Time to Take Away Sudan’s Credit Card

Sudanese officials are heading to Washington in search of a bailout. But the Obama administration should condition its support on an improvement in the country’s dismal human rights record.

Omar al-Bashir’s brutal Sudanese regime certainly has nerve. On Dec. 14, as Bashir’s National Congress Party (NCP) thugs violently suppressed the second peaceful demonstration by opposition groups in seven days, the Sudanese minister of finance met with the U.S. Special Envoy to Sudan Scott Gration and urged the United States to lift sanctions on Khartoum and cancel Sudan’s foreign debt — in other words, bailing out the government that brought you such atrocities as Darfur and the decades-long civil war with South Sudan that now ominously threatens to reignite.

While no Western country is rushing to hand out money to Bashir, the international community has disagreed over how to persuade Sudan to end its genocidal ways, and the United States is still the only country to impose sanctions. One unlooked-for upside of the global financial crisis may be that it offers new economic leverage with Khartoum. Following the crash, Sudan now holds roughly $36 billion in external sovereign debt that it is struggling to repay. This debt gives the rest of the world a new opportunity to finally affect the course of Sudanese political reform and even end the conflicts in Darfur and South Sudan, if Western countries are willing to act boldly (Read the rest here).

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.

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…