Norway Counts the Usefulness of Lending

Aug 27 2012 (IPS) - The Norwegian government has announced it would assess the legitimacy of developing countries’ debt to Norway. In effect it will investigate whether its loans have been useful enough to warrant repayment.

That makes Norway the first nation ever to carry out a creditor’s debt audit. The United Kingdom appears to be following Norway’s example but campaigners are still facing some big hurdles.

Last Wednesday Norwegian Minister of Development Heikki Holmås announced an independent public audit of developing countries’ debt to Norway. The Norwegian government had promised to do so since being elected in 2009, and to work to establish binding guidelines for responsible lending.

“The Norwegian government is bold,” Gina Ekholt, director of SLUG, the Norwegian Coalition for Debt Cancellation, tells IPS. “Something like this has never been done before. It has the potential to change the global creditor society: other countries will start doing the same once everyone agrees this is an acceptable process and a moral obligation. We are proud of the Norwegian government to have made this historical political announcement.”

This is not the first time the Norwegian government has openly questioned its responsibility as a creditor. In 2006, Norway decided to cancel debt worth more than 70 million euros to Myanmar, Sudan, Egypt, Ecuador, Sierra Leone, Jamaica and Peru related to the Norwegian Ship Export Campaign.

During that campaign between 1976 and 1980, the Norwegian government tried to solve a crisis in the ship building industry by offering cheap loans to developing countries to buy Norwegian vessels. Ten years after the campaign the Norwegian Parliament concluded that the campaign had had very little developmental effect for the countries involved and therefore, the loans were illegitimate.

While announcing the debt audit, Holmås added that he does not expect to find any more cases of illegitimate debt. But there is reason to believe otherwise. In 2009, SLUG published a report focussing on Indonesia’s debt to Norway. According to the report, Indonesia is still repaying loans worth 160 million euros for a wave power plant that was never built, and failed technology for sea monitoring systems.

“These loans are clearly illegitimate,” Gina Ekholt tells IPS. “The projects for which the loans were given did not have the wanted effects. The technology did not work when tested in Norway, but it was still exported to Indonesia.”

The audit will apply the newly developed United Nations Conference on Trade and Development (UNCTAD) Principles to promote responsible borrowing and lending to evaluate the loans. “This is solid framework for the audit, but the challenge arises when they shall consider the legitimacy of the loans. Will they cancel debts from loans that breech with today’s guidelines, or just consider the criteria that were in place when the loans were given?” Ekholt says.

“We believe that we have to use today’s criteria and those are: a population should not owe debt for loans that have not benefitted the population. If the creditor knew that the loan would not benefit the population, there is a clear case of illegitimate debt.”

Ekholt does not believe the Norwegian government is willing to use today’s criteria. “That is where we will disagree. But we look forward to continuing this debate once the audit is finished. The Norwegian government has already taken several bold steps. We believe that they will deal with the consequences of this audit.”

Holmås has said the results of the audit will be available in a year.

Several months before the Norwegian initiative was launched, a group of British Members of Parliament started an investigation into the UK Export Credit Agency, the British institution which backs loans to foreign companies and countries to buy British exports. Unlike the Norwegian initiative, the British audit does not have an official or binding status.

“The government can ignore the results of this inquiry, or respond to its recommendations,” Tim Jones, policy officer at Jubilee Debt Campaign in the UK tells IPS. “Obviously we are pushing them to conduct their own official investigation. We hope the Norwegian example and this parliamentary investigation will help to make them act.”

Jubilee Debt Campaign is increasing its pressure on the UK government, especially since one of the parties in power took up the issue of illegitimacy of development loans before the 2010 general election. “The Liberal Democrats promised they would declare loans given to dictators and not used for development to be illegitimate,” Tim Jones tells IPS.

“There is evidence for development loans given to Indonesia during the time of General Suharto to buy tanks and airplanes. There is evidence for loans to buy arms given to Saddam Hussain, including a loan to build a chemical weapons factory.

“There is evidence for loans given to Egypt to buy equipment for the Egyptian army. The population clearly did not benefit but now has to repay these loans. We counted on the Liberal Democratic Party to denounce these loans, but it seems to be one of the policies they have forgotten about after assuming power.