational" but fails, in her defense of the term as it applies to this election, to ask why Kenyans might vote along ethnic lines.  If it is not irrational, then what is the rationale?  Is it because they hate members of other tribes?  Or is there a better explanation that the media might need to convey to the world and in particular to the west?  Kenya's electoral violence stems not from primitive tribal blood feuds but rather from a system of governance created by Kenyan elites and western institutions and made possible by arbitrary colonial boundaries.  Or, as Wrong herself writes quite accurately, "What Kenya desperately needs is an end to a political culture that treats state resources as a winner’s preserve rather than national assets benefiting all citizens equally."

In many post-colonial African countries, a system of governance labeled "The Politics of the Belly" by famed academic Jean Francois Bayart developed in which state resources became the personal reward of those in power rather than the assets of a society at large.  This is not so different, of course, from the corruption that suffuses government across the globe, but is unique in the historical context in which it developed.  African dictators, armed, funded, and defended by either the Soviets or the West during the heart of the cold war, came to view external resources (loans, grants, aid) as their cash cow.  Developing a domestic economy and encouraging the creation of a middle class would spread the wealth and encourage the growth of rival actors who might challenge the throne.  And so in Mobutu's Zaire, Bongo's Gabon, Mugabe's Zimbabwe and, yes, Moi's Kenya, those at the top learned to keep the West happy and to use the funding that followed to buy off enough politicians, generals, and businessmen to maintain power. 

When many of those dictatorships transitioned to multiparty democracies, largely in the 1990's, these systems of patronage remained in tact but altered their form.  Instead of buying fealty, elites began to buy votes, and to create a spoils system that might hold together a coalition of voters.  These coalitions became, not surprisingly, largely based on ethnicity, not simply because ethnicity is a cheap method of coalition building, but also because a prisoner's dilemma quickly emerged: what happens if I don't appeal to ethnicity and my opponent does?  To ask whether the Luo truly hate the Kikuyu or the Kalenjin is akin to asking whether the French really hate the Germans or vice versa.  It sure seemed like it in 1942, and it sure doesn't seem like it today.  Which means something else is going on.  The would-be winner of this year's election, Uhuru Kenyatta, is a Kikuyu and his running mate, William Ruto, is a Kalenjin.  After the 2007 election, it was Kikuyus and Kalenjins who were fighting each other; Kenyatta is under ICC indictment for allegedly organizing the killing of Kalenjin women and children.  Ruto is under ICC-indictment for allegedly organizing the killing of Kikuyu civilians.  Now they are running together.  Most of the violence in 2007 was far from spontaneous and was planned by politicians in conference rooms.  Tribalism?  Really?

If Kenyans do indeed vote along ethnic lines, it is not mysterious, nor is it "tribal."  Kenyan UC Irvine Professor Ngugi Wa Thiong'O notes that the real winner in an election in which two politicians who have been indicted for war crimes won more than 50% of the vote is former dictator Daniel Arap Moi.  Moi, writes Thiong'O, who wrote his first novel on toilet paper from inside one of Moi's prisons in 1978, destroyed Kenya's institutions and created a corrupt one-party state.  When multiparty democracy was instituted, Moi used violence to intimidate the opposition and retain power for another decade, setting the stage for the corrupt ethnicity-based coalition system we see today.  Moi's regime was underwritten by years of western support in exchange for his loyalty to the capitalist cause, just as today's Kenyan government, despite ill-advised admonitions from American officials, will receive American support for its war against Somali militants, regardless of its own violence and corruption.

This is not as easy to write about as is "tribalism."  Those Africans are cutting each other up with machetes again...all because one tribe got more votes than another tribe, can you believe it?  In the United States, of course, we are far more civilized.  Our presidential elections have no racial element to them.  Our citizens do not kill each other over religion or race or sexual orientation.  And when an American citizen decides tragically to slaughter innocent women and children, he does not stoop to the primitive use of a machete: that's what semi-automatic weapons are for.  If there's one story the media should further in explaining Kenya's elections to the West, other than explaining why such "tribal violence" happens in the first place, it's the story of the sad side to universal humanity.  The sad trait that we all share: our willingness to seek power by any means necessary.  When people kill each other because of their differences, there's almost always something else going on.  This is as true of Kenyans as it is of any other people, no more, no less.

When Lending Kills: The World Bank and Guatemala

By: Andrew Hanauer
Originally published on Jubilee USA's Blog the Debt:
http://jubileeusa.typepad.com/blog_the_debt/2013/01/when-lending-kills-the-world-bank-and-guatemala.html

 The tragic, horrifying events in Connecticut last month serve as a heartbreaking reminder of the value of human life.  They have also provoked a national conversation around a host of issues related to the shooting, from gun control to mental illness.  At the heart of this conversation is the question of what we – as people, as institutions, as a society – can do to prevent similar tragedies in the future.  It is a powerful question without easy answers and by asking it we recognize our collective responsibility to each other as human beings.  The story of the Chixoy Dam in Guatemala is a reminder of what happens when that responsibility is neglected.

In 1954, Guatemala’s democratically elected government was overthrown by a military coup backed by American intelligence and corporate interests.  The military dictatorship that took over waged total war on dissenting groups and ethnic minorities, killing or “disappearing” an estimated 200,000 people over the next several decades.[1]  The violence of Guatemala’s government was hardly a secret, particularly in the United States, the primary benefactor of the murderous Guatemalan regime.  The U.S., particularly the Central Intelligence Agency, and Israel armed and trained Guatemalan soldiers and actively supported the campaign of terror against “communists,” who largely happened to be poor indigenous peasants.  The mass killings were so commonly known that Jimmy Carter cut off American aid to Guatemala in the late 1970s; Amnesty International also released reports on killings in the early 1980s. 

It is in this context that the World Bank lent money to Guatemala; multi-lateral institutions were responsible for roughly 60% of the hundreds of millions of dollars borrowed by the violent junta in the late 1970s and early 1980s.[2]  This loan money was surely put to many uses, but also undoubtedly contributed to the longevity of the dictatorship and prolonged the suffering of Guatemala’s people.  It is exactly this type of lending that calls into question the validity of much of the Global South’s current debt burden, and strengthens the moral impetus for the type of debt relief called for by organizations such as Jubilee USA Network.

One loan in particular, however, stands out.  In 1982, Guatemala borrowed 400 million dollars from the World Bank and the Inter-American Bank to finance a hydro-electric project called the Chixoy Dam.[3]  The project required the displacement of a number of rural communities (exactly the type of constituencies which were already the target of government violence), and when those communities protested dam construction, the regime responded with typical brutality.  In all, four hundred people were massacred, including one horrific mass killing in which “70 women and 107 children were massacred, many after being repeatedly raped and tortured.”[4]  Subsequently, various reports have demonstrated that the World Bank should have known about the massacres after they happened and it is highly unlikely that the dam could have proceeded without World Bank assistance.  Furthermore, the World Bank granted additional loans four years later to construct a related project in the same area.

Thirty years later, the communities victimized by this crime have not been compensated.  On the contrary, Guatemala’s people are still being asked to pay back the loans that funded this fatal project, a situation that evokes the “wasted bullet” tax that Ethiopian dictator Mengistu Haile Mariam’s government charged the relatives of execution victims when they came to collect their relatives’ bodies.  That money is flowing from Guatemala to the coffers of the World Bank as a result of the events at Chixoy Dam is perhaps the best evidence that something is deeply, deeply wrong with the international system of finance and lending.

All of which brings us back to Connecticut and the responsibility we have to try to prevent these types of crimes in the first place.  Surely there are steps we can take to reduce the likelihood of such violence, both in our communities and on a national or international scale.  But above all else, shouldn’t society’s first goal be to not enable or assist such acts of violence?  What happened in Guatemala is particularly unforgivable because of the role played by a prominent third party that should have known better.  On a fundamental level, it should not come as a surprise that murderous people decided to use murder to achieve other ends.  It should not come as a surprise that bad things happen when violent governments are given money.
 

Just as all the positive action in the world will never completely eradicate shootings like the one in Newtown, halting western support of murderous governments will not eliminate the type of massacres visited upon the Rio Negro region of Guatemala in 1982.  As President Obama said in Newtown, however, “that can’t be an excuse for inaction.  Surely we can do better than this.”[5]  Western creditors must stop loaning money to regimes that kill their own people.  Countries victimized by such loans in the past must not be forced to repay the debts that were incurred at their expense.  After all, every child deserves a life free from violence and fear.  Everychild.

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[1] “Generating Terror,” Jubilee Debt Campaign, UK, 2012.

[2] Ibid.

[3] Ibid.

[4] Ibid.

[5] “President Obama’s Speech at Prayer Vigil for Newtown Shooting Victims, (Full Transcript)” The Washington Post, December 18, 2012.

Remarks at USF Commencement Ceremony

I made the following speech at the University of San Francisco graduation ceremony on Friday, December 14, 2012.

Fr. Privett, Members of the Board of Trustees, Dr. Bartlett, Deans and Faculty of the college.  Thank you.  On behalf of all the graduates, I would like to thank all the family members and friends, including my own, who have supported all of us as we’ve pursued our education.  To those family members and friends here in this church today, and to those who could not be here today: Thank you.  The least we can do to honor you is give you a round of applause. 

My first visit to Africa was about five years ago.  I was young, and according to the new studies my wife tells me about with excessive enthusiasm, my male brain was not yet fully developed.  I was single, had never been to a developing country before, and went to Tanzania mostly because the idea of traveling outside my comfort zone scared me and I didn’t want to not do something potentially meaningful just because it scared me.  Clearly my brain was not fully developed.

I was also very eager to make a difference.  The Africa I thought I knew was the Africa of Save the Children brochures: poor and in need of help.   I was comparatively rich and looking to help…surely this would work out.  Well…my first foray into helping was as a nursery school teacher, during which time I likely did not revolutionize the East African educational system, to say the least.  Mostly I spoke in English and said many incredible things which were probably not as incredible to the kids I was teaching, who did not speak English.  It was a little discouraging.   So when another volunteer told me about a local orphanage that needed help, I signed up.  The orphanage, I was told, was called Matumaini, the Swahili word for “Hope.”

There were twenty kids living in this orphanage, sharing 4 beds.  Each kid had exactly one outfit of clothing.  Volunteers in our program donated money to build a chicken coop and bought mattresses for the beds.  Never before had I felt so strongly that something was black and white.  These kids needed help, and we had money.  It was simple.

When I returned to Tanzania two years later, Matumaini had twice as many beds, with a fully functioning chicken coop, mattresses on every bed, and a staff of three full-time employees.  It also had twice as many kids.  Some “orphans,” I was told, were not even really orphans.  Poor families decided to send them to Matumaini where they could be guaranteed regular meals, but breaking families apart in the process.  It had never occurred to me to think about a method of help that might avoid such a problem because I never foresaw the problem in the first place.  Things were not as simple as I had thought.

When I started the International Studies program at USF, I was hoping to gain some clarity.  I can’t say that it came right away.  Mostly, my classmates and I just got depressed as we learned about the intractable conflicts and problems facing the world and the unintended consequences stemming from noble efforts to make things better.  We learned about how a campaign to donate shoes to Africa destroyed the domestic shoe industry in one country, eliminating jobs and fostering dependence.

This was a monumental downer.  Presumably we were getting this degree to go do some good in the world, and yet the merits of even the simplest acts of giving were now being questioned.  For the students in our program, it was a serious challenge we had to meet: how to remain positive, how to remain engaged, and how to adapt our thinking to understand that the world’s problems are more complex and multifaceted than we had realized.

It was also a challenge that was unquestionably necessary.  What I experienced in Tanzania, but didn’t realize until I got to USF, is that good people want to help, but they also want to feel helpful, and sometimes feeling helpful and helping are not the same thing.  And sometimes the difference between the two consists of a gap in knowledge: knowledge of other cultures, of other people’s motives, even of global systems. USF helped us to fill in those gaps, but it also helped us to recognize them.  Understanding what we don’t understand made us more likely to listen, more likely to question, and more likely to dig deeper to find the root of problems. 

Therein lies the beauty of our education.  The world, after all, does have problems, and those problems do have solutions.  USF helped us to figure out what they might be and what we can do to help.  It is inspiring to feel that you have a better understanding of the world than you did just over one year ago, and that you can attribute that improvement to something more than just brain development.

Gandhi once said that “nothing you do as an individual matters, but it is vitally important that you do it anyway.”  I am hesitant to be the first person in graduation speaker history to disagree with Gandhi, but here I might venture to argue that he was being a tiny bit pessimistic.  At USF we learned much more than simply how to slave away against impossible odds. We learned how to understand the world so as to acquire the humility necessary to realize that our schemes and programs are often not as obviously brilliant as we would like them to be.  We learned how to then not give up on trying to make a difference.  How to then have a real impact on the world.  So with apologies to Gandhi, if there’s one thing I learned at USF, it’s this:  Everything you do as an individual matters, and it is vitally important that you do it. 

Court Ruling Gives Argentina More Time to Fight Vultures

First Posted at Jubilee USA Network's Blog the Debt:
http://jubileeusa.typepad.com/blog_the_debt/2012/12/court-ruling-gives-argentina-more-time-to-fight-vultures.html#more
 By: Andrew Hanauer

The “Debt Case of the Century” took a surprisingly positive turn this past week when a U.S. Court of Appeals ruled that Argentina has more time to appeal a ruling against it in its battle with vulture fund creditors.  Argentina had faced a December 15 deadline to make a terrible choice: pay the vulture funds that are holding the country hostage or default on all of its creditors.  For now, at least, that choice will not need to be made.

The appeals ruling was made in response to a ruling by U.S. Judge Thomas Griesa that Argentina could not pay back the creditors which had accepted a debt renegotiation with the country after its 2002 default unless it also paid back the small minority of creditors that refused to accept the deal.  Those creditors are largely so-called vulture funds that swooped in and bought Argentine debt at rock-bottom prices and then sued for repayment of the full amount of the original loan.  Griesa ruled that if Argentina did not pay back the vultures along with its other creditors, any bank that accepted repayment on behalf of those other creditors could be found to have violated the law.  As a result, Argentina would have to choose to abide by the ruling and pay the vultures or not pay anybody and default.

The appellate ruling now gives Argentina more time.  But the ruling itself may have had little to do with Argentina’s compelling moral arguments against the vultures and more to do with the complaints of Argentina’s other creditors, which argued that it was unfair for the vultures to receive 100% payment when the vast majority of stakeholders were accepting only 25-30%.  As Business Insider points out, this argument has far-reaching implications for international debt: “After all, why should any creditor accept a restructuring deal at all if another bond holder can hold out and get all their money?”[1]

Confused?  You’re not alone.  One of the struggles of the debt relief movement is that clear and compelling moral issues, often determining the fate of some of the world’s poorest people, are shrouded in the technicalities of international finance.  Argentina’s battle with the vultures is no exception: the issues are confusing and the stakes are high.  In the hopes of providing some clarity, here is some historical background on the situation.

The plot of Argentina vs. The Vultures is captivating enough for a Hollywood movie.  Such a movie, to accurately capture the essence of this story, would need to start with Argentina’s brutal military dictatorship of the 1970s, during which time 30,000 Argentineans “disappeared.”[2]  The dictatorship borrowed heavily from foreign creditors, racking up large sums of debt largely in an effort to fund repressive institutions and enrich corrupt leaders.  By the time the dictatorship ceded power in 1983, the country was more than $45 billion in debt.[3]

When dictatorships borrow money, the subsequent debt is often labeled as “odious” or “illegitimate” on the grounds that the loans were not incurred with the consent of the nation’s people and were often spent on projects that brought little public benefit.  Such lending also has been shown to fuel capital flight (the act of sending money abroad where it cannot be taxed or later recovered) and to incentivize leaders to loot natural resources.  It also has helped tyrannical regimes maintain power longer. 

In Argentina, lending did all of the above, but it also led to more lending aimed at paying off the dictatorship’s debts.  Such lending is not odious in the classical sense because it was borrowed by a democratic government, but it is the direct result of illegitimate loans.  This is crucial in the Argentine case because some of the country’s creditors are claiming that Argentina’s current debt is legitimate because most of it came after the military regime was ousted; however, new loans are used to repay old loans, which is how the debt cycle continues.

As Argentina’s debt grew ($148 billion by 2001), the country implemented a number of austerity measures at the behest of the International Monetary Fund, and its economy only got worse.[4]  In 2002, the Argentine government dramatically altered course, rebuffed the IMF, and initiated a remarkable economic turnaround.  The government “re-nationalised key productive sectors like aviation, pensions and most recently oil, increased social protection and income transfers to the poor, and reduced poverty substantially. Real wages have increased, and wage inequalities have been reduced.”[5]  Argentina is now a dazzling economic success story, one of the strongest economies in the world just a decade after a period of instability so severe that at one point the country had five different presidents in two weeks.[6]

At this point we reach the beginning of the current drama.  Argentina defaulted on its debt, but offered to renegotiate it and even paid off the IMF in one lump sum (to achieve economic freedom) rather than declare its debt odious and repudiate it.  Despite only being offered 25 to 30 cents on the dollar, roughly 90% of creditors accepted the deal, and Argentina has been paying them back, mostly from its currency reserves.  Under United States bankruptcy law, if 70% of creditors accept a certain course of action, the so-called “hold-out” creditors must do so as well.  And yet a group of hold-outs, mostly hedge funds that bought Argentine debt at record-low prices, have refused to accept any rescheduling and continue to demand that Argentina pay them back in full.  These are the vulture funds.

The lead vulture fund in this case is NML Capital, led by billionaire vulture capitalist Paul Singer.  Singer has gone to such great lengths to try to compel Argentina to pay him (which Argentina’s president has vowed she will never do) that he even recently orchestrated the seizure of an Argentine naval vessel by authorities in Ghana on the grounds that Argentine property was subject to confiscation given its outstanding debts.

Do Singer and his fellow vultures have any standing whatsoever to demand repayment on these debts?  No.  Aside from the fact that the debt was largely illegitimate in the first place, the vultures refused to accept the terms of the vast majority of Argentina’s creditors.  They could have received repayment, but chose instead to be intransigent.  More importantly, they are merely speculators, not legitimate lenders. They bought the loans at rock-bottom prices, illustrating the risk they were willing to take as multimillionaires gambling for either a large payout or a loss of insignificant proportions to them.

Argentina is not the only entity to take issue with the vultures.  In the latest court case, the country’s other creditors - the ones who accepted the renegotiation - argued that it was unfair that the creditors who negotiated with Argentina in good faith should have to accept 25 cents on the dollar for their loans while the vultures received repayment in full.  They further argued that Judge Griesa’s ruling was harmful in that non-holdout creditors would be completely denied even the lower rate of repayment if Argentina refused to pay the vultures and opted for default.

In this sense, “hold-outs” is truly an apt phrase for Singer and his fellow vultures.  Because of their refusal to accept large profits on loans they never made rather than the astronomical profits they now seek, the hold-outs are dragging an entire country and its creditors through a drawn-out legal process, threatening an entire sub-set of international financial norms in the process.  All the while, they continue to hold Argentina hostage, both figuratively in American courtrooms and literally in a west-African port.  Hostage-taking: even actual vultures don’t do that.  

Photo of the President of Argentina Cristina Fernández de Kirchner.

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[1] Business Insider, “Now We Know How Argentina Wants to Resolve Its Battle with Hedge Funds,” by Linette Lopez, November 29, 2012.  http://www.businessinsider.com/argentina-solution-to-hedge-fund-lawsuit-2012-11#ixzz2E9uwSRtA

[2] Dearden, Nick, “Argentina Showed that Justice Means Standing up to Financial Markets,” Huffington Post, August 8, 2011.  http://www.huffingtonpost.co.uk/nick-dearden/argentina-showed-that-jus_b_920872.html

[3] World Bank, 2012.  http://data.worldbank.org/indicator/DT.DOD.DECT.CD?page=5

[4] World Bank, 2012

[5] UKGuardian, “Why Argentina is Now Paying for its Dangerously Successful Economic Story,” by Jayati Ghosh and Matias Vernengo, December 3, 2012.  http://www.guardian.co.uk/commentisfree/2012/dec/03/argentina-paying-economic-vulture-fund

[6] Dearden, 2011

Lending to Dictators: Bad Loans, Good Business

Walter Wriston, former Citicorp chairman, declared that "Countries never go bankrupt."

By: Andrew Hanauer\

Published on Jubilee USA's Blog the Debt, http://jubileeusa.typepad.com/blog_the_debt/2012/12/lending-to-dictators-bad-loans-good-business.html#more

Consider the following narrative: a western creditor, perhaps a bank or a government, lends money to an African country.  The African country is run by a dictator, an eccentric man who has changed the name of his country from a western colonial moniker to that of an authentic African word at the same time that he spends much of his free time shopping in Paris.  The money loaned to this dictator, shockingly, does not go to build a hospital in a rural area.  It does not go to build roads or wind farms.  It does not create jobs.  It is spent on foie gras and champagne, two of the dictator’s favorite things, and perhaps on the guns necessary to ensure that nobody else takes his place.  It is spent on a villa in Spain and an apartment in Central Park West.  It is spent, in short, on the dictator himself, though the loan will be repaid, of course, by the public.  A selfish act, yes, but champagne can be very expensive...

This type of situation is the epitome of “odious debt,” a term used to refer to debt that is incurred for illegitimate purposes by a dictator but paid back by the democratic government that follows.  Academics and activists are fond of invoking odious debt as a moral and legal framework within which to call for the repudiation of some developing nation debt, particularly with regards to Africa, where a wave of democratization in heavily indebted countries swept away some of history’s longest serving dictators in the early 1990s.  The narrative above is a common one, and is often advanced by advocates of the repudiation of odious debt.  It is compelling, and features a clear cut villain (dictator) and victim (Africans).  What it lacks, however, is a proper understanding of the third party involved in odious debt: the lender.

In the developing nation debt conversation, creditors are often portrayed as neutral third parties.  Yes, it is acknowledged, they lent to dictators, but they were misled by false promises and their kind-hearted attempts to reform broken African states were thwarted by corruption and greed.  Their money was stolen, and now they are forced to choose between demanding repayment from some of the poorest people on earth and accepting the claim that they are not entitled to repayment at all.  In some cases, they are accused of having been negligent (“they should have known better”), and thus bearing some responsibility for the debt problem, though not moral culpability.

This façade of neutrality does not account for the numerous incidents in which western lenders deliberately lent money to repressive regimes despite full awareness of both the nature of the borrower and the final destination of the borrowed funds.  This lending had catastrophic effects on African countries and their people, and was entirely avoidable.  In some cases, lenders extended loans to further their own economic interests; in other cases, western governments lent money solely for political reasons.  Sometimes loans were pushed for internal institutional reasons, and reflected a broken system more than a sinister manipulation by a particular entity.  Regardless, creditors have interests and motives for lending, and those interests often matched those of the borrowing despot for selfishness and greed.  Lenders are not neutral.  And they deserve a starring role in any accounting of Africa’s odious debts.

Perhaps the symbol of irresponsible lending is former Citicorp chairman Walter Wriston.  Wriston (in)famously declared that “sovereign nations don’t go bankrupt,” essentially implying that long after a dictator has left office, the residents of a country will have the capacity to pay the bill, no matter how poor they might be.[i]  So even if a despot were to flee with his stolen loans and stash the money in an opaque Swiss bank account, a lender could rest assured that repayment would come, and with interest.  In the 1960s and 1970s, lenders took this assurance to heart, giving billions of dollars to kleptocrats, tyrants and military dictatorships, knowing full well that much of it would be stolen, laundered and/or used to repress dissent.  These loans are now being repaid by citizens of African countries who rarely benefited from the money in the first place, while the creditors have in many cases received repayment for the original loan plus huge sums in interest.  And in many cases, the loans actually perpetuated autocratic rule, thus consigning Africans to additional years of dictatorial rule and its accompanying misery.

Why, one might ask, would western governments and private creditors do this?  Unfortunately, a number of perverse incentives exist for loaning money to dictators:

1. It’s the money.  If you’re confused as to why creditors would lend money to thieving dictators given the financial risk, just remember Walter Wriston.  If countries don’t go bankrupt, creditors don’t lose their money.  And while it may take years for the country to pay back the loan, the accrued interest often means the creditors make a hefty return on their original “investment.”  These loans are often accompanied by upfront fees which the creditors simply take out of the amount of the loan.  The borrowing despot doesn’t care, because he’s still getting free money.  But the people stuck with the bill pay that much more. 
2. It’s that time of year.  Economics professors Leonce Ndikumana and James K. Boyce note that for many creditors, including multilateral institutions such as the World Bank, lending money near the end of a fiscal quarter is deemed critical.  After all, “failure to use appropriated funds by the end of the fiscal year may trigger reduced appropriations the following year.”[ii]  As a result, loan agents are urged to push loans regardless of the recipient, and “a loan officer who delays loans…owing to concerns about leakage of the money into private pockets…is not on the fast track to a promotion.”[iii]
3. It’s the Communists (or Terrorists).  Much lending is also done for political reasons, regardless of the human rights record of the loan recipient.  Mobutu Seso Seko is the most commonly cited example of this; the Zairian dictator was a notorious kleptocrat who stole billions of dollars from his impoverished citizens and ruthlessly repressed dissent, but he was friendly to the West.  The end result was that the money kept flowing, and while Mobutu’s personal wealth was estimated in the billions, the Democratic Republic of the Congo (DRC) now has a debt burden hovering around $10 billion.  In short, creditors got paid, Mobutu got rich and the DRC got stuck with the bill.

Law professor Anna Gelpern argues that in many cases, odious debt is certainly odious but it is not truly debt.  That is, many of the loans made by western governments to African dictators, particularly those made for political reasons, were essentially grants and not loans, but had to be classified as loans to garner domestic support.[iv]  That African countries are now paying back these obligations is a result of the lack of western domestic support for such assistance to dictators in the first place, and speaks to the odious nature of these “debts.”

Realizing the extent of western complicity in Africa’s debt crisis should call into question many of the assumptions we make about both Africa and the West.  So often, western institutions are portrayed as neutral arbiters of senseless third-world conflicts or problems.  So often, the truth is murkier.  Westerners seeking to help the third-world through programs and aid might first want to push their governments to obey the Hippocratic Oath, and “first do no harm.”

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[i] Ndikumana, Leonce, and Boyce, James K., Africa’s Odious Debts, Zed Books, 2011, page 29

[ii] Ibid, page 23

[iii] Ibid.

[iv] Gelpern, Anna, “Odious, Not Debt,” published in the Journal of Law and Contemporary Problems, 2007.

International News Hour Radio Appearance

I was lucky enough to speak about Odious Debt on the KUSF International News Hour.

Listen to the podcast here: