NORWAY MAKES GROUNDBREAKING DECISION TO CANCEL ILLEGITIMATE DEBT

Posted: October 2, 2006 by the European Network On Debt and Development - Eurodad,

 www.eurodad.org

Norway's Minister of International Development Erik Solheim announced today that Norway is unilaterally and without conditions cancelling US$80 million in illegitimate debts owed by 5 countries: Egypt, Ecuador, Peru, Jamaica and Sierra Leone. Norway's Government has, in effect, 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 débacle involves the export of Norwegian ships to developing countries between 1976 and 1980. It exported these ships mainly to secure employment for a domestic ship-building industry in crisis, not because these ships served the development needs of the countries concerned. It is only fair therefore that Norway accept co-responsibility for the debts which resulted from these deals. So far however, creditor countries have been incredibly reluctant to accept shared responsibility for negligent and often politically motivated and corrupt lending in the past. They have continued to insist that poor countries service these debts. Today however this practice effectively ended with the unilateral action of one government.

Eurodad hopes that the Norwegian announcement will now prompt other creditor countries to open public and serious enquiries into their lending policies and practices of the past.

"This is a groundbreaking decision which has huge ramifications for other lenders that acted irresponsibly in the past", said Eurodad's Gail Hurley. "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".

Below Eurodad has posted the press releases from the Norwegian Debt Campaign and the Norwegian Government as well as an explanation of what exactly illegitimate debt is all about. We urge you to circulate this information widely.

Finally, it is also worth noting that Norway will NOT count today's historic cancellation as Official Development Aid (ODA). Typically, creditor nations count debt cancellation operations as ODA which has the effect of artificially inflating aid budgets and making-out that more aid is being made available to poor countries than is really the case. The Norwegian Government must also be praised for this and it becomes very clear that most donors simply must (and can) do far better.

Gail Hurley, Eurodad

Editor's notes: What is illegitimate debt?

Many civil society organisations in the North and the South believe that many debts are illegitimate and should not be repaid. But what is illegitimate debt? Illegitimate debts can be divided into four broad categories: illegal debts; odious debts; illegitimate debts; ecological debts.

Illegal debts are those which do not follow the basic legal norms and procedures of the country that takes-on the loan, for example the person that signs for the loan is not authorised by the state to take-out loans in the name of the state (see: Eurodad 2005 "Paraguay Repudiates Illegal Debt": http://www.eurodad.org/articles/default.aspx?id=710) or the creditor and debtor do not follow the procedures as stipulated in the national constitution of the debtor country. It is the shared responsibility of both creditor and debtor to ensure that loan agreements follow all legal norms and procedures and those which do not, may legitimately be questioned.

Odious debts are defined by three main characteristics: a/ the loan did not benefit the population of the debtor nation in any way and indeed the funds may have been used to oppress the people(s) of a nation (absence of benefit); b/ the population of the debtor nation did not give its consent to the loan (absence of consent); and c/ the creditor was aware of these facts and yet proceeded to disburse the loan anyway (creditor awareness). Typically, odious loans are associated with dictatorial regimes such as that of Mobutu Sese Seko in the Democratic Republic of Congo, Ferdinand Marcos of the Philippines, General Suharto of Indonesia, the apartheid regime of South Africa and Saddam Hussein of Iraq. These regimes racked up huge debts with bilateral creditors such as USA, UK, France, Germany, the World Bank and IMF among many other creditors. Many of these loans were extended for purely geopolitical strategic purposes. Many NGOs argue that it is not fair that the populations of debtor countries bear these huge debts alone and that creditors should bear at least some co-responsibility for negligent, politically motivated lending.

Illegitimate debt is a much broader category. It applies for example to ill-conceived development projects which should never have been financed in the first place. An example of this is the Bataan nuclear power station in the Philippines. It is the Philippines' largest single debt. Completed in 1984 at a cost of US$2.3 billion, it was never used because it was built on an earthquake fault at the foot of a volcano. The nuclear power station was financed by the US export credit agency Ex-Im Bank, Union Bank of Switzerland, Bank of Tokyo and Mitsui & Co, all of whom are still being repaid. The debt that has been cancelled today by the Norwegian Government is also an example of illegitimate debt. Between 1976 and 1980, Norway had a policy of supporting the export of ships to developing countries (such as Ecuador, Peru, Jamaica, Egypt, Sierra Leone, Burma and Sudan). It exported these ships mainly to secure employment for a ship-building industry in crisis in Norway rather than any objective analysis of the development needs of the country purchasing the ships. This has been explicitly acknowledged by the Norwegian Government today which announced the historic step of taking co-responsibility for the debts which then followed (see government press release below).

Ecological debts can be those which cause untold environmental damage in the debtor nation (and the creditor was aware of the negative impacts which would follow on the local environment and/or local populations). Alternatively, many civil society organisations believe the North owes a huge "environmental debt" to the countries of the South. This is because it is the countries of the North that are responsible for the majority of the world's environmental concerns, such as carbon emissions which are leading to global warming. Yet it is the countries of the South that are suffering most of the consequences of environmental degradation, such as erratic weather patterns.

Civil society organisations believe that it is the shared responsibility of both debtor and creditor nations to ensure that loan agreements reflect the aspirations of the debtor country and are not extended for purely political purposes. If creditors are assured that they will always be repaid (as is the case under the current system) there is no incentive to act responsibly. This is the classic moral hazard problem and is one of the factors that contributed to the current debt crisis. Eurodad, among many other civil society groups, is pushing for the principles of co-responsibility to be enshrined in international debt management.

NEWS: WHAT THE NORWEGIAN GOVERNMENT ACTUALLY SAID - OFFICIAL PRESS STATEMENT

WHAT THE NORWEGIAN GOVERNMENT ACTUALLY SAID: OFFICIAL PRESS STATEMENT

Press release

No.: 118/06
Date: 02.10.06

Cancellation of debts resulting from the Norwegian Ship Export Campaign (1976-80)

In its forthcoming national budget for 2007 the Norwegian government will propose to the Parliament (Stortinget) to cancel NOK 520 million of official debts from Ecuador, Egypt, Jamaica, Peru and Sierra Leone.

The claims originate from the Norwegian Ship Export Campaign (1976-80).

- 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, says Minister of International Development, Erik Solheim.

The Government proposes that these claims be cancelled unilaterally and unconditionally, without budgetary allocation and without reporting the cancelled amounts as Official Development Assistance (ODA) to the OECD. The debt cancellation will, in other words, be additional to Norway’s ordinary ODA.

For details about the debt cancellation from the Royal Norwegian Ministry of Foreign Affairs, please visit:

http://www.odin.dep.no/ud/english/news/news/032171-070886/dok-bn.html

http://www.odin.dep.no/ud/english/topics/dev/multi/032171-220012/dok-bn.html

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