why debt relief can be a bad idea

November 29, 2007

Once upon a time , the government of the Republic of the Congo got interested in getting the Heavily Indebted Poor Country debt relief. The country is poor and is heavily indebted but there are conditions such as “a current track record of satisfactory performance under an IMF and IDA-supported programs, a Poverty Reduction Strategy (PRS) or an interim PRS in place, and an agreed plan to clear any arrears to foreign creditors” (source) in order to reach the Decision Point. So a central banker became the new Minister of Finance and he has a full mandate to get the country to the Decision Point. A few years later, after being nicknamed “Red Pen” for his habit of “correcting” his colleagues’ financial demands, and amid rumours of death threats by presidential nephews angry to find out that their personnal expenses weren’t covered by the treasury, he got canned and returned to the BEAC. So yes budget cuts were made, of course mostly in social spending. The general spending (aka AC, cars, and stuff for the ministries or rather ministers) is still something like 40% of the budget and the investment spending is really a big scam in which companies close to the presidency get awarded infrastructure contracts at inflated prices.

Then in 2005, a few months before the World Bank meeting to decide on Congo’s status something happened: an NGO revealed that $300 millions worth of oil money were accounted for, an investment fund owning part of the debt sued in London and New York, miniscandals involving the director of the oil company were aired. LINKS HERE, HERE, HERE, HERE, HERE, HERE, HERE, and HERE.
The $300 millions scandal was the biggest one and threatened to compromise the HIPC status.
Congo at first denied there was any money missing. Then they admitted there was but said they lost it. And finally in a dramatic twist of events not only admitted they knew it was missing and where it was (in personnal account in the some caraibean fiscal paradises), but actually declared they were hidding it from the big evil Vulture Funds that were after Congo’s revenues. Of course, les Depeches de Brazzaville, the pro-government newspaper went at great length, in the next weeks, to explain what a vulture fund is and how evil they are, quoting Nestor Kichner and plenty of anti-western and anti-colonial arguments (even if the editor is a french spin doctor).

Now the World Bank had a strong anti-corruption agenda at that point, partly thanks to Paul Wolfowitz, the recently nominated president of the institution also known as the planner of the Irak war. At first it seemed like they did take notice (scroll down for the english version) of the scandals but after some alledged french pressures (being a friend of Chirac helps), the World Bank decided that Congo reached the Decision Point, with some reservations.

Now so far the logic makes sense in a World bank kind of way, Congo made some efforts, cheated a bit but the limited effort should be rewarded, right ?

but that led to this:

Congo Republic will sign an agreement with the London Club of creditors on Wednesday to forgive 77 percent of the 288 billion CFA owed to the group, the finance ministry said in a statement.(…)The Paris Club of sovereign lenders, which had already agreed to cancel 67 percent of its debt, increased this to between 90 and 100 percent in some cases after HIPC entry. 

The congolese press anounces it either bragging about in editorials or explainning in more detail. (all links in french)

In short, here we have a corrupt government that admited it cheated on its debt repayments (by hiding revenue in private accounts) and whose president, elected with a stalinist 89,7% on the same day as Mugabe’s much publicized 56% cheat, thinks it’s racist to question him on his expenses, that contrary to DRC or Nigeria is still ruled by the people who took the loans to start with, and because of the World Bank political decision gets their non-World Bank debt written off and a badge of seriousness on the local political scene.

So someone, please, explain this to me ?
What’s the point ? What outcome is expected out of this ? More humanitarian support for Christel Sassou-Nguesso ?


3 Responses to “why debt relief can be a bad idea”

  1. Akili Says:

    a couple of questions:
    1. did the London club buy any of Congo’s debt from the World Bank?
    2. Since this event has the World Bank granted Congo debt relief under the HIPC regulation for its World Bank debt?

    I think this was definitely a back room deal ushered through the pipeline with the support of, as you appropriately mention, Jacques Chirac, and other prominent western political figure whose countries have longstanding historical relationships with Congo. The blame for this can be spread around to several parties: the World Bank for virtually ignoring Congo’s financial transgressions, France for not taking enough of a hardline and Congo for being so shady and cavalier in the first place.

  2. aflakete Says:

    1. No, not that i know of.
    2. from this article http://www.congopage.com/article5050.html no, not yet. what’s confusing is they’re quoting the London Club president saying ” this deal will make the debt tolerable and allow Congo to get into HIPC’s next stage”. I still think reaching the Decision Point sends a signal to both the Paris and London clubs. a signal Congo obviously didn’t deserve.

    I don’t know if I would blame France and the World Bank equally. Somehow the fact that the World Bank acknoledged the bullshit before France pressured them to go on makes me think France’s issue is not negligence, it’s deeper and more evil than that: supporting their “friends” at all costs.

  3. […] Fund (see Frere Bongo’s blog for an interesting article which involves the […]

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