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Monday, March 10, 2014
- Anti-poverty campaigners are celebrating the Norwegian government’s release of an external audit of all outstanding public debts it is owed by developing countries, the first time any country has undertaken such a process.
The investigation, by the international financial services company Deloitte, was conducted on aid packages offered by the Norwegian government to developing countries since the 1970s. Auditors were tasked with studying whether the deals, mostly concessional trade agreements, complied with past and present national guidelines as well as with newly established international principles.
The audit marks the first concrete use of what are known as the Principles on Promoting Responsible Sovereign Lending and Borrowing, established by a United Nations working group in April 2012 and still in the process of being rolled out. The Norwegian government has been a key supporter of the process of creating the principles, under the auspices of the U.N. Conference on Trade and Development (UNCTAD).
“This is really about setting a good example – as the first lending country to conduct such an audit, this is a very important first step in concretising and testing these principles,” Eric LeCompte, executive director of the anti-debt campaigner Jubilee USA, told IPS.
“The Norwegians clearly wanted to put out a test case that could be taken seriously, really moving the principles forward for the first time. Perhaps most interesting, while Norway is one of the world’s better lenders, Deloitte found that several of its past loans would not meet current standards of responsible lending.”
Jubilee USA is now calling on other countries, particularly those of the Group of 20 (G20) nations, to follow Norway’s example, conducting transparent debt audits to allow the public and civil society to see how decades’ worth of loans have been made. Given the new data, multiple groups are also calling on Norway to cancel certain debts.
“We hope the Norwegian government will take the next step of this critical audit and cancel illegitimate debt such as the debts of Egypt and Indonesia,” Gina Ekholt, director of the Norwegian Coalition for Debt Cancellation, said in a statement.
The audit report was explicitly written to act as a roadmap for future such exercises, noting pointedly, “The audit process has been conducted in such a manner that it may serve as a model for future debt audits.”
Interestingly, the Deloitte auditors also offer extensive feedback on the UNCTAD principles. In particular, they encourage the principles to become more explicit, and offer advice on ways in which they can become more operational.
They also offer some pointed specifics, including urging greater support for debt restructuring for developing countries. Jubilee USA’s LeCompte says this emphasis is “critical for getting us to the next place”.
“Fundamental cause of poverty”
In explaining his government’s decision to undertake the audit, Norway’s international development minister, Heikki Eidsvoll Holmas, said, “We are doing this to make sure that we are living up to our responsibility as a lender to developing countries.”
He added: “[T]he debt burden is hampering development in some poor countries. These countries are having difficulty servicing old debt agreements made on unfavourable terms. We now want to address this.”
The investigation covered 34 debt agreements with seven developing countries, according to the Norwegian government. While most of these are two to three decades old, their principals still add up to nearly 170 million dollars – and, once interest payments are included, approach four times that amount.
“Unmanageable debt burdens are one of the fundamental causes of poverty in developing countries,” the Norwegian Ministry of Foreign Affairs said in a statement.
“While the international community gives 141 billion dollars in aid to developing countries annually, the developing countries pay back 464 billion dollars each year to their creditors. Many of the debt agreements were entered into when economic, political and social conditions were uncertain.”
Indeed, this issue goes to the heart of one of the central contradictions to plague international development aid over the past half-century.
In the 1980s, for instance, the foreign debts taken on by developing countries more than tripled, to almost 420 billion dollars. Yet during that same decade, gross national product for these countries expanded only marginally, from 0.9 trillion dollars to 1.3 trillion dollars.
A more recent move towards debt restructuring and some debt forgiving notwithstanding, many countries are continuing to labour under those same repayments today.
Although UNCTAD was not able to comment for this story by deadline, a representative for the body did laud the Norwegian audit when it was announced a year ago.
“To apply the UNCTAD Principles in the Norwegian debt audit is a solid way of showing that the Norwegian government takes the Principles seriously and that they take their responsibility as a creditor seriously,” Jostein Hole Kobbeltvedt, a member of the UNCTAD expert group, stated.
The UNCTAD principles on responsible lending and borrowing specifically aim to bring clarity to the international development lending relationship, advocating both greater accountability and responsibility. Part of the goal is ensuring that lending countries know that their loans can be repaid while also ensuring that receiving countries are not surprised by hidden contract provisions.
“Historically, and certainly now, these principles have not been part of the regulation of the international financial system – it’s still kind of like the Wild West out there. These are pretty straightforward principles that advocate for relatively minor levels of regulation that we’re currently missing,” Jubilee USA’s LeCompte, who was part of the UNCTAD working group, says.
“They also advocate for transparency in loan contraction. In other words, if I am a citizen of Zimbabwe, I should know what loans my government is taking out in an open, sanctioned, accountable government process. The Norwegian audit represents the threat of a good example.”
To date, 13 countries, including the United States, have endorsed the UNCTAD principles, but only as voluntary guidelines. LeCompte says his office is currently pushing to reintroduce U.S. legislation that would further concretise the principles, potentially impacting not only on U.S. policy but also on the lending guidelines used by some of the largest multilateral development lenders.
“We need legislation to ensure more binding action on this and to move the Treasury to use its vote in the International Monetary Fund and the World Bank to put forward these practices there,” he says. “Although some multilateral financial institutions have gotten better, I don’t think a single institution can say they’re adhering to these principles yet.”