FOR the first time, a creditor country has unilaterally cancelled millions of dollars in what it acknowledged as “illegitimate” debts to five developing countries.
On October 3, Norway, through Minister of International Development Erik Solheim, announced it had decided to write off without conditions US$80 million owed by Ecuador, Egypt, Peru, Jamaica and Sierra Leone.
By its action, Norway has settled what is regarded as an ugly chapter in Norwegian aid history — the Ship Export Campaign which involved the export of Norwegian ships to developing countries between 1976 and 1980 wherein 21 countries were eventually thrust into a vicious debt trap.
“This campaign represented a development policy failure. As a creditor country, Norway has a shared responsibility for the debts that followed. In cancelling these claims Norway takes the responsibility for allowing these five countries to terminate their remaining repayments on these debts”, said Solheim. “Cancelling these debts will have consequences for how we think about responsible lending in the future,” he continued.
Debts by Burma and Sudan from the campaign will however only be cancelled after the situation in the two countries change.
In effect, the Norwegian government has admitted that its lending in these particular cases was irresponsible and motivated by domestic concerns, rather than an objective analysis of the development needs of the countries involved. The ship exports, it turned out, were mainly to secure employment for a domestic shipbuilding industry in crisis, and not because these ships served the development needs of the countries concerned.
Anti-debt advocates are rejoicing over Norway’s action,claiming it as a historic victory for the global debt movement. The movement has long insisted that debt incurred by dictators, for failed projects, or where money have disappeared in corruption is illegitimate and not the responsibility of the people.
“This is a groundbreaking decision which has huge ramifications for other lenders that acted irresponsibly in the past,” said Gail Hurley of the European Network for Debt and Development (Eurodad). “We urge Norway to continue to be at the forefront of international efforts to gain recognition for illegitimate debt. It is not fair that the populations of debtor nations continue to pay the price of corrupt, negligent and politically motivated lending in the past. Today the silence has been broken and we urge other creditor countries, in particular in Europe, to follow Norway’s bold lead.”
Hurley also noted that the Norwegian government has made it clear that the debt cancellation will not be counted as Official Development Aid (ODA), which is typically what creditor nations practice, and which has the effect of artificially inflating aid budgets and making it appear that more aid is being made available to poor countries than is really the case.
“Norway now cancelling illegitimate debt and admitting co-responsibility for a failed development initiative is simply historic,” says Kjetil G. Abildsnes, chair of Jubilee Norway. “Solheim shows political courage that won’t go unnoticed.”
Abildsnes, however, cautioned that the debt crisis is not over, saying that they will make sure that Norway continues to push for a just international monetary system “where debts are legitimate and responsible lending the norm, not the exception.”
Local debt watchdog Freedom from Debt Coalition (FDC) also welcomed Norway’s decision as a step in the right direction. “?It can be done!”? said Ana Maria R. Nemenzo, FDC president.
“?Without doubt, this is a momentous victory not only to the resilient debt movement but more importantly, to the peoples of the world greatly suffering from the burden of illegitimate debts. This development clearly registered our concept and perspectives regarding illegitimate debts and the accountability many creditors must concede too in helping plunge many poor countries in the deadly cycle of debt.?”
While lauding the efforts of the different debt movements particularly the anti-debt advocates in Norway, FDC also heaped praise on the Norwegian government and its civil society counterparts “not only for doing the right thing but also because of their political courage amid strong opposition from the international creditor community.”
Aside from highlighting the issue of illegitimate debts, Nemenzo said Norway’s debt cancellation has also debunked the firm assertion by the global creditor community that poor countries must repay all their debts at all costs.
“At the same time, it sets a historic precedence for lenders to admit responsibility and liability for plunging many poor nations into the spiral crisis of debt due to their unjust, irresponsible and flawed loans,?” she said.
In this light, the FDC challenged the Arroyo government to stop pursuing a “dim-witted policy of religiously paying all our debts down to the last centavo, of which many are illegitimate,” particularly pointing to appropriations for interest and principal payments of the outstanding US$783 million debts incurred by Marcos as of end-2005.
The group also called on Arroyo to immediately investigate and review all compromise deals entered into by the Presidential Commission on Good Government (PCGG) and other government agencies. It also dared the Senate to pass Joint Resolution No. 1 which calls for the creation of a Congressional Debt Audit Commission that will be responsible for the investigation and audit process of all public debt.