The Case for a Zimbabwe Debt Audit

THE unpalatable fact is that the Republic of Zimbabwe is virtually bankrupt. As at December 1 2008, Zimbabwe’s external debt stood at US$5, 255 billion, with a current account balance of US$597 million.

As at May 31 2009, Zimbabwe owed the International Monetary Fund (IMF) US$138 million and the World Bank US$676 million. As at April 30, 2009, Zimbabwe owed the African Development Bank US$438 million.

These statistics are startling thus there is an urgent need to interrogate Zimbabwe’s debt crisis to ascertain how such a colossal debt was incurred, and then strategise how this debt crisis is to be resolved.

Put alternatively, the legitimacy, or lack of it, of Zimbabwe’s debt has to be placed under the microscope if our country is to avoid being perpetually placed under a debt trap. The main thrust of this article is therefore to attempt to provide an objective analysis of Zimbabwe’s debt situation and then to propagate the need to have an apolitical, scientific and objective debt audit as a way of charting a new dispensation.

Odious debts are defined as those debts incurred by the state which are not for the needs or interest of the state but merely to strengthen the state’s despotic power as well as to repress the population that fights against despotism.

The legal doctrine of odious debts is essentially derived from the writings of Alexander Nahum Sack, the world’s pre-eminent legal scholar on public debts. Sack authored two major works on the obligations of successor states: The Effects Of State Transformations On Their Public Debts And Other Financial Obligations, and The Succession Of The Public Debts Of The State.

The doctrine of odious debts is not per se favourable to the interests of emerging economies and also to the developing countries. This is so because the doctrine was created to further the interests of international finance by limiting the ability of governments to repudiate debts. Under this doctrine, three conditions must be present before a state can repudiate a debt:

 lThe debt must have been incurred without the consent of the people of the State;
 lThe debt cannot have benefited the public in that State and;
 lThe tenderer must have been aware of these two conditions.

The overwhelming majority of the developing world’s foreign debts are odious in law. Being part of the developing world, Zimbabwe is thus inevitably caught up in this odious debts fiasco.

Zimbabwe is bankrupt because it has no capacity to service the afore-mentioned debt. At its formation in February, the inclusive government inherited approximately US$4,7 billion external debts owed to bilateral, multilateral and commercial creditors.

 By the time the inclusive government was formed, Zimbabwe was virtually a failed state. Zimbabwe’s economic collapse is not to be solely located in and restricted to the ineptitude, corruption and misgovernance of the previous government coupled with the chaotic and violent “land reform’’ programme that began in February 2000.

The general assumption that the land distribution programme is the sole reason for the country’s economic decline and food insecurity is flatly inaccurate.

In a Congressional Testimony to the US House of Representatives Committee on Foreign Affairs Subcommittee on Africa and Global Health on May 7 submitted by Nicole C Lee, Esq, the executive director of the Trans Africa Forum, many political economists identify Zimbabwe’s unresolved structural weaknesses and systematic inequality built into the apartheid-like system constructed by the Rhodesian settlers as the primary root cause.

A South African-based scholar, Patrick Bond, points to the related crises of Rhodesia’s “over-consumption’’ of the early 1970s. Analysts agree that at the time of Zimbabwe’s independence in 1980,the country’s economy was skewed, for example:

lThe entire national economy was designed to support the maintenance and enrichment of a small white minority. At independence in 1980, fewer than 7 000 white farmers each owned, on average, more than 100 times the land available to the average African peasant;

lIndustry, mining and the manufacturing sector were in the hands of multinational corporations and the white settler economy.

 Zimbabwe’s economic distortions continue. Mining, manufacturing and most industry remain in the hands of external corporations, the white minority and a small clique of black indigenous Zimbabweans.

Zimbabwe is burdened by both short and long-term external debts that inevitably militate against the inclusive government’s concerted efforts to jump-start the economy.

The inclusive government should join the global voice that seeks the establishment of an international debt arbitration mechanism.

It should promptly utilise the doctrine of odious debts by establishing a judicial debt arbitration panel, preferably composed of respected and eminent Zimbabwean and international jurists.

This panel would then invite creditors to submit claims, including documentation that the loans were indeed used in the interests of the Zimbabwean people and, not, in the words of the US Deputy Secretary of State Paul Wolforito, “to buy weapons and to build palaces and to build instruments of repression’’.

Recent news reports suggest that France is mulling the possibility of cancelling Zimbabwe’s debt which is in the region of 400 million euros. This is a very encouraging starting point.

 The World Bank’s article of agreement imposes a fiduciary duty on the bank to ensure that the proceeds of any loan are used only for the purposes for which the loan is granted. If the World Bank breaches this fiduciary duty it should be held liable and the debtor nation must be entitled to challenge the odious debt at international law.

In his paper, Criminal Debt In The Indonesia Context, Northwestern University Professor Jeffrey Winters provides shocking insight into the World Bank’s weak supervisory practices. Winters presents evidence that the World Bank breached its fiduciary duty to Indonesia by granting loans which it knew would be used for corrupt purposes. As a result, Indonesian legislators have since asked the IMF  to write off the country’s foreign debts, including those to other donors recommended by the IMF.

The hurdle to be encountered by the inclusive government in Zimbabwe is to prove that the lending institutions knew or ought to have known that the funds would not be used in the interest of the people, but solely for the benefit of the ruling regime’s members in their personal capacities.

Another case involves an action by the International Centre for the Settlement of Investment Disputes (ICSID) tribunal to strike out a lawsuit against the Kenyan government over a contract after it discovered that the contract had been secured illegally through a US$2 million bribe paid to the former President Daniel arap Moi.

Although the complainant alleges that the payment was a  “personal donation’’ made to Moi for public purposes, the ICSID tribunal ruled that this constituted a breach of international public policy as well as both English and Kenyan public policy.  The tribunal ruled that “claims based on contracts of corruption or on contracts obtained by corruption cannot be upheld by this arbitral tribunal.”

As aptly noted by Jeffy King of the Canadian Centre for International Sustainable Development Law, the tribunal’s ruling is an important one for the global campaign and “adds to precedent such as the Tinoco Arbitration (1924) and numerous international conventions in clarifying that contracts for personal enrichment, or those procured by bribery, are against international public policy and are thus, unenforceable”.

It is therefore imperative for the government in Zimbabwe to institute a debt audit. Zimbabwe should not honour any debts that have not been properly audited and proved to be lawful and legitimate.

This paper was presented by Senator Obert Gutu at the “Economy In Transition Dialogue Conference: Towards A Sustainable Public Debt For Zimbabwe’’ in Harare on Tuesday.

BY OBERT GUTU

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