How cancelling 'made-up' debt could help the UK meet aid targets

Treating debt relief for Sudan as charity will allow aid targets to be met at no cost.

"The UK will not balance its books on the backs of the poorest," David Cameron told the G8 summit in May, reiterating his pledge to spend 0.7 per cent of national income on international aid by 2013. The International Development Secretary Andrew Mitchell has echoed this sentiment, saying it is "absolutely clear that we stand by this commitment". That may be -- but some political sleight of hand could help to meet this target.

Back in the 1970s, the UK government backed loans to Sudan to buy British exports. These commercial loans were given by the little known department UK Export Finance (formerly ECGD) winning business for Britain, and keeping Sudan on side during the Cold War.

However, floods and droughts in the 1980s, along with rising US interest rates, led to the country defaulting on its repayments to the western world. The bill outstanding to the UK was £173 million.

Over 25 years later, the claimed debt has now risen to £678 million, and is increasing by £20 million a year. This huge increase is due to notional interest rates of 10-12 per cent being charged every year on the original debt.

The debt claimed from Sudan is effectively made-up money. Yet it could help the UK meet aid targets in the years ahead.

In June, South Sudan gained its independence. The north of Sudan has agreed to keep all the debt, so long as it is allowed to enter an international debt relief scheme within two years.

If and when Sudan achieves debt relief, the UK will "cancel" the debt. Given no repayments have been received for a quarter-of-a-century, this will cost nothing. The government then intends to treat this cancelled debt as aid, and count £678 million -- or whatever figure has been reached by then -- as a contribution to meeting the target to spend 0.7 per cent of national income on aid.

Counting debt relief as aid is nothing new. In the years following the invasion of Iraq, the UK cancelled 80 per cent of the debt inherited by Iraqi people from Saddam Hussain. The cancellation was counted as aid even though the UK loans had included money for Saddam to buy weapons and parts for a chemical weapons factory.

However, the reduction in Iraq's debt, as well as that of Nigeria, did not count towards meeting aid targets. Under current plans, any debt reduction for Sudan will too.

The UK's approach reinforces a narrative that all debts have to be paid, and it is an act of great charity and benevolence on the part of creditors to cancel them. But questions need to be asked about the origin of loans, and responsibilities of lenders as well as borrowers.

In Sudan's case, the UK government says it does not even know what the original loans to dictator Gaafar Nimeiry were for. The government could learn the lessons of past failed lending by implementing Liberal Democrat policy to audit all debts, something Vince Cable, the minister responsible, has so far not been minded to do.

But in Sudan's case, we know the loans from UK Export Finance were driven by Britain's own commercial interest to win contracts and strategic interest in the Cold War. The repayments then became too high because of drought, flood and global economic crisis. The debt was too big in the 1980s and as with all debts that are too big, needed to be repudiated, cancelled or reduced. Instead the debt was kept on the books and inflated by ridiculous interest rates.

In total, Sudan is said to owe $12 billion to western governments. Mostly due to the same high interest rates charged by the UK. If and when this is formally cancelled, if it is all used to meet aid targets, it could knock 12 per cent off official aid for one year.

Treating debt relief as charity will allow aid targets to be met at no cost. It will also sweep under the carpet a history of bad lending, allowing the same mistakes to be made again.

Tim Jones is policy officer at the Jubilee Debt Campaign

Tim Jones is policy officer at Jubilee Debt Campaign. Jubilee Debt Campaign is part of a global movement demanding freedom from the slavery of unjust debts and a new financial system that puts people first.

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Have voters turned against globalisation? It depends how you describe it

Brits are more positive about diversity than Sweden. 

New research shows that citizens across Europe are pessimistic about the future, distrustful of government and other political institutions, ambivalent at best about multiculturalism, and increasingly sceptical about the role of the European Union.

We wanted to understand the extent to which Europe’s citizens favour a "closed" rather than an "open" outlook and perspective on politics, economics and society. Making globalisation work for ordinary people in the developed world is one of the defining challenges of the 21st century. Globalisation’s popularity and political viability is both a pre-condition and a consequence of making it work, but mainstream politicians seem to be failing to persuade us to embrace it, to the detriment of democratic institutions and norms, as well as their own careers.

The decision of the British people to leave the European Union has been perceived as yet another step back from globalisation and a rejection of an "open" outlook that favours international co-operation in favour of a more closed, inward-looking national debate.

There’s certainly a strong element of truth in this explanation. The referendum campaign was deeply divisive, with the Leave campaign playing heavily on concerns over immigration, refugees and EU enlargement. As a consequence, the "liberal" Leavers – those who wanted to leave but favoured a continuing a close economic relationship with the EU along with free movement of labour – appear to have been side-lined within the Conservative party.

Our results are by no means uplifting, but it’s not all doom and gloom. While there’s no doubt that opposition to certain features and consequences of globalisation played an important role in driving the Leave vote, Brits as a whole are just as open, outward-looking and liberal-minded, if not more so, than many of our European neighbours.

First, we asked respondents in all six countries the following:

“Over recent decades the world has become more interconnected. There is greater free trade between countries and easier communication across the globe. Money, people, cultures, jobs and industries all move more easily between countries

“Generally speaking, do you think this has had a positive or negative effect?”

Respondents were asked to consider the effects at four levels: Europe as a whole, their country, their local area, and their own life.

Overall, British voters are overwhelmingly positive about globalisation when described in this way - 58 per cent think it has benefited Europe and 59 per cent think it has benefited Britain. More than half (52 per cent) think it has benefited their local area, and 55 per cent think it has benefited their own life.

One might respond that this question skates over questions of immigration and multiculturalism somewhat, which are the most controversial features of globalisation in the UK. Therefore, we asked whether respondents thought that society becoming more ethnically and religiously diverse had changed it for the better or for the worse.

Overall, 41 per cent said that ethnic and religious diversity had changed British society for the better, while 32 per cent said it had changed for the worse. That’s a net response of +9, compared to -25 in France, -13 in Germany, and -17 in Poland. Brits are even more positive about ethnic and religious diversity than Sweden (+7) – only Spanish respondents were more positive (+27).

There’s a long way to go before ordinary people across the developed world embrace globalisation and international cooperation. Despite the apparent setback of Brexit, the UK is well-placed politically to take full advantage of the opportunities our increasingly inter-connected world will present us with. It would be a mistake to assume, in the wake of the referendum, that the British public want to turn inwards, to close themselves off from the rest of the world. We’re an open, tolerant and outward-looking society, and we should make the most of it.

Charlie Cadywould is a Researcher in the Citizenship Programme at the cross-party think tank Demos. His writing has been published in peer-reviewed journals as well as the national media.