World Bank, NGOs clash at roundtable on odious debt

News|Alex Wilks|26 September 2008|update 62|url
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By Alex Wilks, Eurodad

A recent roundtable meeting shows that some progress has been made in official understanding of odious debt, but that the World Bank is remaining very cautious on the topic.

In September 2007 the World Bank published a its first-ever paper on odious debt (see Update 60), but groups working on the issue said the report was skewed towards preventing future irresponsible lending and ignored the major problems with past debts. The NGOs therefore pushed for a peer review via a roundtable meeting, on top of the web-based consultation offered by the Bank.

The report of the roundtable - which took place at the Bank's headquarters in Washington earlier this year - has now been released. It shows that there was no agreement between NGOs, the Bank and government participants at the meeting on defining odious debt or how to operationalise a plan to tackle the problem. Optimists among the NGOs considered it progress of sorts that the Bank even entertained participating a meeting of this kind.

The World Bank's lawyers argued that there is a limited basis for an odious debt doctrine in current international law. Other participants said that odious debts had both a political and a legal basis. They pointed to examples such as Haiti. At independence the state had to take out a loan to pay off former slave owners. Then in the 1980s the Duvalier dictators took out $2 billion in loans and stole an estimated $900 million.

Processes such as the Ecuador debt audit commission - due to report this month - show that more governments are becoming emboldened to examine past loans, despite the threat of punishment by the international capital markets. Among the proposals from the roundtable were that "the World Bank and a Southern CSO jointly appoint an independent auditor to examine a selected Bank credit according to mutually agreed indicators".

The forward looking sections of the meeting report are worth reading for CSOs working on World Bank projects and on aid effectiveness. Referring to Eurodad's Responsible Finance Charter - which was presented at the meeting, the official meeting report concludes "In terms of the issues that civil society has been raising on responsible lending such as greater legal clarity, environmental and social impact analysis of projects, transparency, good procurement practices and clear procedures for arbitration, the Bank could sign all of them". However other Bank officials raised a concern that writing off debts if loan-funded projects had not worked might undermine ownership and reduce borrower government incentives to make projects succeed.

These issues will continue to be raised with the World Bank - including at a two day conference on debt to be hosted by the Bank at end October. Opportunities are also being sought to address them more systematically to the G20 group of governments which is also discussing responsible finance. This group is currently chaired by Brazil, but the UK will take over at the end of the year.

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Published: 26 September 2008 , last edited: 26 September 2008

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