Odious Debt: The Madness of Third-World stimulus

The World Bank promised stimulus to Third World countries upwards of $1 trillion. Can one sinking boat bail out another?

To resuscitate the failing global economy and rescue the Third World’s poor, G-20 leaders have promised to pump the public international financial institutions – the World Bank, the IMF being the largest – with upwards of $1 trillion in new funds. This plan ignores the harm caused by past irresponsible lending from these institutions, including misguided projects that led to unsupportable Third World debts. This plan also ignores the growing civil movement that seeks to challenge such past odious debts.

The case against these international financial institutions is overwhelming.

In testimony before the U.S. Senate Committee on Foreign Relations, experts estimated that one-third of all loans from the World Bank alone – $100 billion since its creation 65 years ago – have been used corruptly. That is $100 billion that was borrowed in the name of Third World citizens but ended up in private pockets, only to be repaid by those faultless citizens nonetheless.

Lest anyone think that the corrupt use of foreign aid funds has been cleaned up, think again. Bid-rigging, fraud in procurement, improper benefits to bank staff paid by suppliers and the like, thrive in all the multilateral development agencies to this day. Those cases that come to the attention of the institutions’ internal “integrity” departments take years to work their way through the less-than-transparent review process. In the world of multilateral institutions, the corrupt judge themselves, and secrecy is their preferred environment.

If the status quo wasn’t bad enough, the future looks still grimmer. To move the one trillion new dollars, all signs indicate that procurement rules, environmental standards, and other safeguards that would delay their disbursements will be relaxed. The IMF's new SDR credits would be made available without strings attached. “All governments qualify," says the Wall Street Journal, “including those that lock political dissidents in dungeons and steal from their own people.”

Even the Canadian executive director’s office confirms that the “bulk” of the World Bank’s increased lending to quell the crisis will be in the form of fast-disbursing loans to social safety net expenditures and infrastructure projects, exactly the expenditures most prone to cost distortions and unverifiable performance standards. The pressure to move money out the door will be intense and the “leakage” of funds will be impossible to stanch.

The performance record of these institutions is abysmal: they have loaned billions of dollars without adequate public oversight and in the absence of market discipline. In the process they financed dictators, spawned corruption, harmed the environment, wrecked economies, and then forced the Third World’s hostage public to pay the money back. It is precisely these debts, which in law are considered “odious,” that the Third World’s public and lawmakers are organizing to expose through audits and arbitration.

The Ecuadorian government launched an audit of its public debt in order to determine its legality, the Philippines’ Congress has proposed a Congressional Audit Commission and in other countries where governments would rather suppress such talk, citizen audits are underway. And in March of this year, parliamentarians, intergovernmental representatives and civil society campaigners met in Johannesburg to demand an arbitration mechanism to challenge the massive debts created by the likes of the IMF and World Bank lending and to end this "scourge of debt."

Giving these same international financial institutions more money now in a politically-motivated “rescue” operation will only magnify the harm and sink the Third World’s poor deeper in debt and despair.