Professor Argues 'Debt Relief' Masks Bad Lending Decisions--by Alan B. Nichols

On July 2005, leaders of the G8 nations signed an agreement in Gleneagles, Scotland, known as the Multilateral Debt Relief Initiative. Under the plan, which took effect July 2006, the G8 agreed to cancel all of the debt belonging to 38 of the world’s poorest nations from loans given by the international financial institutions (IFIs), including the World Bank and the International Monetary Fund.The plan also called for the World Bank and the African Development Bank to be compensated for these loans, which were made to mostly sub-Saharan African countries and could never be repaid.

The aim of this full compensation­ which would be provided by donor nations­is to preserve these lending institutions’ financial capacity. Aid activists and government leaders heralded the agreement for providing much-needed “debt relief” to the poor nations of the world. Debt relief, they proclaimed, will free these heavily indebted poor countries (HIPC) to spend the money instead on economic development and programs to combat poverty, disease and illiteracy.The agreement does nothing of the sort, argues Adam Lerrick, professor of economics at Carnegie Mellon University and a visiting scholar at the conservative American Enterprise Institute, who said that “debt relief” is nothing more than a screen to shield the dismal performance of the international financing institutions, principally the World Bank, from public view.

The first HIPC agreement of 1996 was followed three years later with a second plan that provided additional relief to a larger group of eligible countries. The Multilateral Debt Relief Initiative represents an enhancement of that second initiative, with the addition of complete donor compensation to the World Bank and the African Development Bank for all losses incurred as a result of their bad loans.According to Lerrick, “Aid advocates claim debt payments are burdening poor nations, retarding economic growth, and preventing them from using their money for education and other purposes. Untrue. The debt was relieved long ago.” This relief was extended not out of charity but out of necessity, according to Lerrick, who said that for more than two decades, “the World Bank has played a shell game with worthless developing-nation loans by recirculating funding in what the U.K. Treasury describes as ‘balance-sheet fantasies.’ It had long been clear and deliberately hidden from public view that the multibillion-dollar debt of the poorest economies would never be honored. But the bank never makes a ‘bad loan’ and never has ‘a loss.’”

Lerrick’s views obviously don’t sit well with some at the banks, but his credentials are unquestioned. Lerrick was senior advisor to Chairman Allan Meltzer of the International Financial Institution Advisory Commission, a bipartisan commission created by the U.S. Congress in November 1998 to authorize $18 billion of additional funding for the International Monetary Fund (IMF) and to consider the future role of IFIs. Its objective, according to its report, was to propose “reforms and restructuring that would improve the functioning of the financial markets, the stability of the world economy, and the incomes of people in rich and poor countries.”

Lerrick spent hundreds of hours studying the bank’s arcane procedures and conducting scores of staff interviews.In what the World Bank calls a “system of defensive lending,” Lerrick charges that “dates and amounts of payments under old loans miraculously matched disbursements under ‘new’ loans to create a perpetual rollover of defaulted obligations. Although IDA [International Development Association, the arm of the World Bank that provides interest-free loans to the poorest countries] listed total development resources at $138 billion on its 2005 balance sheet, more than one-third of this apparent stockpile, or $46 billion, has long been riding the rollover merry-go-round,” according to Lerrick. Should the bank be compensated for this practice? Definitely not, argues Lerrick, who said the United States, European Union and Japanese taxpayers, by and large, are being asked to foot this bill. He noted that in September 2005, “World Bank President Paul Wolfowitz ‘insisted’ that the bank be compensated for its losses stemming from bad loans. Why?” Under the Multilateral Debt Relief Initiative, the G8 nations effectively agreed to make payments to the IFIs on behalf of the poor countries. Under the Millennium Development Goals declaration, the United Nations called for even more aid to bring HIPCs out of poverty and start them on the road to economic prosperity. As a result, the World Bank continued its lending even after the borrowers were recognized as “bankrupt” in 2000 and raised the indebtedness of the 18 qualifying HIPCs to the bank by 50 percent from 2000 to 2003, according to Lerrick.“Debt relief is simply a disguised way to get more money out of the donor nation taxpayers. New aid of $50 billion paid over the next 40 years has been disguised as debt relief,” he said.“Total debt cancellation for the poorest nations is absolutely the right policy,” he continued. “The money is long gone. The debt is uncollectable, but the real debate is not about debt relief. They’re asking for $50 billion in unauthorized aid without congressional scrutiny.”Lerrick believes that the IFIs should acknowledge their past failures, cancel the debt, write down their portfolios to reflect their true value, and come back to Congress with a request for additional aid money­ a process he says everyone else must go through. In other words, he argues that the banks should achieve the transparency in the management of their finances that they demand of the recipient countries.“None of the G8 finance ministers have any illusion about the facts…. But debt relief is easier to sell politically than new aid,” Lerrick said, pointing to the aid campaigns promoted by celebrities Bono and Bob Geldof that have enormous public appeal. “No one opposes helping the poor nations, especially in Africa, but after 50 years and a trillion dollars, there is virtually nothing to show for it.”

The World Bank has adopted an internal audit program to monitor the results of its lending, but Lerrick called this meaningless because he said the internal audits are self-serving. “The World Bank considers a project ‘completed’ when it has disbursed the money. This could be years before any results are visible. The bank has no means to measure the real impact of its aid.“If you asked a World Bank loan officer how many children have been educated or inoculated as a result of loan X, he would have no idea. If you asked him how many kilowatts of electricity were actually delivered to customers from the plant or dam that the bank funded, he could not answer,” Lerrick said.

Debt relief and the end of the world as we know it (and I'll feel fine)

For about a half millennium now—about as old as the modern world, certainly from the beginnings of the New World—Africa and many parts of the non-Western, non-white world have been under attack from powerful, global forces determined to destabilize their civilizations, to siphon off their human and natural resources and to maintain relations that inevitably leave them as economically dependant as possible.

Particularly as it relates to the subjugation of the Afro-Atlantic world, I’m sure there must have been a man or a woman during, for example, the Trans-Atlantic slave trade or during the age of Colonization, standing on the shore, looking out over the night ocean with unspeakable anguish yet with an almost uncontainable sense of expectation, almost bursting from their spirit, declaring-- “This must end…NOW!”

Many of our foreparents in chapters of history that we now only read about, while using whatever means available to them, yet acknowledging their short supply of direct means to change their world, turned their collective spirit in utter dependence on an invisible God--an intuitive conviction saying that by the things seen in the universe, there must be a moral power greater than the circumstances of the world into which they were born. They were certain that, like the invisible God of the Hebrews in Egyptian captivity, God would hear their cry and finally bring an end to world as they knew it.

As we know, 444 years of the Trans-Atlantic/New World chattel slave trade came to an end. Also, nearly 100 years of colonization ended… but many of the lingering, time-released conditions remain with us…and a new era of oppression has replaced them.

Similarly, many of us today, representative of our generation in our chapter of history find our hearts burgeoning with a powerful sense of hope and expectation for the future of our world. For some, they've only seen and heard about while many others have known first-hand some of the real-world conditions--in Africa, in Latin America, in Asia—resulting from this long, half-millennium-long development of what we now call “the Two-Thirds world”. Together, we’ve taken for granted these phenomena all our lives: images of abject poverty, rampant famine, incurable disease, inexhaustible want and ubiquitous death.

For some of us, we take a stand here on the figurative shores of this new millennium, like our foreparents, crying out for God’s sovereign intervention to once and for all break the backs of the systemic and structural forces allied against freedom, justice and life itself. For all of us in support of 100% cancellation of odious and illegitimate debts held against the world’s poorest countries--debt that’s part of an economic relationship with the world’s richest countries that exacerbates poverty, undermines development, stifles education, destroys the environment, misappropriates health care resources and does nothing to stop the spread of HIV/AIDS--we’re part of a global movement that declares, like our foreparents—“This must end--NOW!”

If we can take any hopeful lessons from the past, even as our foreparents saw to it that slavery ended, colonization ended--or even "Jim Crow" segregation in the U.S. or Apartheid in South Africa ended, we can believe that, like what the Bible says, “This too shall pass”—this global debt crisis resulting from one part mismanagement, one part corruption and multiple parts from predatory exploitation by other countries.

It won’t pass without struggle. For some of us, we believe it certainly won’t pass ultimately without the unyielding, sovereign intervention of God at work in the fabric of our earthly actions, as it says in Psalm 103:6, “…work[ing] righteousness and justice for all the oppressed”…or, as Jesus declared in Luke 4:18, “The Spirit of the Lord is on me…to release the oppressed”

Many of us working for this biblical "jubilee" vision—a vision of global redemption and restoration toward righteousness and justice in economics, trade, governance, the environment, and in all things under the sun--demand that 100% debt cancellation must happen. We believe in its possibility within our collective lifetime. We believe we are literally playing a role to change the actual course of history. We believe that the world we’ve inherited—in this case, a world of gross disparities between what is mostly white, northern haves and Asian/Latin American/African southern have-leasts—is a world we work to bring to an end.

We call not just for 100% cancellation of debts but something far bigger—the manifestation of a cosmic vision resulting in the end of the world of injustice and destructive relationships as we know it.

When this happens, I’ll feel fine, just fine.

Revolution for New Dirt and New Sky: The unprecedented transformation of the apparent fixed social realities of our world

Natural. Immutable. Established by nature as the sky above my head and the dirt beneath my feet. In my youth, (save the vocabulary), these sentiments characterized my intuitive understanding about the world of black subjugation and poverty. Growing up in housing projects and other communities around Pittsburgh from the 60s through the 80s, this was my presupposed cosmology. As a young adult during the 80s and 90s, I had occasion periodically to peek into the very different socio-economic conditions of the well-off. Most often, they neither looked like me nor lived near me. Also about then, I began learning about and seeing images from Africa—images of abject poverty, rampant famine, incurable disease and ubiquitous death.

Interestingly, the juxtaposition of such experiences seemed, in my mind, to draw a more acute line of disparity between the global black world and the global white world.

There it was again—the pall of apparent black inferiority at home and abroad. Naggingly pervasive and accessible yet, seemingly inscrutable and indomitable. By this time, the question “But why?” was the emerging mantra on my spirit, seeking answers from an invisible and omniscient God. I assumed He knew since no one else seemed either willing or able to say.

Now 20 years later, I’m wiser and more knowledgeable about the world. Ironically, what nagged me about the Afro-global world then is back with a vengeance, only now there’s a difference in me: a tenacious faith in God.

The God of the biblical scriptures won my heart back then as I learned of His intimate involvement in the Civil Rights Movement. That radically transformed my perception of God from a laissez-faire God to that of an imminent and intimate God. This redemptive-historical, Creator-God of the Bible revealed in the person of Jesus the Christ immediately became my personal superhero and I became a die-hard fan.

As the God of the biblical jubilee of Leviticus 25--a divine mandate for redemption and restoration toward just social relations, economics, trade, governance, the environment, and for all things under the sun--I’m convinced that kairos, or the fullness of time, for restoration and restitution is underway by this same God. In other words, we’re at the fullness of time for those of this generation to be change agents for 21st Century liberation and empowerment in the Afro-global and in the larger two-thirds world—an unprecedented dismantling of the last vestiges of 500 years of economic exploitation.

From David’s Psalm 103:6 declaring “The Lord works righteousness and justice for all the oppressed” to Jesus’ recall in Luke 4:18 that “The Spirit of the Lord is on me…to release the oppressed”—God has always demonstrated His just activism wherever imago dei, or His image in Man, was undermined by the ungodliness of others. He’s the same today as 20 years ago when I first wept over the state of Africa. This is why today I side with God against the current debt crisis over much of the two-thirds world. This is why the Drop the Debt (DTD @ PIT) group that I started at the University of Pittsburgh is so important to the cause and to me.

For me, serving as coordinator for DTD @ PIT, more generally, serving in the global debt cancellation movement is a direct outworking of my commitment to the Christian worldview as revealed by God in Scripture. In this, I co-labor with God in redemptive history by helping to give voice to justice—in this case, the realization that the earth is the Lord’s and the fullness thereof.

For those of us who hold an unshakable faith in this invisible-but-made-manifest, Creator-God; those of us who view all things under the sun through lens of His perspective; who appraise all things by the wisdom of His insight—this movement to dismantle and transform the mechanisms of oppression in our world IS part of God’s redemptive history and you and I are actors on His historical stage, shaping and directing the outcome of the grand story of the world.
In this, I envision us co-laboring with God to recreate a new sky above our heads and new dirt beneath our feet. In this, we literally serve the advancement of God's Kingdom agenda toward the consummation of all things and the ushering of the New Heavens/New Earth of Revelation 21--maybe not in our lifetime, but inevitably, and not too soon.

Maranatha!