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Liberia and DRC debt relief sparks mixed reactions
15 July 2010
By Øygunn Sundsbø Brynildsen
The World Bank and the IMF have granted debt relief to Liberia and the Democratic Republic of Congo (DRC).
The debt relief - granted after the two countries fulfilled the conditions for completing the Highly Indebted Poor Countries Initiative (HIPC) - is essential for fighting poverty and increasing fiscal space in the two countries that rank as number 169 (Liberia) and 176 (DRC) out of the 182 countries on the UNDP 2010 Human Development Index.
Despite debt relief for poor countries being much-needed and welcome, civil society regrets that the international creditors have not recognised their share of responsibility in what CSOs believe to be illegitimate debts contracted by dictatorial regimes without the consent of their peoples or their legitimate democratic representatives.
Liberia, the world’s highest debt burden
After almost two decades marked by warlords and civil war in the 1990s and early 2000s, according to the IMF Liberia had the highest debt to GDP ratio in the world
. Due to the conflicts, there have been long periods when Liberia has not serviced its debt, resulting in enormous amounts of interest, sometimes many times higher than the original loan. When the government headed by Ellen Johnson-Sirleaf came to power in Liberia in 2006, Liberia resumed monthly payments of debt in arrears as a sign of good-will towards the international creditor community. However, arrears clearance detracted much needed resources for investment and infrastructure to ensure economic recovery of the war-torn country, and to provide essential services to 80 percent of Liberian citizens living below the poverty line.
The current debt relief of USD 4.6 billion reduces Liberia’s external debt stock by more than 90 percent. USD 1.5 billion is to be delivered by multilateral creditors and the remainder by bilateral and commercial creditors. Still, if all creditors live up to their commitments, the remaining debt of Liberia will amount to USD 150 million, which the country is scheduled to start servicing from the end of 2011.
International creditors turn a blind eye to reckless behaviour
Debt campaigners called for debt cancellation for Liberia and the DRC on the basis of the dubious legitimacy of these countries’ external debts. In the case of Liberia, autocrat Samuel Doe was lent money by the G8 in return for the nation’s support against Libya’s Momar Qaddafi in the 1980s. Charles Taylor was also loaned huge amounts despite the highly questionable democratic credentials of his regime.
In the case of DRC, even the IMF itself warned against lending to the Mobuto regime. In 1978 Erwin Blumenthal, the IMF representative in Zaire made it clear that there was “no (repeat: no) prospect for Zaire's creditors to get their money back in any foreseeable future”. Lenders, including the IMF and the World Bank, nevertheless continued to provide loans to the dictator regime.
The call for recognition of the illegitimacy of the DRC debt is echoed by many, including the Financial Times where William Wallis said that “The Democratic Republic of Congo’s debt burden was perhaps the most odious in Africa – a financial carbuncle from the cold war that should long since have been excised.”
In this context of reckless behaviour by lenders, the decision to cancel DRC’s debt should have been an easy one. However, only after seven years of implementing reforms required by the IFIs has the DRC’s debt been alleviated. “For seven years the World Bank and IMF have been saying that the country is mismanaged. By maintaining this pressure they succeeded in heading off questions about why the debt was created in the first place and who signed off on the other side,” Michel Losembe, managing director of Citibank in Kinshasa, said to the Financial Times.
Business disputes delayed debt relief to DRC
Additional policy requirements have also come into play and delayed the long-awaited debt relief. DRC was originally scheduled for debt relief last year, but the process was put on hold because DRC considered making a mining agreement with China. This year, at Canada’s request, the World Bank postponed the decision to accept debt relief for DRC
due to a dispute over mineral rights between the Canada based oil firm First Quantum and the government of DRC.
Biased judges and unfair rules
The long and bumpy road towards debt relief for DRC and Liberia demonstrates the need for an
independent procedure for debt resolution
and clear and binding rules for responsible lending and borrowing. Suggestions for such rules are outlined in the Eurodad Responsible Financing Charter and in the South North platform for sovereign, democratic and responsible financing.
A first step towards greater justice in the sovereign debt domain is for indebted countries to undertake independent debt audits and repudiate illegitimate debts. Zimbabwe is likely to be one of the next countries to enter the HIPC initiative and hence undertake policy and economic reforms required to receive debt relief. The Zimbabwe Coalition on Debt and Development (ZIMCODD) has called for a comprehensive audit of Zimbabwe’s debt instead of entering into the HIPC initiative.
In the absence of responsible lending and borrowing standards and of an independent and fair procedure for settling debt disputes, poor people in poor countries will continue to pay too high of a price for the reckless behaviour of irresponsible lenders and creditors.
More information:
Jubilee Debt Campaign press release on DRC and Liberia
CNCD press release on DRC
More information about Liberia’s debt