From the Editors
The journalist, uneasy, risked his question: “Do you have any fears that there is perhaps a far left movement coming through these revolutions that perhaps want more closed economies? I mean, there have been a lot of pictures of Guevara.” At a press conference on the Arab Uprisings held in April last year at International Monetary Fund (IMF) headquarters, then-Managing Director Dominique Strauss-Kahn gave a reassuring nod in that direction. “It is a good question,” he responded. “A good question. There is always this risk, but I am not sure it will materialize.”
Strauss-Kahn was probably right to reassure the journalist about Tunisia. Since the fall of President Zine El-Abidine Ben Ali on 14 January 2011, transitional authorities have followed the same economic policy as the old regime, seeking to restore market confidence. This strategy essentially serves to avoid Tunisia losing its status as a top IMF student who had incidentally boasted just before the revolution of its “simplified regulations” and “well-trained, low-cost workers.” This showed the world that, at an economic level, everything will remain as it was under the Ben Ali regime.
The question of public debt is symbolic of this continuity, and Tunisian officials consecrated their first declarations after January 14 to it. Mustapha Kamel Nabli, a former minister under Ben Ali during the 1990s and later a World Bank Chief Economist and Director for the Middle East and North Africa region, left Washington, DC, to become the Governor of the Tunisian Central Bank a few days after the fall of the dictator and his former boss. He immediately declared, “Tunisia will repay its debts without delays.” The immediate repayment of debts accrued by and for a dictator overthrown by a revolution is not, however, an obvious thing.
Yet, even Aristotle, in the third part of his third volume on Politics, noted over two thousand years ago, “when democracy succeeds oligarchy or tyranny, many people think one should refuse to carry out existing treaties, that is those treated contracted, they say, not by the State but by the tyrant.” Today, too, many people think that Tunisians need not repay Ben Ali’s debts.
Ben Aliism: ‘Power by Credit’
Under Ben Ali, if the relative portion of Tunisia’s foreign debt fell in terms of gross national revenue, it more than tripled in absolute value from 6.8 billion in 1987 to 21.7 billion Tunisian dinars in 2009. How can this explosion in revenue be explained? And how can we know the extent to which this debt was contracted in the name of the State while it actually was for the benefit of a tyrant or his cronies?
The old regime’s old observers have brought up the centrality of the Tunisian debt system for the functioning of its power. Fathi Chamkhi, Geography Professor at Manouba University in Tunis, has fought for the cancellation of Tunisia’s debt for a long time. Just months after the revolution, Chamki explained that “[debt] was at the heart of the system. For twenty-four years, the regime maintained an artificial life, thanks to one thing: the debt mechanism. Under Ben Ali, demanding the cancellation of debt consisted of wanting to destroy the system.”
Researcher Beatrice Hibou’s conclusions in her extremely precise inquiry The Force of Obedience: The Political Economy of Repression in Tunisia permit us to support Dr. Chamki’s assessment. She describes the Ben Ali political economic system as a form of “credit power” and an “economy of endebtedness” founded on the mechanism of “doubtful credit” that has enriched the regime and its attendants above all. She describes “the system of unrepaid (or unrepayble) loans, unrecoverable credit, attached or doubtful” as “a massive social fact” in Ben Ali’s Tunisia that served as “a mechanism of fully financing the economy” and “modality of exercising power.”
Businessmen and the powerful could obtain loans from Tunisian banks, which would not be reimbursed. During the 1990s, numerous public companies were ceded to them... without them paying the least sum. The whole operation was financed by a “non-repayable” loan furnished by banks. This “privatization” was “fictive” and could perpetuate itself because the state, notably through the Tunisian Central Bank, played the role of lender of last resort. And it obtained for itself the necessary funds from international bankers to “recapitalize and balance” the dubious credit which, as Hibou notes, was fully reconstituted following late 1990s loans from the World Bank and European Union.
This fictive system functioned because it enjoyed consensus among its participants. As Hibou argues, “all the interested parties (private banks, the Central Bank, financial firms, business, public authorities, and international agencies connected to Tunisia) knew the fragility of the banking system, its weaknesses, its insufficiencies, its nerve centers, and its potential sources of systematic risk. But all knew that the state and international lenders would always intervene to repair any failings.” International lenders, notably, took part in this fiction and knew its mechanisms well. Hibou adds, “foreign partners therefore financed the Tunisian economy without asking questions and participated in the fiction of a healthy economy of endebtedness and of a high-return banking system.”
We see that debt contracted on behalf of the Tunisian under the Ben Ali regime served to perpetuate this fiction, which enriched those closest to and holding state power. In effect, as Hibou suggests, “the ‘consensus’ obtained among dominant actors in the system [veiled] the existence of those who didn’t benefit at all. Those uncounted in the economy of endebtedness and of the virtuous circle of dubious credit were nonetheless numerous.” The overwhelming majority of farmers, small- and mid-size business persons, as well as artisans and informal workers do not have access to credit. But those in power do.
Tunisia’s debt appears to have accrued and been acquired by a dictatorial regime, for its own contractual interests, without the consent of the Tunisian people and against its desires. And yet, the first act of the country’s transitional authorities since the revolution has been to perpetuate the Ben Ali fictive debt mechanism and to continue to repay his dictatorial debts.
The 2011 budget proposal by the old regime was adopted the very same day that Mohamed Bouazizi — one of the many who are “uncounted for in the economy of endebtedness” — set himself on fire in Sidi Bouzid. Debt servicing of both principal and interest constitutes in this context the first line of state spending and was three times greater than the budget for higher education or health per Financial Law 2010-58. Following the revolution, the transitional government wanted to adopt a new budget to respond to the people’s demands. And yet, in the supplementary budget adopted on 25 June 2011 (Legal Decree 56-2011), debt servicing was still the first line noted to tally state spending, ahead of all other budget items. For some Tunisians, this very fact is a reason to demand for its cancellation.
An Odious Debt?
A Tunisian militant collective comprised of the Assembly for Alternative International Development and the Committee for the Abolition of Third World Debt in Tunisia (RAID ATTAC/CADTM), as well as the Committee of Unemployed Graduates, took to the streets in March 2012 following up on an earlier letter addressed to the new governor of the Central Bank on 20 March 2011. In the letter, they stated that “Tunisia must mobilize, with all haste, all of its financial resources to be able to face the necessities of the current situation, notably: extreme poverty, indemnization of the unemployed, and an amelioration of the material situation for salaried” citizens. To mobilize these resources, they demanded “a unilateral moratorium on the public debt of Tunisia (with a freezing of interest) during the length of an audit of this debt.”
The debt audit question is essential. “I do not believe that the debt is odious in its entirety,” explains Mustapha Stambouli, an engineer and former staff member of the United Nations Development Program (UNDP). Stambouli adds: “An audit should be held very quickly to have an overview of the situation and to bring out the part of the debt which served useful public investments for the development of the country and the creation of jobs and that of the odious debt used for private ends.”
This audit, once completed, would permit Tunisia to unilaterally cancel the illegitimate portions of its debt. There is already some international support for such a solution. The Belgian Senate decided to adopt a resolution on 20 July 2011 demanding the cancellation of Tunisia’s bilateral debt to Belgium because, as some Belgian senators explained, “the major part [of the debt] didn’t go to the population.” Additionally, one hundred European MPs signed an earlier 16 March 2011 call for the suspension of Tunisia’s debt pending the results of an audit. In France, then-presidential candidate and now French President Francois Hollande called for Tunisia’s debt to be transformed into donation. And at the global level, an International Crisis Group Report joined Joseph Stiglitz’s demand proposing that, at the very least, Tunisia’s debt be restructured.
On the legal front, a unilateral decision to cancel the debt would constitute prima facie a violation of Tunisia’s international obligations. And its creditors could seek to obtain payment before the various state tribunals or international arbitrators, based on the different loan contracts signed by the Tunisian government. Before these jurisdictions, however, Tunisia would be entitled to a certain number of legal arguments to demonstrate that it retained the right, due to the exceptional circumstances, to not respect certain loan contracts.
The essential argument could be founded on the doctrine of “odious debt” first elaborated upon by jurisprudence expert and professor of Russian law, Alexander Nahum Sack, in his 1927 book published by Recueil Sirey entitled Les effets des transformations des Etats sur leurs dettes publiques et autres obligations financières: traité juridique et financier (The Effects of the Transformations of States on their Public Debts and Other Financial Obligations: A Legal and Financial Treatise). Sack made the following claim: “‘Odious’ debts contracted and used for ends which, in the knowledge of the creditors, are contrary to the interests of the nation, do not concern the latter in the instance whereby it happens to relieve itself of the government which had contracted with them, except in the limits of the real advantages that it could obtain from these debts. Creditors have committed a hostile act with regard to the people; they cannot therefore count that the nation, having freed itself from despotic power, would assume the ‘odious’ debts, which are the personal debts of power.”
Recognizable in Sack’s analysis are three characteristics of the public debts contracted by Ben Ali’s Tunisia: they did not serve the interests of the nation; they were contracted by a despotic power; and the creditors knew it.
Today it may well be difficult to say that that this odious debt doctrine is, thus formulated, a rule of international law. Many jurists affirm contrarian viewpoints in what is a growing debate. Nevertheless, as professor Robert Howse in a UN report on The Concept of Odious Debt reminds us, even without using the ‘odious’ expression, there still exists in international law “some equitable limits to the sanctity of state-to-state debt agreements.” Thus, despite the uncertainties, a case for debt cancellation in a post-despotic Arab Spring context could still be legally defensible.
But what do lenders think? Certain bank professionals have recently taken on the whole strategy. Hubert de Vauplane warns: “Is it not high time that creditors (notably banks) worried about the outcome of the money that they loan and the “honorability” of their debtors? The risk is clear; their credit might be cut off!”
If numerous arguments exist for and against (at least provisionally) suspending the payment of Tunisia’s debt, then why have transitional authorities in Tunisia feigned ignorance of, and avoided all debate of this critical question? Why have they been so prompt to reassure creditors: “their” creditors? Shall we search for a psychological explanation, as Hibou invites us to seek? Hibou has emphasized that, “Tunisia for ... economic and historical reasons puts a point of the most proud nationalist honor in paying back its loans on time.” But is paying back the debts incurred by a dictator really a question of honor?
An explanation of the current transitional government’s silence is to be found perhaps more squarely in the counsel addressed to post-revolutionary Tunisia by lenders. One of the first among them, Robert Zoellick, the World Bank President, explained in Tunis on 4 May 4 2011 that “if a country wants to go back and access financial markets, seeking debt relief is not going to help that.” Soon after, the G8 Deauville Declaration on the Arab Spring insisted on the necessity that they “bolster further trade and investment integration” and “mitigate risks faced by private investors.” In other words, lenders demand that Tunisia continue on the same route taken during Ben Ali’s regime. Would it not be worse indeed for foreign investors to no longer easily have access to “well-trained, low-cost” Tunisian workers?
As Chamkhi observes: “The international lenders want to be assured of the maintenance of the old regime. They want this economic system to stay in place. They do not have a guarantee of that. The best guarantee was that of Ben Ali’s dictatorship. [However], this economic model will no longer work for the poor...It was a system of pillage.”
So, is what happened in 2011 still the case? Chamki concludes: “It was a revolution against an economic system, against a neoliberal capitalist system typical to Tunisia…The fundamental question of the revolution today is the problem of changing the economic regime. Yet all political parties, from the right to the extreme left, abandon the economic question. They do not put forward anything but the form of power: how to pass to a democratic regime. But no one puts the economic and social model as it was applied under Ben Ali into question.”
[This article is a translation of the French version that appeared in La Revue des Livres in January 2012]
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