Tuesday, August 31, 2010

Issues relating to sovereign debt ... and their cancellation

Dear Colleagues

A few weeks ago Liberia was able to get some $5 billion of debt cancelled ... and President Ellen Johnson Sirleaf called on the nation to celebrate. Commentators at the Washington based Center for Global Development (CGD) seem to think that this is something that we all should celebrate.

I am not sure about this.

In order to fund the development of Liberia, clearly there is a need for money resources but money itself has not been the "silver bullet" for development progress at any time in the past, and is only part of the equation now. Many of the people who have been in positions of power in the past are still alive, albeit not now in positions of active power, and the disappearance of the debt without an adequate accounting is a practice that seems to be completely inappropriate.

The following is the CGD posting. The URL is:

Minister of Finance Ngafuan speaks at CGD’s debt relief event as CGD’s Ben Leo, the IMF’s John Lipsky, and Minister of Planning & Economic Affairs Konneh listen in.

Liberia’s Debt Relief Party
Center for Global Development
By Ben Leo ... July 2, 2010

This week, Liberians celebrated in the streets – faces painted, drums blaring, and dancing with abandon. They’re not rejoicing over some recent triumph by the Liberian soccer team or a local festival. The streets of Monrovia were overflowing because of debt relief. That’s right, debt relief. On Tuesday, Liberia secured nearly $5 billion in irrevocable debt relief from the World Bank, IMF, African Development Bank, and bilateral creditors. It’s a massive sum – the equivalent of roughly $1200 for every man, woman, and child in Liberia. As President Ellen Johnson Sirleaf stated, “today, ladies and gentlemen, is a day for us, as Liberians, to celebrate.” And celebrate they did. And so should we.

Beyond celebrating Liberia’s monumental achievement, we also should take a step back and examine just how they did it. On Wednesday, CGD was privileged to host two of Liberia’s leading stars in the debt relief drama – Finance Minister Augustine Ngafuan and Economy & Planning Minister Amara Konneh – along with a member of the IMF’s senior management, John Lipsky. Their insightful remarks kept coming back to one central theme – the overriding importance of strong, responsible, and persistent political leadership. President Sirleaf and her senior team knew the road would be long and rough. But, they refused to give up and overcame each successive wave of seemingly insurmountable challenges. Take two quick examples:

* When the Sirleaf Administration assumed office in January 2006, it didn’t have a single computer, chair, desk, or paper clip. The previous transitional government stole everything – bolted down or not. And many civil servants hadn’t been paid in months – if not years. Despite this, they found a way to mobilize enough expertise to secure an agreement the next year that cleared billions of dollars of loan arrears to World Bank, IMF, and other creditors.

* Also, the Sirleaf Administration pushed through numerous controversial pieces of legislation in order to secure debt relief – such as establishing a new Anti-Corruption Commission – despite controlling only 10 percent of the Liberian Congress. A truly tremendous display of courage and consensus building.

The path ahead for Liberia will remain uneven. It continues to face massive challenges, such as high unemployment rates and poor infrastructure. However, if the government remains determined and disciplined, they have good odds of successfully tackling these challenges one by one – just as they did with debt relief.
There were several comments that supported the cancellation of the debt.
Dr. CM Driscoll Says:
July 7th, 2010 at 3:05 pm
Congratulations to President Sirleaf and her government officials. They have shown that it can be done: Africa can get out of debt and have a bright future as a full partner with the other countries of the world.

Milton Weeks Says:
July 7th, 2010 at 4:49 pm
Well done! This is a momentous achievement by the Liberian government and a process that has been achieved in record time, especially considering where this government started from. I am once again encouraged and impressed by the tenacity with which President Sirleaf and her officials pursued this process. Again I say, Well done

alice amsden Says:
July 7th, 2010 at 5:06 pm
How nice for Liberia! But did it have to cut a deal about how it would treat the foreign mining and plantation industries in the country? After all, Canada delayed an $8 billion debt relief deal for the Democratic Republic of Congo. Canada seems to have been worried about the DRC’s cancellation of some mining contracts. But according to Mineweb.com (”Canada blocks debt relief as Congo marks jubilee”) a World Bank decision on debt relief was postponed at Canada’s request (the IMF approved the request).

Chris Lane Says:
July 14th, 2010 at 5:05 pm
There was no linkage between terms of foreign direct investments and the provision of debt relief. That said, independently the Liberian authorities did renegotiate rubber and iron ore concessions in their favor.
Three of these were totally in favor of the debt relief and only one had some modest reservations.

My experience with Liberia goes back to the 1970s when President Tolbert was the Head of State ... and I have stayed in touch with development matters in Liberia over the years. I have learned a lot about the scope of financial mismanagement during this time, and am of the view that the international community is a part of systemic mismanagement of resources ... including the IMF and the World Bank who have facilitated the breakdown of financial systems by ignoring report after report that included information about financial mismanagement.

Recently top model Naomi Campbell was called upon to testify at the War Crimes Court about some rough diamonds it is alleged she was given by President Charles Taylor of Liberia at an event in Africa back in 1997. It is fairly common knowledge that all sorts of deals were going on to bring munitions to Liberia ... and some of this involved rough diamonds ... with some of the munitions coming overland from Libya.

In my view cancelling a debt without an accounting is irresponsible ... the funds have gone somewhere with someone responsible. That person or those persons should not be "off the hook" ever.

That does not mean that new financing should be held up ... new financing to do things of value should be accelerated, and done with strong accounting and accountability. Every fund flow should be used to create value for the society ... and there should be accounting for this.

My experience with the IMF and the World Bank is that much of what they do is "high finance" and very sophisticated without very much contact with reality. To my mind this explains much of the crisis of development performance ... these institutions have been God's gift to the corrupt for a period of perhaps 50 years, and unlikely to change very much.

Money flows without accounting and accountability is absolutely ridiculous ... but it is what the top level organizations seem to be doing all the time. Incredible!

Peter Burgess

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