Debt relief: finally proud of Britain

My main achievement as Student Liberal Democrats international officer 1990-91, was putting the case for third world debt cancellation on the agenda of a major British political party. I wrote a campaign pack for branches and the idea went forward to the grown-ups as something the students thought they should look at. I don’t really know what happened after that, but I’m sure they looked upon it sympathetically. Nevertheless, we anti-debt campaigners probably did look like typically naïve and idealistic students, so it didn’t go to the top of the agenda.

How times change. Back then it was hard to be proud of Britain. The Thatcher government was working overtime to protect apartheid South Africa from sanctions and doing it all it could to support Saddam Hussein. Cabinet ministers openly daydreamed of what they could do with the freedom to exercise power like General Pinochet. Fortunately, I’m just too young to have witnessed the Young Conservatives in their ‘Hang Nelson Mandela’ t-shirts as Norman Tebbit (who’s still fighting in vain to keep that sort out of the party) had already disbanded the Federation of Conservative Students.

Anyway. The importance of Labour’s success in persuading the G8 to cancel debt cannot be understated. For too many years wealth has left the world’s poorest nations for the world’s richest. But I should point out that all those years ago our campaign was aimed at private banks, especially Midland now HSBC, and many feel this debt is more urgent. That debtor countries have some hoops to go through is fair enough, but I’ll never understand how it can be responsible to lend to corrupt and barbaric dictatorships in the first place… or why governments should go so far to protect wealthy private interests from the obvious risks.

And yet, many people can’t quite believe this is the same Tony Blair who took them to war in Iraq. I don’t have that problem, having ended my student days endorsing the ‘Free Kuwait’ campaign (and current war now) it’s all déjà vu to me. The New Statesman’s US correspondent Andrew Stephen casts doubt on the special relationship. Bush and Blair aren’t ideological soul mates, like Bush and Australia’s Howard. British lobbying tactics made the US uncomfortable. Well good. Australia’s a follower nation and poodle to both the US and UK, while Blair’s surprised us all by having the courage to call in a big favour and make a real difference. Be proud.
Make poverty history or indulge the soap opera

4 thoughts on “Debt relief: finally proud of Britain

  1. I don’t wish to debase the value of what has happened, really I don’t, but this debt relief is largely smoke and mirrors – much of this debt hasn’t been serviced in years and was effectively gone a long time ago, it is simply a case of bowing to the inevitable. The only practical difference it will make is that, theoretically, some at least of these nations now become eleigible again for new funding from the IMF/World Bank system although if such new lending is not better controlled, and better directed, than a lot of earlier loans then they will eventually go bad in their turn.

    At least the bankers who used to have to spend fruitless hours rescheduling the old debt in increasingly complex packages are now spared this chore. I have sat on too many lending committees in years gone by involved in rescheduling loans to various of the African countries, when their diplomatic missions in cities where I worked were lavish when compared even with those of major western nations, indeed in Paris I lived within 100 metres of one such diplomatic mission and spent rather too much of my professional time helping to reschedule (for the fourth or firth time, so far as I recall) that country’s overseas debt.

  2. Bill
    Thanks for that. I’m sure that, for the most part, you’re right. Nevertheless, it’s better all round for lenders to bow to the inevitable sooner rather than later. I guess some of these states (especially the dodgy regimes) built lavish missions because they felt a need to impress while more surefooted Western nations didn’t need that ego boost.

    As you hint, this lending has taken place with little regard for due diligence; we shouldn’t feel bad for lenders. With fingers well and truly burnt and the idea that we can export democracy (something that’s only been truly realised under the current US administration) in vogue, I think there’s cause for optimism.

    9/11 has taught us that democracy, affluence and real political stability (rather than that achieved by dictatorship) abroad, bolster our own security and much more.

  3. As you hint, this lending has taken place with little regard for due diligence; we shouldn’t feel bad for lenders

    I don’t think that is quite what I was saying. Lending to sovereign borrowers is rather different than lending to other kinds of borrowers. Just how do you exercise due diligence against a sovereign borrower, unless you are a sovereign lender with more powerful weapons (to be crude about it). The most dramatic example recently of a state putting two fingers up to lenders was not in Africa at all, but in Latin America (where they speak Latin, if you believe Dan Quayle) where Pres Kirchner of Argentina simply dictated terms for rescheduling of its debt, after years – recent years, not the one back in the 70s and 80s – of spending wildly to support unrealistic consumer demand. There are a few countries in Africa which have behaved responsibly with the money they have been advanced/given, but the nepotism and corruption that infect most of them means that the real value of money lent is much diminished. I think, as I surmise you do from the 2nd sentence of your 2nd paragraph, that tying aid to definite policies and to economic and political reform, backed up with muscle if necessary, is the way we must proceed – the current US administration, for all its seeming insufferable arrogance, certainly has its heart in the right place and has the guts to follow thru. Not forgetting the fact that the way wealthy Amercians get tax breaks for charitable donations has helped to encourage people like Bill Gates to act so generously with his health donations, although I suspect that acts out of altruism more than and eye for the pecuniary benefits.

  4. A point I hadn’t covered before in the final part of the sencond paragraph of your original post: a lot of lending to third-world countries is done by the banks only because the ECGD (or its equivalent in most other major western countries) guarantees the lending; this means that it is, when things go wrong, often money that has to be repaid by the lending country’s government. The governments do this not because they love the manufacturers of whatever is being sold, far from it, but in an effort to safeguard jobs – and the holders of those jobs have votes, so do those who work for all the sub-contractors who work for the main exporting companies. It is raw politics in action – just the same kind of thing that prompted the government recently to resist accepting for so long that Rover was completely ‘kaput’ and why it had favoured the ‘gang of four’ five years ago instead of the much more viable plan, based on a smaller workforce, proposed by the other potential rescuer.

    Not all of this lending is so risky of course – some of the borrowers for aircraft finance, in particular, are from pretty viable companies in wealthy countries where the downside, if there is one, is not from internal factors but from the potential for external volatility from neigbouring countries – for example Kuwait being invaded by Iraq, but even after the invasion remaining fabulously wealthy and still in control of this wealth, by virtue of the prudent distribution of its assets worldwide in the years leading up to the invasion.

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