Brains Like a Shoe

This op-ed originally appeared in the Hurriyet Daily News and Economic Review in Turkey on October 20, 2009.

No time to relieve Sudan’s debt, by Sean Brooks

The global economic crisis has once again raised the issue of the sovereign debt of countries in the developing world.

The large public debt taken on by many states, especially those that benefited from this decade’s escalating oil prices, is making it especially difficult for them to recover now that boom has turned to bust. These countries need access to foreign capital both to jump-start their economies and to continue making investments to ensure long-term growth.

Large debts owed to the International Monetary Fund, or IMF, and other lenders make it very difficult to raise this capital. Enabling countries to do so was a pressing economic issue for the IMF and World Bank meetings two weeks ago in Istanbul. But how this is done will be a critical part of ensuring that dramatic economic cycles are replaced by more sustainable growth and responsible state-building.

An example of a country struggling with a large debt burden and facing longer-term growth issues is Sudan. The East African nation’s external public debt has increased from $13 billion in 1989, when President Omar al-Bashir and the National Islamic Front engineered a coup and came to power, to $34 billion today. During that time period, the Sudanese government has received $4 billion in new public medium- and long-term loans and an estimated $5 billion in new private medium- and long-term loans.

Sudan collected more than $2 billion in new loans from international lenders, almost half of this sum from non-Paris Club bilateral loans, between 2001 and 2006 – when it was still waging war in south Sudan and orchestrating what has been termed “genocide” in Darfur.

In 2007 and 2008 alone, Sudan contracted another $1.44 billion in new loans, mostly from Arab multilateral and non-Paris Club creditors, such as China and India. In the early 1990s, Sudan refused to pay its IMF debt and came close to becoming the first country to be expelled from the fund.

Due to a combination of some economic reforms, rising oil revenues and external loans, the country’s Khartoum-based economy has boomed over the last decade. But the decline in oil prices, combined with the global recession, has hit the country hard. Economic growth has slowed dramatically and, with it, government revenues.

Like other countries, Sudan has sought a debt-relief package from its creditors to overcome its current challenges. The Sudanese government wrote to the IMF recently, saying that it continued to hope it would receive the kind of debt-relief package “provided to other countries in similar circumstances.”

In the short term, Sudan is seeking to reschedule its debt-servicing agreements with its foreign creditors. This summer, for instance, Japan wrote off $28 million in debt and Sudanese cabinet officials raised the subject with the British on two occasions. This week, Sudan Minister of Finance Dr. Awad Ahmed Al-Jaz will lead his country’s delegation to Turkey, and securing a plan for debt relief is at the top of the agenda.

Sudan’s total external debt roughly matches that of Nigeria’s before it signed a debt-relief package with the Paris Club in 2005 that reduced its external debt from $38 billion in 2004 to roughly $8 billion today. There is no doubt Sudan needs debt relief to invest in long-term peace and build the economic foundation for a prosperous future. It is for this reason that the international community discussed debt relief as an incentive for both the government of Sudan and the Southern People’s Liberation Movement, or SPLM, after the signing of the Comprehensive Peace Agreement in 2005.

Over the last four years, however, Bashir’s National Congress Party has not shown the requisite willingness to commit itself to investing in its people. Instead, the regime financed a campaign of death and destruction in Darfur and strengthened the national-security apparatus that maintains its tight grip on power.

Therefore, any debt-relief plan considered by international creditors must directly tie relief to the resolution of the Darfur crisis, adherence to the Comprehensive Peace Agreement and the larger process of democratization and judicial reform in Sudan. This approach should be based on the assumption that the debt the Sudanese regime has incurred over the last two decades should be classified as “odious.” This means that it was contracted without the consent of the people and not spent in the interests of the people, and that the creditors were aware of the adverse use of these funds.

There is precedent for employing this type of international economic leverage with a hard-line regime in order to achieve dramatic changes in behavior that result in peace, stability and, ultimately, foreign investment. During the late 1990s, the Clinton administration blocked Serbia from receiving urgent loans from the IMF and other lenders because of Slobodan Milosevic’s policies in Kosovo. This kept Serbia from servicing much of its debt during this period.

After Serbians removed Milosevic and turned him over to the International Criminal Tribunal for the former Yugoslavia, the U.S. participated in a debt-reduction agreement with Serbia that rescheduled the country’s $4.5 billion Paris Club government debts in 2001 and its $2.8 billion London Club debts in 2004.

Similarly, in 2008, a number of countries worked with the World Bank and IMF to make Liberia – a nascent democracy recovering from decades of internal strife – eligible for the Highly Indebted Poor Countries, or HIPC, Initiative. Its participation had previously been blocked under the disastrous and ruthless leadership of Charles Taylor.

The Sudanese government in Khartoum currently has a choice: It can choose to go the direction of Liberia by ending its conflict and rebuilding its economy to serve the interests of its people, or it can continue to perpetuate the conflicts in Sudan and leave its citizens with no hope of climbing out of wretched poverty with the help of the international community.

As the situation of debt relief in Sudan makes clear, political, financial and business realities are necessarily intertwined and interdependent. Any discussions of debt relief for Sudan and other societies in or recovering from conflict must acknowledge these realities and be directed toward using debt relief to influence governments to promote peace, security and justice for their citizens in addition to implementing sustainable macro-economic policies.

Down that path lies a more peaceful and prosperous world.

Cross posted from SSRC’s Making Sense of Darfur blog

Mr. Badawi in his recent post “Indebted to the Save Darfur Coalition?” plays loose with the numbers and the definition of Sudan’s “odious” debt. In addition, he mischaracterizes the objectives of the Save Darfur Coalition’s position related to how the international community should deal with Sudan’s debt crisis and ignores the coalition’s support thus far of the Obama Administration’s engagement strategy with Khartoum.  We have repeatedly called for the U.S. to offer Sudan’s leaders with a choice between earned incentives for durable peace and escalating costs to those who obstruct efforts to resolve Sudan’s interlocking crises.  It is necessary, as Mr. Badawi argues, for the international community to rid the Sudanese people of this burdensome and “odious” debt accumulated by multiple regimes in Khartoum – but the burden of proof first lies with Sudan’s leaders to demonstrate that they have finally committed to extinguishing the flames of decades of conflict in Sudan.

To begin with the facts, Mr. Badawi is just plain wrong when he states that the “explosion [in debt] has been almost solely [due] to a build-up of repayment arrears to bilateral and multilateral creditors.” From 1989 until today, the Sudanese government has received an estimated $4 billion in new public medium and long-term loans and an estimated $5 billion in new private medium and long-term loans (information via Economist Intelligence Unit, a past employer of Mr. Badawi).  Much of this new debt is even more recent.  Sudan accumulated over $2 billion in new loans from international lenders (almost half of it from non-Paris Club bilateral loans) between 2001 and 2006 when it was still waging war in south Sudan and orchestrating its campaign of death and destruction in Darfur. In 2007 and 2008 alone, Sudan contracted another $1.444 billion in more loans mostly from Arab multilateral and non-Paris club creditors, as well as from China and India.

This data reveals that many in the international community continued to give to the Sudanese regime while it was waging war and genocide against its own people.  Sudan’s arrears certainly did balloon during this period by $12 billion to bring its total arrears to $18 billion (half of its estimated debt load of $36 billion), but NIF/NCP leaders also contracted new irresponsible loans to finance their destructive policies.  From their own reporting,Sudan imported weapons worth $76.3 million between 2004 and 2006, not including fighter jets and combat aircraft.  The cost of Sudan’s purchase of 20 MiG-29s and 26 attack helicopters from 2004 to 2008 is unknown but most experts conservatively estimate the price-tag at hundreds of millions of dollars.  Recent reports, furthermore, allege that this advanced military buildup continues.

These figures lead me to Mr. Badawi’s second slight of hand.  While designating the Nimeiri regime’s debt as “odious,” he shows absolutely no willingness to apply the same standards to President Bashir’s twenty-year old regime. Any amount of intellectual honesty should have led him to consider this $9 billion in new loans as “odious” as well.  This financing certainly did not go to improve the lot of the war-battered Southern Sudanese and Darfuris over the last two decades.  In making the case for immediate debt-relief for Sudan, Mr. Badawi argues that “the pattern of inequitable development in Darfur, south Sudan, and other areas of the ‘periphery’… lies at the heart of Sudan’s history of instability.”  With that said, his argumentation implies that such marginalization was a product purely of the Nimeiri regime – certainly an absurd historical account given that the civil war with the SPLA escalated in the years after the 1989 coup and such marginalization was a chief motivation of the Beja rebellion that began in the late 1990s and the Darfuri rebellion in 2003.

It is also questionable whether the vast majority of northern Sudanese have seen their conditions improve.  Their political rights, as consistently protested by northern opposition parties and democracy and human rights activists, continue to be severely curtailed.  Last week, in fact, the Mo Ibrahim Index of Governance ranked Sudan 49^th out of 54 countries, noting that Sudan “scored well below the continental average in the categories of Safety and Rule of Law, Participation and Human Rights and Sustainable Economic Opportunity.” And even on strictly economic grounds, Sudan has not yet met the pre-conditions for theHeavily Indebted Poor Countries (HIPC) Initiative.  Most notably, the Sudanese government has yet to complete its National Poverty Reduction Strategy paper in consultation with the International Monetary Fund (IMF).

Given its track record, the current Sudanese government should not be surprised that advocates for peace and human rights in Sudan fail to take their argument about being unfairly burdened with Nimeiri’s debt and the related arrears seriously. President Bashir and Hassan al-Turabi took direct ownership of this debt when they carried out their unconstitutional coup in 1989 and usurped all vestiges of state power. Flouting the international community, they ignored the arrears that piled up as they instituted their reign of terror in the 1990s.  Bashir and the NCP then, as shown above, have used billions in new loans this decade to finance not only crucial infrastructure for the new oil economy – but continuing repression, civil war, and even genocide.

Severely affected by the global financial crisis, the Sudanese government currently seeks assistance from the international community to avoid a financial meltdown.  Recent hubris underpinned by the Khartoum-boom now makes way for urgent appeals for debt-relief. Save Darfur’s campaign intends to remind the international community of the odious character of this debt contracted by a regime that remains in power and continues to obstruct peacemaking efforts in Darfur and the democratic transformation set forth in the Comprehensive Peace Agreement.  International financiers should not subsidize the continuation of such policies, orchestrated by a government with an indicted war criminal at its head, that are leading the country toward even further chaos and ruin.

Save Darfur has also begun educating American policymakers and Sudan’s other major creditors on the real opportunity that debt-relief provides to incentivize peacemaking in Sudan in a multilateral, coordinated manner.  Of course, it’s useful for those defending the Sudanese government, in the name of “ordinary” Sudanese people, to treat Save Darfur’s advocacy (for this specific initiative and in general) as a simplistic campaign to punish those in power in Khartoum.  It’s also useful for these writers to conflate activist campaigns like “Fast the Eid” – to which Save Darfur had no relation – with the serious policy proposals put forward by the organization.

Mr. Badawi’s description of Save Darfur fundamentally mischaracterizes the coalition’s approach to the Obama Administration’s engagement strategy. Up until now, we have supported the active efforts of the U.S. Special Envoy to Sudan General Scott Gration to revive the constantly-adrift Darfur peace process and to help facilitate the ongoing negotiations surrounding the Comprehensive Peace Agreement.  In fact, we have urged Gration to do even more to help create space, opportunities, and incentives for Sudanese to solve their own problems, such as sponsoring civil society mechanisms for non-combatants to participate in the Darfur negotiations.

With Sudan at a dangerous crossroads, we have consistently called for President Obama to present those in power in Khartoum with a choice between earned incentives or serious consequences.  To that end, the U.S. should put forward a clear but conditioned process toward normalization of relations with Sudan if, and only if, the government of Sudan provably: permits unrestricted humanitarian access; secures peace in Darfur; fully implements the Comprehensive Peace Agreement; ensures free and fair elections throughout Sudan; and removes the president who is a fugitive from justice.  On the other hand, the U.S. should make clear to President Bashir and his party that if they renege on humanitarian commitments and continue to undermine efforts at peace, escalating costs will ensue.

With this strategic approach to providing incentives and disincentives to those in power in Khartoum, the Obama Administration should utilize the ready-made multilateral stick/carrot of debt-relief.  Mr. Badawi chose to ignore the political conditions that Save Darfur has set out for the provision of debt-relief to Sudan.  In our public statements, we have said that if the government demonstrably changes its behavior to the benefit of all of Sudan’s people,the U.S. should lead the way in facilitating a debt-relief package for Sudan with the international community.  On the other hand, if the Sudanese government fails to match its rhetoric for peace with proven action, then the U.S. should make it clear to Sudan that it will use its role at the IMF, as well as its position in the Paris Club, to block any potential debt-relief package.  The American message should be simple: the international community will not help Sudan with its economic crisis unless the Sudanese regime takes concrete and lasting steps to resolve Darfur, implement the CPA, and enact true reform to the benefit of its citizens.

These are the internal political solutions – outlined most recently by a cross-section of Sudanese political parties in the Juba Declaration – which the Obama Administration must support in its engagement with the Sudanese government.  Indeed, these should be the parameters for – as Alex de Waal writes – “a more constructive political and economic engagement with Sudan, precisely because that will help shift the political centre of gravity in Sudan away from the sterile military/militaristic polarization to a civil-political process that nurtures democracy.” Without first achieving these political solutions and implementing these reforms, debt-relief now for Sudan would give unearned incentives to a regime that has shown no clear and demonstrable signs of finally kicking its murderous and odious ways.

Andrea and I have less than an hour left in Turkey (actually posting from the airport).  While we wish we had more time in Istanbul, the European Capital of Culture for 2010 , we definitely feel that that the trip to attend the International Monetary Fund/World Bank annual meetings was a success.

See the story in The Sudan Tribune today: “Save Darfur Coalition wants US to fight debt relief to Sudan.”

On the debt-relief front, the Syrian Minister of Finance did call for the international community “to help unburden Sudan of [its] debt problems.” However, we did not perceive any strong willingness from Sudan’s largest creditors to take immediate steps to give such a reward to Sudan’s leaders before durable peace in Sudan takes hold.  This does not mean though that the international community recognizes yet the value of debt-relief as a significant carrot/stick for peacemaking in Sudan.  We need further advocacy and education to convince countries of what a powerful tool they have in their hands.

Indeed, a number of delegations, international economists, and civil society leaders supported our view that debt-relief for Sudan should be tied directly to concrete and lasting progress toward peace in Darfur, the full implementation of the Comprehensive Peace Agreement, and significant structural reforms that fundamentally change the repressive systems in Sudan.  Some of the strongest support came from leaders of debt-relief organizations that have been fighting for debt-relief for impoverished countries for decades.  Many admitted that dealing with the ‘odious debt’ of brutal regimes still in power requires a coordinated approach from the international community.   A Serbian democracy activist, and former opponent to Slobodan Milosevic, also told me that the denial by the United States of emergency loans to Milosevic helped put additional pressure on the genocidal regime.

On the way home, I will put together some further posts on other Sudan-related topics covered in sessions on the sidelines of the meetings – such as the importance of accountability in Sudan’s oil sector and building state-capacity in conflict-affected countries.

Istanbul: site of the IMF/World Bank meetings

The Sudanese government’s delegation, led by Dr. Awad Ahmed Al-Jaz, the finance minister and a senior National Congress Party (NCP) leader, is here in Istanbul for theWorld Bank/International Monetary Fund (IMF) annual meetings.  News reports from last week indicated that securing an internationally-brokered debt-relief package would be at the top of the delegation’s agenda.   The dire straits of the Sudanese economy motivate this new diplomatic push.

In none of the meetings thus far that I have attended has Sudan’s appeal been publicly raised; however, we have been speaking with numerous IMF and Bank officials, policymakers, economists, and journalists about this issue.  In these conversations, we have stressed that Sudan’s creditors must condition any consideration of debt-relief or debt servicing adjustments on concrete and lasting progress towards peace in Darfur, the full implementation of the Comprehensive Peace Agreement, and political and judicial reforms that fundamentally change the repressive political system in Sudan.

In addition to blocking debt-relief now for a government in Khartoum that has shown a complete disregard for protecting its own citizens, we want the international community to realize what a powerful tool it has at its disposal for peacemaking in Sudan.  Leveraging debt-relief to demonstrable signs of changed behavior by the NCP-led government and concrete and lasting peace fits perfectly with the Obama Administration’s strategy of engagement with Khartoum.  Continuing to refuse to write-off debts should be regarded as a current bilateral American stick that – with changed behavior from the Sudanese government – could become a potential bilateral carrot.  These are the very type of “earned incentives” and “serious consequences” that Save Darfur has urged the Obama Administration to include in its still yet to be released Sudan Policy Review.

There is also legal and historical precedent for conditioning debt-relief for Sudan to long-term peace and significant structural reforms to the political system.  Using the established legal principle of “odious debt” and “odious regimes,” one can make a strong argument against the international community developing a debt-relief package for a Sudanese government that has used a large portion of the $19 billion in loans accumulated by the Bashir regime to help finance civil war in South Sudan and genocide in Darfur.  As theJubilee Network USA writes:

[D]ebt is to be considered odious if the government used the money for personal purposes or to oppress the people. Moreover, in cases where borrowed money was used in ways contrary to the people’s interest, with the knowledge of the creditors, the creditors may be said to have committed a hostile act against the people. Creditors cannot legitimately expect repayment of such debts.

On a panel yesterday for the launch of a new book on debt-relief, the Norwegian Minister for International Development Erik Solheim noted that dealing with illegitimate debt is an important issue for the international community to address.  In 2006, Norway became the first developed country ever to cancel unilaterally debt claims that it acknowledged were illegitimate from five countries (Ecuador, Egypt, Jamaica, Peru, and Sierra Leone).  Notably, in taking this decision, Norway refused to write-off similar claims it held on Sudan and Burma – stating that they would consider write-off only after the “situations” changed in those countries.

We can also look to two other countries to contextualize Sudan’s current debt-relief appeals.  Sudan, today, accounts for 75% of the $2.09 billion in arrears (past due payments) owed to the IMF, World Bank, and African Development Bank. In 2007, of the 41 countries eligible for the Highly Indebted Poor Countries (HIPC) Initiative, only Liberia and Somalia possessed similar arrears to the IMF that blocked their full participation in the initiative.  On this situation, the IMF wrote:

Countries in arrears are all experiencing some form of crisis, ranging from violent conflict to serious governance problems and political paralysis. Typically, these crises are of long duration…Inflation tends to be far higher, and the external debt and fiscal balance ratios tend to be worse.

Of course, Liberians in 2007 were actually well on their way to rebuilding their country after its long and costly civil war.  The next year the U.S. and the international community supported the new democratic government of President Ellen Johnson-Sirleaf by providing it bridge loans so that it could clear its IMF arrears and reach the decision point of the HIPC Initiative.  The tragedy in Somalia though remains in perpetual chaos and, therefore, it’s still impossible for the international community to even begin a conversation on debt-relief.

The Sudanese government in Khartoum currently though has a choice: it can choose to go the direction of Liberia by ending its conflict and rebuilding its economy to serve the interests of its people, or it can choose the direction of Somalia and perpetuate its conflict for years to come and give Sudanese citizens no hope of climbing out of wretched poverty with the help of the international community.  President Obama and his administration should make this stark choice for Khartoum abundantly clear.  To that end, he should lead an international coalition of Sudan’s creditors to deal simultaneously with Sudan’s economic challenges and human rights abuses.  Providing debt-relief to Sudan before its leaders demonstrate a proven commitment to peace will not serve the interests of the Sudanese people, but rather give more political legitimacy and further financial resources to the repressive regime in Khartoum.

This is the message that we are delivering in Istanbul.  I will write more soon…

First posted Istanbul morning time at Save Darfur’s blog.

My colleague Andrea and I stepped off the plane in Istanbul about 36 hours ago.  We are here in the commercial capital of Turkey and one of the symbolic bridges between the East and the West to attend the World Bank and International Monetary Fund’s annual meetings.

As neither of us proclaims to have any ground-breaking advice for world leaders as they set out to rebuild the global financial and economic infrastructure after the so-called Great Recession, why are we here?  Well, it’s certainly not to rub shoulders with U.S. Treasury Secretary Timothy Geithner, although we did see him and the American delegation up-close and personal today.  Instead, we are here as always to try to focus the world’s attention on peacemaking in Sudan.

But what possible role can the gathered finance ministers and international economists play in influencing politics and negotiations in Sudan?   In the next few days, I will write on how the Obama Administration and international community should condition debt relief to peace in Sudan; how accountability in Sudan’s oil sector can help avoid a return to civil war; and how the international community can help build responsible state-capacity in conflict-affected countries like Sudan.

Before I do, it’s necessary to set the stage.   How in fact has Sudan been affected by the current global economic crisis?  A recent IMF reports highlights in detail the immense and imminent economic challenges facing the Sudanese government.  In short, the large drop in oil prices over the last year has sharply lowered government revenues – perhaps cutting government revenues up to 50%. The Sudanese central bank has compounded the problem by defending the exchange rate in order to prevent a rise in domestic food and import prices.  This policy intervention drained Sudan of its foreign reserves which it had accumulated during the Khartoum-boom of the last decade.  What’s more, the Sudanese government cannot access much emergency foreign capital because of its already precarious debt burden position – it owes international creditors over $34 billion.

The IMF has sought to help many fragile and vulnerable countries overcome similar shocks brought on by the financial crisis that began last September on Wall Street.  Sudan has not been eligible for such relief because it currently owes the fund, World Bank, and African Development Bank almost $1.5 billion in arrears – this represent roughly 75% of all past due payments by member states to the IMF. So what will Khartoum do?  They invited the IMF to put together a Staff Monitored Program to assist in reforming various macroeconomic policies.  In committing to implementing IMF reforms, Khartoum also asked the IMF “to take concrete action on debt relief for Sudan.”  They followed up this request this week by sending a delegation to Istanbul to lobby for such assistance.

One of our objectives here is to contextualize this appeal from Khartoum – reminding the delegates and officials of how President Omar al-Bashir and the National Congress Party irresponsibly and egregiously used loans over the last twenty years to wage war and genocide against their own people.   Instead, we are calling on the international community to condition support for Sudan’s troubled economy on peace and human rights for all Sudanese.

By no means do we want Sudan’s economy or the country to implode.  A BBC World Debate that we attended this morning on “The Global Crisis and Policy Responses”made me reflect on the troubling state of Sudan’s economy and political system.   An impressive group debated whether the world economy has begun to recover and the long-term consequences of bailing out financial institutions that were considered “too big to fail.”   While world leaders immediately came to the rescue of investment banks and insurance companies to avoid the total collapse of the financial system, they still refuse to recognize Sudan as “too big to fail.”  The international community continues to whistle past the graveyard as the country hurdles toward perhaps a new explosive wave of violence in 2010 or 2011 that could set the whole region aflame.

Jerry Fowler, Save Darfur’s president, and leaders of the Darfur Consortium in Africa and the Arab Coalition for Darfur argued this case last week:

Re-ignition of conflict would be catastrophic for Sudan’s people and the entire region. Full-scale war and descent into chaos would also represent a dramatic and costly failure for the United States and the international community. Refugee flows and violence would upset the tenuous stability in Chad, Uganda, Kenya, the Central African Republic and Ethiopia – and gravely harm Egypt’s national security. The potential human costs to such a regional conflagration are incalculable.

Avoiding this catastrophe is the challenge for Sudanese leaders and the international community.  The world must help the Sudanese reach durable solutions to end their interlocking political crises, while at the same supporting human rights and helping build the foundations for democracy and sustainable development.  With Sudan’s economy on the brink, the IMF and World Bank certainly have a role to play.

So stay tuned for more blogging from Istanbul.  We are heading over to the convention center now for a press briefing on the status of the Highly Indebted Poor Countries (HPIC) Initiative and a session on how resource-rich countries (like Sudan) have dealt with the crisis.