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.