Industrialised countries that knowingly lent billions of dollars in "irresponsible" debts to corrupt and dictatorial regimes in poor nations should cancel the debts and reconsider their harmful policies, a new study says.
The study by international anti-debt campaigners argues that some debts owed by developing countries should not be paid at all.
"This is because creditors bear a large part of the responsibility for having extended loans irresponsibly and negligently," says the study, "Skeletons in the Cupboard -- Illegitimate Debt Claims of the G7".
The report says that the Group of Seven (G7) most industrialised nations -- Canada, France, Germany, Japan, Italy, Britain and the United States -- lent money to regimes they knew to be corrupt or repressive in order to buy political allegiance.
The non-governmental organisations behind the report contend that the G7's newfound emphasis on corruption, good governance and transparency lacks seriousness since those nations still refuse to apply the same principles to their previous economic practices.
"Creditors need to be held accountable for the bad decisions they have made and share responsibility for mistakes," said Gail Hurley, of the international debt think tank EURODAD.
"It is not acceptable for the G7 to preach good governance to developing nations while at the same time collecting debts that were corruptly made," Hurley said.
She was referring to politicians in industrialised nations who have recently put fighting graft high on their agendas, saying they want to make sure that taxpayers' money is well-spent and not wasted by corrupt elites.
Other groups behind the report include the Italian group CRBM, Erlassjahr in Germany, PARC from Japan, Plate-forme Dette et Développement from France, the Jubilee Debt Campaign in Britain, Jubilee USA and Probe International in Canada.
Some of these loans, the report says, were designed to help rich country companies do business abroad and in many of these cases loans were provided at excessive interest rates.
"Development was never their original purpose," says the report.
The study highlighted cases of unnecessary goods or services being sold, blatant overcharging, the sale of military hardware or weapons to authoritarian regimes which were widely known to be corrupt or to abuse human rights, extortionate interest rates and projects with huge negative social and environmental impacts.
For example, the report cites the case of Germany selling warships to Indonesia during the Suharto regime despite concerns over how the vessels would be misused in internal conflicts.
Japan also supported the development of an aluminum project in Indonesia designed to serve the interests of Japan's aluminum exporters and which did not benefit Indonesians, the report says.
The Bataan Nuclear Power Plant built by former dictator Ferdinand Marcos, who ruled the Philippines between 1965 and 1986, was financed by The Export-Import Bank (EXIM), the U.S, government's export credit agency, which provided loans and guarantees totaling 900 million dollars for the project.
The Filipino people continue to pay this debt and are projected to continue to do so until 2018, even though they have never received even a single watt of energy from the project, which ended up costing more than 2.3 billion dollars.
Italy sold three hydroelectric turbines to Ecuador when only two were needed, and despite evidence that the hydropower plant was unviable and had destroyed the local environment and communities.
The calls by the campaigners to deal with such debts are not without precedence.
In October, Norway decided to cancel 80 million dollars in debt owed by Ecuador, Egypt, Jamaica, Peru and Sierra Leone after it determined that the loans were not granted in a good faith effort to promote development.
Anti-debt campaigners want Norway's decision to serve as a model for other wealthy creditors to follow in order to ease the global debt crisis that has squeezed many developing nations.
The report recommended that G7 countries open official and impartial audits of illegitimate debt and that the enquiry's recommendations be public, involve debtor nations fully and "lead to the cancellation of debts found to be odious or illegitimate."
The International Monetary Fund estimates that total public external debt for the 54 lowest-income countries, which Gross National Income per capita of less than 860 dollars a year, stands at some 460 billion dollars.
These countries include Afghanistan, Bangladesh, Kenya, Senegal, Ethiopia, Myanmar, Uzbekistan, Gambia, Nepal, Vietnam, Ghana, Niger, Yemen, Nigeria and Zambia.
"Debts which are found to be corrupt, fraudulent and illegitimate must be cancelled and responsibility shared between the two parties," Hurley said.
Rich nations, especially in the powerful group of bilateral creditors known as the Paris Club, and through multilateral lenders like the World Bank and the IMF, have long denied promoting illegitimate debt to corrupt governments or failed policies in developing countries.
Copyright © 2007 IPS-Inter Press Service