“In the transition from an oligarchy or a tyranny to a democracy…persons refuse to fulfill their contracts or any other obligations, on the ground that the tyrant, and not the state, contracted them”—Aristotle.
Egypt owes about thirty-five billion USD (or 210 billion EGP) in foreign debts, which impose on us an annual burden of about eighteen billion EGP. These debts were accumulated under the previous regime in accordance with its political and economic priorities. We are paying off these debts from our own pockets instead of spending on healthcare, education or social services. A number of activists and civil society organizations inside and outside of Egypt have, therefore, designated 31 October the global day for Egyptian debt cancellation This is a prelude to a popular campaign that aims to remove this burden off the shoulders of the Egyptian people, who were neither responsible in any way for the decision to take on these debts, nor were they ever consulted in how these funds were spent.
Dropping Odious Debts
“Odious debt” is a legal concept coined by theorist Alexander Sack, who served as Russia’s minister of finance in 1927 during the aftermath of the Russian revolution. The concept seeks to extend to government-initiated contracts a legal principle that governs private borrowing. It stipulates that for any debt to remain legally binding it must serve legitimate ends. In this context, odious debts are understood to be commitments made by a dictator or an illegitimate government in the name of the nation in order to enrich the ruler (i.e. to enhance his personal bank accounts and those of his sons), or to fund the repression of his people (through, for example, the procurement of tear gas or sniper guns such as the ones used to murder the revolution’s martyrs). Odious debts are often associated with financial looting on many levels, such as: financing failed investment projects (like Toshka, the Abu Tartour phosphate project, the Aswan iron project, etc.); supporting corruption-ridden development projects (such as the privatization of public lands and state initiated contracts with private firms); as well as a despot’s control over the resources of the state treasury and mobilizing them in the service of his associates among businesspersons and their companies, all at our expense.
An odious loan is one that is extended to a regime that does not represent its people, and that—with the full knowledge of the lender—serves purposes that do not benefit public good. Thus, some deem loans that contribute to society’s impoverishment as odious. This is because they force the nation to channel all of its resources toward paying off existing debts, thereby limiting society’s ability to develop.
Based on this logic, the idea was proposed that such loans would be dropped with the fall of the indebted dictatorship or autocratic regime, such as the case of Iraq after the fall of Saddam Hussein, and South Africa following the end of the apartheid regime.
From a legal standpoint, this concept presents a challenge to a longstanding principle in international law, specifically one that requires states to take responsibility for loans that were acquired by previous regimes. Yet this principle was invoked in numerous historical cases. Some cases date back to the nineteenth century, most notably the U.S. Supreme Court ruling that upheld the legality of Costa Rica’s non-payment of debts to Britain and Canada on grounds that these debts were acquired under dictatorial rule. Ecuador, however, provides a more recent example of a successful model.
During the 1970s, Ecuador, like many other Third World countries, fell prey to the trap of external borrowing at low interest rates that quickly increased thereafter. Thus, due to rising interest rates in American banks (from six percent in 1979 to twenty-one percent in 1981), Ecuador’s foreign debt increased more than twelvefold its initial value: from 1.174 billion USD in 1970 to 14.250 billion USD in 2006. Moreover, only fourteen percent of foreign debt acquired between 1989 and 2006 was used for new projects, while the rest went toward paying off old debts.
In the wake of the general strike that toppled President Lucio Gutiérrez in the middle of the previous decade, a commission was formed for the purpose of auditing the country’s debt. The commission provided the government of Ecuador with legal and political grounds for its decision to abstain from paying off its odious debts in November 2008. In June 2009, Ecuador reached an agreement that reduced its external debt by more than two-thirds. Specifically, in an agreement signed with ninety percent of its international lenders, Ecuador was to pay only thiry-five cents for every dollar it owed, thereby allowing the country to rid itself of this burden. In fact, the value of the debt securities fell sharply after the abovementioned incident, which made debt payments cheaper than before.
Ecuador managed its battle in a prudent and informed way, giving hope to all Third World countires that have the political will to rid themselves of the burden of odious debts. At the present time, civil society and popular movements in both Ireland and Greece are organizing popular debt audit commissions and are pushing for the formation of official commissions. Tunisia has set up a commission to audit Zine Abdine Ben Ali’s odious debts with a view to getting them dropped. This gives us, here in Egypt, more room to mount presusre, coordinate efforts, and mobilize people for the sake of dropping the debts of the Mubarak regime.
Adam Hanieh, lecturer at the School of Oriental and African Studies at the University of London, notes that while Egypt paid 24.6 billion USD between 2000 and 2009, the debt level has increased by approximately fifteen percent during the same period. In an article on the ongoing transformations in the Egyptian economy after the revolution, Hanieh adds: “These figures demonstrate the striking reality of Egypt’s financial relationship with the global economy –Western loans act to extract wealth from Egypt’s poor and redistribute it to the richest banks in North America and Europe.”
The odious debt is not only an enemy from the past that challenges our lives and livelihood, but also a burden on our future. Getting rid of it is an economic imperative, moral, and legal right. The battle, however, is unlikely to stop at international lending institutions and banks, and might require a domestic confrontation as well.
All Eyes on The Debt
“Open your eyes, the debt is covered from your pocket” is the motto of the Popular Campiagn to Drop Egypt’s Debts, which will be launched on 31 October to rid our revolution of a burden that was accumulated by a regime that did not represent Egyptians—a burden that continues to weigh heavily on our wages, our standards of living, and our future opportunities. The campaign will be launched in parallel with events in London and Berlin and will feauture the participation of civil society movements and organizations from Britain and Germany. The abovementioned slogan indicates that establishing an independent commission for auditing the debt, along with a popular campaign to drop it, are not the end of the road. Rather, they are the beginning of a radical change in the way the country’s economic policy is managed.
The problem at hand is not just that we are paying international lenders interest that exceeds social welfare spending for eight-five million Egyptians in areas such as healthcare. Rather, the problem is the orientation of the country’s economic policies, the absence of transparency in economic policy-making, and the limited opportunity that citizens have to formulate these policies in accordance with their interests.
Dropping Egypt’s debt to the European Union was the first proposal advanced by Samir Radwan, who served as minister of the finance immediately after the revolution. Such demands, however, subsided a few weeks later and were replaced with the exact opposite: more borrowing from international institutions. A decision was later reached to freeze external borrowing, but at a huge price for the poor and the economy; namely an austerity budget that priviledged the interests of the wealthy, both in terms of taxation and in terms of the priorities awarded to government subsidies. This incident tells us that one thing is certain: If we are the ones responsible for paying off these loans from our own pockets, the decision to borrow from domestic or international lenders in the future must be subject to wider monitoring efforts with a larger role for civil society, including civil rights organizations, NGOs, consumer protection groups, trade unions, and the general public. This example also reveals that dropping the odious debts of dictatorship will not happen short of a confrontation with the economic order that we have inherited, a confrontation that wil not succeed without the participation of the majority of stakeholders.
Thus, the debt audit may be a genuine gateway for a more democratic economy that reflects the needs of the people before the necessities of profitmaking for the few. It may even play a role in confronting the influence of the wealthy elite who hide in the trenches that this economy protects, along with the loyal technocrats who serve their interests. It may also counter the political leadership that uses the excuse of the debt of the Mubarak regime to conceal and justify its suppression of our right to a fair wage, to a suitable job, and to proper healthcare and educational services, all using the same failed slogan: “From where am I to provide for you?”
[This article originally appeared in El-Shorouk in Arabic and was translated to English by Hesham Sallam. Click here to access the Arabic version of this article.]