Should Debt in the Developing World Be Cancelled?

Transcript Should Debt in the Developing World Be Cancelled? Tim Jones Senior Policy and Campaigns Officer, Jubilee Debt Campaign Pamella McLaren Advisor and Head, Debt Management Unit, Economic, Youth and Sustainable Development Directorate, Commonwealth Secretariat Ann Pettifor Director, Prime Economics Chair: Larry Elliott Economics Editor, The Guardian 31 May 2018 The views expressed in this document are the sole responsibility of the speaker(s) and participants, and do not necessarily reflect the view of Chatham House, its staff, associates or Council. Chatham House is independent and owes no allegiance to any government or to any political body. It does not take institutional positions on policy issues. This document is issued on the understanding that if any extract is used, the author(s)/speaker(s) and Chatham House should be credited, preferably with the date of the publication or details of the event. Where this document refers to or reports statements made by speakers at an event, every effort has been made to provide a fair representation of their views and opinions. The published text of speeches and presentations may differ from delivery. © The Royal Institute of International Affairs, 2018. 10 St James’s Square, London SW1Y 4LE T +44 (0)20 7957 5700 F +44 (0)20 7957 5710 www.chathamhouse.org Patron: Her Majesty The Queen Chairman: Stuart Popham QC Director: Dr Robin Niblett Charity Registration Number: 208223 2 Should Debt in the Developing World Be Cancelled? Larry Elliott Well, good evening everyone and welcome to this Chatham House event: Should Debt in the Developing World be Cancelled? My name’s Larry Elliott and I’m the Economics Editor of The Guardian and, to be frank, this is an event I never really thought I’d be hosting. I was on plenty of these panels, chairing them 20 years ago, when Jubilee 2000 was going and 15 years ago when – in the build up to the Gleneagles debt relief agreement. I honestly thought that my days chairing events about debt relief and debt cancellation were over, but clearly, they’re not. The IMF has been flagging up warnings of a new debt crisis and we’re here to discuss that tonight. Let me just introduce the panel and then I’ll just say a few housekeeping things. On my left is Tim Jones, who’s the Senior Policy and Campaigns Officer of the Jubilee Debt Campaign. On his left is Pamella McLaren, who’s Advisor and Head of Debt Management Unit at the Commonwealth Secretariat and who has hands-on experience of debt management in Jamaica. On her left is Ann Pettifor, who I’ve known for many, many years, who’s Director of Prime Economics, but we did a lot of debt relief stuff back in the day and we were just talking about it upstairs. So, that’s the panel. They’re going to speak for seven/eight minutes each. We’re going to have a bit of a chat and then I’m going to open it up to you, on the floor. Couple of things, this is a live event, it’s being – it’s on the record, it’s being livestreamed and you can comment via Twitter on #CHEvents. When it comes to it, if you could give your name, full name rather than just the Chatham House Member, that would be useful, and if you can keep your comments nice and short and sharp, that would be good, also. I can – I’ve chaired quite a lot of events and I can tell the difference between a question and a very long statement and I’ll be quite strict on them. You know, I’m from The Guardian, but I’m not that caring and sharing, you know. I can actually be quite nasty when I have to be, but I hope I won’t have to be, but you look like a lovely audience, who will keep your questions nice and short and sharp. So, that’s the format. We’re going to get underway and we’ll finish by 7:15 at the latest. So, Tim, let’s start off by saying what is the problem out there? Tim Jones Great. Well, I’ll try and address what the problem is, starting with a story, and I’ll stand up, ‘cause I’m quite short, so make sure that you can see me. In 2013, two London banks lent $2 billion to three state- owned companies in Mozambique. The companies involved had no revenue and they had no contracts in place that would suggest they were going to generate any revenue any time soon. However, the banks still lent this money. Two officials, within the Mozambique Government, guaranteed the loans, saying that, “If the companies can’t pay, the Mozambique Government will pay instead.” These guarantees were not agreed by the Mozambique Parliament, so they violated the country’s constitution. Much of the lending was kept secret, then some of the money was spent on shipping equipment, which today, sits largely unused in Maputo Harbour. The rest of the money has either been stolen or spent on weapons, we don’t know which. Three years later, in 2016, the loans finally became public knowledge for the first time. Now, the companies involved cannot pay this debt, but the question is, therefore, who should? One option is the Mozambique people, through tax increases or public spending cuts. But they and their representatives knew nothing about the loans. They’ve not benefitted from them and separately the economy, which is dependent on raw material commodities, has suffered because the price of commodities has fallen since 2014. A second option is that people elsewhere in the world pay. So, a standard response to debt crises is 3 Should Debt in the Developing World Be Cancelled? for institutions, like the IMF and World Bank, to lend more money, which is used to pay off the original lenders and then the debt either stays with the people of the country concerned, or if somewhere down the line it is cancelled many years later, then it comes back to fall on the Governments that ultimately, pay for the IMF and World Bank. A third option is that the banks who lent the money should pay. They were willing to give the money secretly. They conducted a complete lack of due diligence, in terms of the loans, and they get much higher interest rates on lending to a Government like Mozambique than they would to, say, the UK Government. That is supposedly because it’s more risky. But if it is more risky, then when projects go wrong, they need to pay the cost. Or a final option would be that the individuals who really benefitted should pay, whether they’re in the Mozambique Government, in the banks or in the supplier who supplied these ships. Now, I’d argue that it should be the individuals and the lenders that should be gone after, that they’re the ones that are most close to this, that bear most responsibility. The people in Mozambique or people elsewhere around the world didn’t know anything about them. They just don’t have any responsibility. However, the standard international response is the opposite. The first thing is to say, “How can the people pay? What cuts, what tax increases can be brought in to enable these debts to be paid?” And then, the bailout loans are given, which either keeps the debt on the country or it will, ultimately, if that debt is cancelled, pass the costs on some time down the line, and this isn’t just about impoverished countries. This is exactly what happened with Greece. When Greece could not pay its debts, the EU, the ECB, the IMF, lent more money to Greece, which paid off the banks that had lent the money originally. Now, Greece, everyone knows, has too much debt, but at some time down the line, the EU and ECB might cancel some of that debt. The people who were originally responsible, the lenders who lent to Greece, have got away. In the 2000s, the global Jubilee Campaign, which I went on my first ever protest as a 16-year-old and Jubilee 2000, when Ann was leading it and Larry was there reporting on it, and that campaign has got $130 billion of debt cancelled for 36 countries. This debt cancellation was entirely necessary. For the previous two decades, countries had been entrapped in the equivalent of a debtors’ prison. In the 1980s and 1990s, there was a huge debt burden, the response of which was the IMF and World Bank lending more money, which paid off original lenders and the debt just increased. Austerity was introduced and that led to economies stagnating, poverty increased and the debt was higher in 2000 than it had been at the start of the 1980s. Under this weight of debt, cancelling debt was the only means of escape. But this one-off cancellation did not address the reasons why countries were in debt crisis in the first place. In – we used to have for individuals that when you couldn’t pay a debt, you were locked up in debtors’ prison, but if you are in prison, it’s very hard to earn the money to pay a debt and so, over time, we’ve evolved and we’ve now got things like bankruptcy laws and we don’t send anyone, who’s an individual, to prison anymore. But for Governments, we have no bankruptcy process, and I think Ann might talk more about what a bankruptcy process could be like.

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