SYDNEY, NEW YORK and WASHINGTON DC, Aug 16 (IPS) – Bangladesh has been increasingly indebted since 2009. The country’s external debt has increased from $23.3 billion in 2008 to $100.6 billion by December 2023 (see chart below). This is thanks to the country’s so-called development projects financed with borrowed money under Sheikh Hasina’s authoritarian regime.
The new government should urgently use UN Security Council Resolution 1483, which granted debt protection to prevent creditors from suing the Iraqi government for the country’s debt, to impose a moratorium on debt repayments. The new government should then initiate an independent review of all debt contracts under the dictatorship to determine what good use the debt was made for. The review should declare “abhorrent” the percentage of debt that was wasted through corruption or used to fund the regime’s repression.
In international law, abhorrent debt is a concept that refers to debt “incurred by rulers who borrow money without the consent of their subjects and use the funds to oppress them or for personal gain.” There are moral, economic, and legal arguments for not paying the abhorrent portion of the debt.
The Dictator’s Debt Boom
Bangladesh’s average external debt has jumped from $10.7 billion over a three-decade period (1972–2008) to $52.6 billion over 2009–2023, a period in which Hasina’s authoritarian regime consolidated power by rigging an unprecedented three consecutive elections, partisanizing state institutions, and brutally repressing.
Due to corruption, money laundering, poor project management and selection, the revenue stream or proceeds from these mega projects are far less than what is needed to service the debt. The total external debt to GDP ratio has increased from about 28% in 2016 to about 37% in 2023. Similarly, the external debt to export revenue ratio has increased from 56.3% in 2016 to 116.6% in 2023. These key indicators indicate that Bangladesh is facing a debt crisis due to corruption amidst the temporary respite from the International Monetary Fund (IMF).
IMF loans must be repaid with interest, and repaying debt by borrowing or using one line of credit to repay another line of credit cannot be sustainable for long. There are better ways to deal with unsustainable debt, especially when the debt is due to lenders continuing to lend despite well-documented evidence that the money borrowed is being misused and stolen from the country.
Irresponsible lending is abhorrent
Lenders should be held accountable for their irresponsible lending, knowing the extent of corruption, abuse and oppression in the country, and that the money they borrow is providing a lifeline to a deeply corrupt and oppressive regime. The mega projects financed by debt have been used by the regime to justify its misrule and oppression of the democratic rights of its people. Such debt is abhorrent.
This debt is abhorrent and violates the “Promoting Responsible Sovereign Lending and Borrowing” principles developed by the United Nations Conference on Trade and Development (UNCTAD). These principles require lenders to refuse to lend to regimes to prevent wasteful or harmful spending. This principle not only reduces the chances of repressive regimes surviving, but also ensures the sustainability of their debt.
Core international law norms and principles, such as good faith, transparency, fairness, legality and sustainability, are applied in the UNCTAD Roadmap and the Sovereign Debt Resolution Mechanism Guide and in UN General Assembly Resolution A/RES/69/319 on the Sovereign Debt Restructuring Process adopted in September 2015.
Moral, economic, and legal arguments for rejecting abhorrent debt
It is deeply repugnant to chain innocent citizens for generations to pay the massive debts of a corrupt and oppressive regime. It is morally repugnant, economically unsustainable, and legally indefensible.
The economic justification for rejecting abhorrent debt depends on its potential to improve national welfare in at least three ways: (1) the debt burden to be serviced will be lower; (2) abhorrent regimes that undermine welfare will be less likely to emerge; and (3) even if they do emerge, they will be less likely to last long.
The legal argument against abhorrent debt is consistent with the accepted view that equity forms part of the content of the “general principles of the law of civilized nations,” one of the fundamental sources of international law as laid down in the Statute of the International Court of Justice. Therefore, the international legal obligation to repay debts cannot be absolute, and has often been limited or qualified by various considerations of equity, some of which can be reclassified under the concept of “abhorrent.”
In many countries, there are laws that protect individuals from having to repay money fraudulently borrowed in their name by others, and companies are not liable for contracts agreed to without the authority of their CEOs or other agents.
A similar legal argument goes like this: A national debt that is incurred without the consent of the people and is not beneficial to the people should not be transferred to a successor government, especially if the creditors know this in advance.
Historical precedent
The abhorrent Debt Doctrine originated after the Spanish-American War in 1898. During peace negotiations, the United States insisted that either the United States or Cuba be held responsible for debts incurred by colonial rulers without the consent of the Cuban people and not used for the benefit of the Cuban people.
Other historical examples of abhorrent debt forgiveness include: the forgiveness of the Soviet Union’s Tsarist debt; the Treaty of Versailles (1919) and the Polish debt; the Tinoco Arbitration (1923) – (United Kingdom v Costa Rica); the forgiveness of Germany’s Austrian debt (1938); and the peace treaty with Italy (1947).
In recent decades, major shareholders have forced the IMF to halt all lending to Croatia’s former president, Franjo Tudjman, after he was accused of political violence and embezzlement of public funds in 1997.
The Kulumani Support Group, representing 32,000 “victims of state-sanctioned torture, murder, rape, arbitrary detention and inhumane treatment,” filed a lawsuit in 2002 in the Eastern District Court of New York against eight banks and 12 multinational corporations, seeking compensation for apartheid.
In 2003, the United States used the concept of abhorrent debt to argue that Iraq owed more than $125 billion in debt after the overthrow of Saddam Hussein, arguing that such debt would not only impede the country’s successful reconstruction after authoritarianism, but that it was never the new government’s legitimate inheritance.
Treasury Secretary John Snow argued that “the Iraqi people should not be burdened with debts incurred by a now-defunct dictator.” Undersecretary of Defense Paul Wolfowitz stressed that much of the money the Iraqi regime borrowed “was used to buy weapons, build palaces, and create instruments of repression.”
The Norwegian government decided in 2006, based on the results of the evaluation, that the debts arising from loans given to certain developing countries as part of the 1976-1980 ship export campaign and those guaranteed by the Norwegian Export Credit Institute should be canceled, because Norway would have to share responsibility with the debtor countries for the failure of the program.
The Norwegian case is not a case of “abhorrent debt” but draws on the concept of joint liability and reflects the idea that repayment may depend on broader considerations of the equity of the debtor-creditor relationship.
What to do
The Bangladesh interim government should immediately stop repaying its foreign debt and request the UN Secretary-General to establish an independent UN-led committee to review all debts incurred by the repressive dictatorship it replaced. The UN-led review committee should not include multilateral and bilateral lending institutions due to potential conflicts of interest, especially when they irresponsibly continued to lend despite their knowledge of the regime’s corruption and usurpation of democracy.
This would require political will, as powerful nations and international financial institutions may feel uncomfortable.
The people expressed a strong will to build a new nation based on the principles of responsibility, fairness, equity, inclusiveness and justice.
The burden of the repressive regime’s abhorrent debts and irresponsible lending should not be a burden in rebuilding a new Bangladesh.
Anise ChoudhuryProfessor Emeritus, University of Western Sydney (Australia) and former Director, Macroeconomic Policy and Development Department, UN ESCAP.
Kalilur RamanFormer Executive Secretary of the UN Secretary-General’s High-level Panel on Technology Banking for LDCs; Former Head of UNCTAD’s Trade Analysis Section and New York Office.
Ziauddin HaiderAdjunct Professor, University of Los Baños, Philippines; Former Senior Health Specialist, World Bank
IPS ONE Office
© Inter Press Service (2024) — All rights reservedOriginal Source: Inter Press Service
