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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Hannan Fodder: This week, Daniel Hannan gets his excuses in early

I didn't do it. 

Since Daniel Hannan, a formerly obscure MEP, has emerged as the anointed intellectual of the Brexit elite, The Staggers is charting his ascendancy...

When I started this column, there were some nay-sayers talking Britain down by doubting that I was seriously going to write about Daniel Hannan every week. Surely no one could be that obsessed with the activities of one obscure MEP? And surely no politician could say enough ludicrous things to be worthy of such an obsession?

They were wrong, on both counts. Daniel and I are as one on this: Leave and Remain, working hand in glove to deliver on our shared national mission. There’s a lesson there for my fellow Remoaners, I’m sure.

Anyway. It’s week three, and just as I was worrying what I might write this week, Dan has ridden to the rescue by writing not one but two columns making the same argument – using, indeed, many of the exact same phrases (“not a club, but a protection racket”). Like all the most effective political campaigns, Dan has a message of the week.

First up, on Monday, there was this headline, in the conservative American journal, the Washington Examiner:

“Why Brexit should work out for everyone”

And yesterday, there was his column on Conservative Home:

“We will get a good deal – because rational self-interest will overcome the Eurocrats’ fury”

The message of the two columns is straightforward: cooler heads will prevail. Britain wants an amicable separation. The EU needs Britain’s military strength and budget contributions, and both sides want to keep the single market intact.

The Con Home piece makes the further argument that it’s only the Eurocrats who want to be hardline about this. National governments – who have to answer to actual electorates – will be more willing to negotiate.

And so, for all the bluster now, Theresa May and Donald Tusk will be skipping through a meadow, arm in arm, before the year is out.

Before we go any further, I have a confession: I found myself nodding along with some of this. Yes, of course it’s in nobody’s interests to create unnecessary enmity between Britain and the continent. Of course no one will want to crash the economy. Of course.

I’ve been told by friends on the centre-right that Hannan has a compelling, faintly hypnotic quality when he speaks and, in retrospect, this brief moment of finding myself half-agreeing with him scares the living shit out of me. So from this point on, I’d like everyone to keep an eye on me in case I start going weird, and to give me a sharp whack round the back of the head if you ever catch me starting a tweet with the word, “Friends-”.

Anyway. Shortly after reading things, reality began to dawn for me in a way it apparently hasn’t for Daniel Hannan, and I began cataloguing the ways in which his argument is stupid.

Problem number one: Remarkably for a man who’s been in the European Parliament for nearly two decades, he’s misunderstood the EU. He notes that “deeper integration can be more like a religious dogma than a political creed”, but entirely misses the reason for this. For many Europeans, especially those from countries which didn’t have as much fun in the Second World War as Britain did, the EU, for all its myriad flaws, is something to which they feel an emotional attachment: not their country, but not something entirely separate from it either.

Consequently, it’s neither a club, nor a “protection racket”: it’s more akin to a family. A rational and sensible Brexit will be difficult for the exact same reasons that so few divorcing couples rationally agree not to bother wasting money on lawyers: because the very act of leaving feels like a betrayal.

Or, to put it more concisely, courtesy of Buzzfeed’s Marie Le Conte:

Problem number two: even if everyone was to negotiate purely in terms of rational interest, our interests are not the same. The over-riding goal of German policy for decades has been to hold the EU together, even if that creates other problems. (Exhibit A: Greece.) So there’s at least a chance that the German leadership will genuinely see deterring more departures as more important than mutual prosperity or a good relationship with Britain.

And France, whose presidential candidates are lining up to give Britain a kicking, is mysteriously not mentioned anywhere in either of Daniel’s columns, presumably because doing so would undermine his argument.

So – the list of priorities Hannan describes may look rational from a British perspective. Unfortunately, though, the people on the other side of the negotiating table won’t have a British perspective.

Problem number three is this line from the Con Home piece:

“Might it truly be more interested in deterring states from leaving than in promoting the welfare of its peoples? If so, there surely can be no further doubt that we were right to opt out.”

If there any rhetorical technique more skin-crawlingly horrible, than, “Your response to my behaviour justifies my behaviour”?

I could go on, about how there’s no reason to think that Daniel’s relatively gentle vision of Brexit is shared by Nigel Farage, UKIP, or a significant number of those who voted Leave. Or about the polls which show that, far from the EU’s response to the referendum pushing more European nations towards the door, support for the union has actually spiked since the referendum – that Britain has become not a beacon of hope but a cautionary tale.

But I’m running out of words, and there’ll be other chances to explore such things. So instead I’m going to end on this:

Hannan’s argument – that only an irrational Europe would not deliver a good Brexit – is remarkably, parodically self-serving. It allows him to believe that, if Brexit goes horribly wrong, well, it must all be the fault of those inflexible Eurocrats, mustn’t it? It can’t possibly be because Brexit was a bad idea in the first place, or because liberal Leavers used nasty, populist ones to achieve their goals.

Read today, there are elements of Hannan’s columns that are compelling, even persuasive. From the perspective of 2020, I fear, they might simply read like one long explanation of why nothing that has happened since will have been his fault.

Jonn Elledge is the editor of the New Statesman's sister site CityMetric. He is on Twitter, far too much, as @JonnElledge.