Alert sounds on developing country debt

View of the Angolan countryside from the train. [Flickr/Olga Stavrakis]

To fight corruption in the poorest countries, the European Parliament is proposing a code of conduct that makes the granting of loans conditional on monitoring by national parliaments. But the idea has not gone down well in Brussels. reports.

The debt held by the poorest countries on the planet is rising dangerously. This worries the European Parliament, which fears that this increase in indebtedness threatens the objectives of human development and sometimes fuels corruption at the head of fragile states.

In a non-binding report adopted on 17 April (384 votes in favour, 253 against and 27 abstentions), the MEPs called for a stricter framework for rules on granting loans to developing countries.

European Parliament sounds the alarm over developing world debt crisis

The number of poor countries facing major debt crises has doubled since 2013, and only 1 in 5 are now considered to be at low risk of crisis. With some countries in the midst of crisis and others on the brink, meeting the Sustainable Development Goals (SDGs) remains a pipe dream, writes Mark Perera.

“The International Monetary Fund considers that eight African countries are over-indebted and eight others are in the process of becoming so. Recourse to borrowing is not reprehensible in itself.  But this report aims to increase the sense of responsibility of both borrowers and creditors,” explained Luxembourgish rapporteur Charles Goerens.

The report calls, among other things, for a greater sense of responsibility on both sides. On the one hand, the borrower countries would have an obligation to approve the loan by a vote in their national parliament, as a means of ensuring democratic control of the amounts and the real objectives of a loan.

On the other, the lenders would no longer be authorised to take legal action against an insolvent state if they decide to grant funding to a country that bypasses parliamentary validation.

“Parties nevertheless lending money to such states, which can therefore become complicit in the embezzlement of public funds, would no longer be able to count on recovering their debt if the borrower state looked like becoming insolvent,” the report stresses.

“In practical terms, the right to human development must take priority over the right of creditors to recover their claim,” Charles Goerens explained during a plenary session debate in Strasbourg on 16 April.

MEPS are also requesting a European law intended to fight against debt speculation by vulture funds, along the lines of the Belgian law of 2015. In addition, they want to see a European strategy aimed at limiting the levels of indebtedness of developing countries.

“This report stresses some important points. It is essential to ensure that the debt is viable in order to attain sustainable development objectives,” acknowledged Development Commissioner Neven Mimica.

Yet, the European Commission has remained reticent about the implementation of a binding code of conduct.

“The Commission has reservations about the call to establish a multilateral legal framework. The member states have always been in favour of the current practice of a voluntary approach to debt restructuring,” Mimica pointed out.

Problematic over-indebtedness

According to the IMF’s estimates, the ratio of public debt to GDP reached 47% in the developing countries in 2017, up 14 points since 2013. This has led some countries to devote an ever-larger share of their public revenue to servicing debt.

This is the case in Angola, for example, which used 44% of its public revenue to repay its debt in 2016, according to the figures from the British NGO Jubilee Debt Campaign.

“Debt processing in the developing countries has increased by 60% over the past three years,” said Sarah-Jayne Clifton, director of the Jubilee Debt Campaign.

The new debt has not had the anticipated lever effect on investment levels in the countries. In fact, the report indicates that only 30% of countries have seen an increase in investment similar to the increase in their level of indebtedness.

Lenders’ sense of responsibility

Increasing the sense of responsibility among lenders as regards granting loans to developing countries is also on the table.

“When we see the levels of indebtedness of certain countries becoming problematic, it is not absurd to consider rebalancing loans and donations,” Rémy Rioux, director general of the French development agency, said on 12 April.

When the global figures on public development aid were published on 10 April, Charlotte Petri Gornitzka, chair of the OECD Development Assistance Committee, also called for vigilance regarding the proportion of loans in world aid.

For Charles Goerens, financing solutions do exist for the poorest countries.

“We need to rely on donations, but also on innovative financing methods such as the tax on financial transactions and especially the mobilisation of these countries’ own resources by levying tax,” he insisted.

Whose aid is it anyway?

To the generation brought up on the LiveAid and Live8 concerts, development aid is a moral obligation as well as a policy tool.

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