Enough is enough: The debt repudiation option¶

Jonathan Glennie (2007). Enough is enough: The debt repudiation option. Christian Aid.


Type	report
Scope	Comparative and methods
Method	policy analysis
Period studied	1970–2006
Regions	Global South, Sub-Saharan Africa, South Africa, Philippines, Nigeria, Argentina, Ecuador, Kenya
Themes	sanctions divestment, macro fiscal finance debt, transition post apartheid, comparative theory
Citation key	`glennie2007`

Argument¶

The NGO briefing argues that the debt crisis of poor countries is not solved, since only about 20 HIPC countries have had substantial relief. Much of the remaining debt is illegitimate, being odious (lent to despotic regimes) or inflated by penalties and interest. It contends that the costs of repudiation (loss of finance, ostracism) are exaggerated and its benefits for health and education spending are ignored. Argentina and Nigeria are used as cases in which default or the threat of it improved outcomes. South Africa appears as a short case: it repaid the odious apartheid-era debt after creditor pressure and would have been better off repudiating. It recommends debt audits, moratoria, partial withholding, debtor groupings and a fair arbitration process.

Evidence and method¶

Secondary and advocacy sources: World Bank World Development Indicators 2005, UNCTAD reports, the World Bank Independent Evaluation Group, Joseph Hanlon's work on illegitimate debt, press reports, speeches and interviews with NGO partners. Country case studies and charts of debt stock and debt service. The South Africa section gives no source for its 1994-99 flows beyond a footnote on the ANC and Hanlon.

Findings¶

The apartheid government left the ANC about US$20bn of external debt, financed mainly by banks in four countries. (p. 16)

When Nelson Mandela was elected president of South Africa in 1994 he inherited external debts of around US$20bn, which had been racked up by the apartheid government.
Western banks were the main financiers of late apartheid, and the IMF lent until its board stopped it in 1983. (p. 16)

Banks based in Germany, Switzerland, the UK and the US were the apartheid regime’s main financiers as it struggled through its final years.
The IMF lent to South Africa until barred by its board in 1983. (p. 16)

The IMF itself lent South Africa money until it was prevented from doing so by its board in 1983.”
Creditors used threats to make the ANC government repay the apartheid debt. (p. 16)

creditors used threats to ensure that the African National Congress (ANC) government would repay every penny of it.
The ANC signalled in the 1980s that it would not honour the debt, but Mandela faced pressure and the offer of new loans. (p. 24)

During the 1980s, the ANC clearly signalled that they would not honour the debt that had helped to prop up the apartheid regime.
Net debt service exceeded new lending to South Africa in 1994-99. (p. 24)

Between 1994 and 1999, South Africa paid out US$4bn more in debt service repayments than it received in new loans.
Private debt flows were even more negative, with repayments well above new loans. (p. 24)

While only US$4bn of new loans were granted between 1994 and 1999, more than US$10bn was paid back.
Repudiation would have left South Africa better off even if aid were cut off in retaliation. (p. 24)

if South Africa had simply repudiated the odious apartheid debt it would have been US$4bn better off.
At least a fifth of developing-country debt is estimated to be odious. (p. 15)

at least 20 per cent of developing country debts (more than US$500bn) can be described as ‘odious’.
Argentina's post-default recovery undercut predictions of long-term isolation. (p. 26)

The economy grew by 8.8 per cent in 2003 and 9 per cent in 2004 and is still going strong