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We want immunity from our foreign debt

FARiD BAKHT
OUR IMF friends tell us that a 'debt crisis' only occurs when a country's debt servicing reaches 50 per cent or more. In plain language it means we would be in trouble if, for every $100 of exports, we had to set aside $50 to repay the money owed.
We have to use up precious foreign exchange, earned through exporting clothes, shrimps, tea and migrants' remittances.
Bangladesh's debt service' level is only 10 per cent, so what's the problem?
It becomes one when we realise that close to half our garments' NET foreign exchange earnings will soon be paying for this debt.
We keep hearing that our garments industry earns $5 billion a year in export. We forget that the same garments industry is our biggest importer, spending up to $3.5 billion in cotton, cloth and accessories. That leaves only a net $1.5 billion surplus. We have to pay back $650 million every year and that figure is climbing to $700 million in 2005.
We pay out in debt more than we earn from the shrimp, jute and tea industries. All that environmental degradation in our coastal areas to
grow shrimp, just to pay back our creditors. Pause to consider that we spend about the same on public health as on debt repayments. In a land where over three-quarters of our people live on $2 or less a day.
Our debt is over $17 billion (owed mostly to multilateral donors such as the World Bank and ADB). It has more than quadrupled since the end of the President Zia era.
This debt crisis has crept upon us unawares. Debt crises were meant to affect Latin American economies or south East Asia, not us. Those countries took on debt from private banks. They were credit worthy, unlike us. And we only receive aid, don't we?
Bangladesh actually only receives $700 million in actual disbursed 'aid' (forget the promises and commitments). Every year, nearly the same amount flows out as interest and principal repayments for old debt. In other words, by 2005, our donors will be giving us nothing extra in terms of dollars! Moreover, the debt will continue to grow while aid declines. To add insult to injury, advice is becoming more prominent and shrill at the same time that net aid becomes ZERO or even negative.
Over the years, we have been getting fewer grants and more
'loans'. Loans (whatever the interest rate) need to be repaid; grants do not.
so we have given up our sovereignty, lost control over our destiny, slavishly followed orders (couched politely as advice), given up any pretence of self-reliance and still end up getting nothing extra financially.
Our 'development partners' will retort that it is our fault for wasting 30 years of aid. If we hadn't been so corrupt and had spent their generously given resources, we would be comfortably paying back the debt.
Not all the problems can be laid at the door of the donor. Forests of paper have been written about our bottomless corruption.
Lessons from Latin America
Let us return to the original countries of debt, Latin America. When the debt crisis broke in 1982 (as Mexico defaulted and then spread to Argen-
tina and Brazil), the IMF got scared that the Us and European banks (from where these high officials came and to where they would go for cushy jobs afterwards) might fail. Go bust. Collapse and bring down the Western financial system. This is a recurring nightmare from which they are always rescued by 'sensible' and 'responsible' finance minis-
ters in the south 'playing ball' and signing up to onerous 'rescue packages' -- for the Western banks. Watch out whenever your Finance Minister is praised by the IMF and World Bank.
After 20 years of rolling over debt, rescheduling, selling off government assets (privatisation) and 'liberalising the economy', the people of Latin America started to revolt. Argentina effectively refused to cooperate and unilaterally decided not to pay back the debt. Did the marines invade Buenos Aires? No. Are ordinary people in Argentina living in hope and seeing
some benefits for themselves? Yes. Now, one of the countries with the fastest economic growth is actually Argentina.
The lesson for us is that we can always negotiate, but do so from a position of strength.
self-styled realists will say this is off-the-wall and completely unapproachable. Perhaps they haven't
noticed how the Us is insisting on Iraq's debt being completely forgiven. All $150 billion of it, just like that.
Under a lot of pressure by Western activists in the 90s, the World Bank agreed to the Highly Indebted Poor Countries (HIPC) initiative where certain countries had their debt 'forgiven' in stages, under conditions. We are not included by the way even though our debt is greater than many countries in that programme.
It is not working properly but the point has been made: press hard and they will move, eventually.
The government must negotiate
We should have a thoughtful debate about the nature of our debt, prioritise who we should continue relationships with, and who we should sever ties with if they do not cooperate. It is amazing that our politicians (with lots of 'indebted' friends) should be very comfortable with our
domestic defaulting culture but not try to get our external debt cancelled.
We could kick it off by starting formal negotiations with the Aid Consortium and suggest a 'grace period' of five years since the readymade-garments industry will be providing a lot less dollars from exports from next year onwards.
Our biggest bilateral creditor, the Japanese, completely wrote off $1.4 billion worth of debt owing to them earlier this year. How many of us noticed that? Has our Foreign Ministry moved for closer relations with Japan?
The British government has been in the lead in highlighting debt writeoffs. Their Finance Minister, Chancellor Gordon Brown, seems to have taken a personal interest on forgiving highly indebted countries and should be commended.
However, the price for 'forgiveness' is too high. Countries are expected to submit to a particular type of economic policy -- the type that doesn't solve problems for the poor majority but looks good in economic statistics. PRsP style.
Incidentally, the Japanese have insisted that we spend the money saved (by not having to pay interest), in making new roads.
Cross party lines, we have to recognise that the money spent in repayments is a complete waste. Instead of receiving paltry sums of money for flood relief, would it not be quicker and fairer for all donors to say: "we will write off the $X million in debt you owe us, as long as you put the same amount into a specific and transparent project to help farmers or rebuild infrastructure". Or even better: "it's your country; you can decide where you invest that money, but let everyone know that it's being done properly"
A passing thought. When giant companies such as Global Crossing or United Airways go bankrupt, they
sign up to what is termed "Chapter 11". That means they acknowledge they cannot pay their bankers and creditors. They ask for a halt to those payments. Or else the company would go bust and lay off all their workers. They then negotiate a 'do-able' repayment plan and start to rebuild their finances. Workers keep their jobs and consumers remain able to benefit from the service.
With sovereign countries, it is not quite that simple but we might want to think on similar lines. While retaining our independence to pursue economic policies that lifts our people out of poverty. Using the money to meet basic needs.
The World Bank considers that a country's debt is unsustainable if the ratio of its debt to exports is 150 per cent. Our ratio is 180 per cent.
We owe the World Bank $6.5 billion. During the discussion on their immunity, did we once think of asking them to write off the debt? Immunity must be worth a few billion, wouldn't you say?
Farid Bakht is a founder member of Futurebangla.
***The World Bank considers that a country's debt is unsustainable if the ratio of its debt to exports is 150 per cent. Our ratio is 180 per cent. We owe the World Bank $6.5 billion. During the discussion on their immunity, did we once think
of asking them to write off the debt? immunity must be worth a few billion, wouldn't you say?***