Big Saturday Read: Mugabe & Zimbabwe's Public Debt
A hefty burden Public debt is one of the heaviest challenges weighing upon Zimbabwe’s fragile and precarious economy and making prospects of recovery very remote. Surprisingly, compared to the much-favoured rhetoric on sanctions, the issue of public debt does not feature prominently in official narratives on the economy, except obligatory mentions in annual budget statements. Curiously, the matter of public debt does not enjoy a high profile in opposition narratives. Perhaps most politicians see it as a technical matter which does not excite and draw the attention of the crowds. Yet it is at the heart of Zimbabwe’s economic challenges the resolution of which is critical to any forward movement. Thankfully, sections of civil society are awake to this issue, with the Zimbabwe Coalition on Debt and Development (Zimcodd) playing a leading role in public debt activism.anti-corruption organisation Transparency International is also casting an eye on matters of public finance. The preparation of this #BSR coincided with the death of Zimbabwe’s former President, Robert Mugabe and debate on his legacy is a topical affair. The issue of how Zimbabwe contracted its public debt and accumulated arrears is an important feature in the story of Mugabe’s legacy. The #BSR reveals that while Mugabe’s leadership had serious shortcomings, the matter of public debt requires a more nuanced analysis which reveals multiple actors who must bear some responsibility for the mess around Zimbabwe’s public debt. A thorough re-examination of legacy debt will reveal that some of the creditors’ hands are not clean. The BSR echoes the call made by Zimcodd, scholars and other debt campaigners for a comprehensive debt audit and that there must be some consideration for cancellation of some public debt which falls in the odious category, which I will explain later in the #BSR. However, the #BSR notes that the lack of political reforms stand in the way of progressive negotiations with creditors and this is the responsibility of the current government. Looked at in this way, the reluctance to implement genuine political reforms is very costly. There is also need for enhanced transparency and accountability in the process of contracting public debt. The current manner in which the government is contracting public debt is totally at odds with these values and risks plunging the country into more punitive and odious debt which will unnecessarily burden future generations. Let us start by getting a proper understanding of public debt. What is public debt? In very simple terms, public debt represents financial obligations that are owed by the government, mostly from loans and public guarantees. The government usually draws on revenue from taxes and other sources to finance its activities. However, this revenue is never enough to cater for all its needs at any given time. To cover the gap, the government borrows from various sources, both domestically and internationally. It borrows from banks, other governments and multilateral institutions such as the IMF, World Bank, the African Development Bank and Afrexim Bank. Money borrowed from the domestic market is referred to as domestic debt while money from international market is classified as external debt. As with all loans, lenders expect loan repayments plus interest over a period of time. Interest charges represent the profit that lenders make. If the government fails to repay the loan, it falls into arrears and incurs penalties. Defaulting on loans is bad on the reputation of the debtor so it is not in the government’s interests to default. It will be hard to borrow in future because lenders will not trust you. If they lend to a defaulter they will charge punitive rates of interest or exact guarantees, which will make borrowing very expensive. All nations borrow. It doesn’t matter whether they are rich or poor. All nations have public debt. Public debt is the lifeblood of the capitalist system which has been the predominant economic system around the world for the last few decades. Loans can be used to fund productive activities and build infrastructure. Huge infrastructure projects like Kariba Dam were built decades ago on loans which were being paid until recently (although Ian Smith defaulted after declaring UDI in 1965 and sanctions were imposed on his illegal government). However, loans can also be used to fund illegitimate activities, such as funding wars. Other problems emerge when the debtor falls into debt distress and is unable to meet its loan obligations. Funds that could be used for development or crisis relief have to be directed to meet debt repayments, affecting the welfare of citizens. Loans might also be diverted by corrupt political elites. We shall also see how loans benefit wealthy countries as they are often given with conditions that require the recipient country to use suppliers and contractors from the lending country. In that case, money is simply being shifted from one part of the wealthy country (public) to another part (private) but because it is a loan to the poor country, it is the taxpayers in the poor country who will end up carrying the cost. The next question is understanding the state of Zimbabwe’s public debt. Zimbabwe’s public debt There is vagueness and conflicting views on the current state of Zimbabwe’s public debt. According to the 2019 Budget Statement, as at the end of September 2018, Zimbabwe’s total public debt stood at US$17.69 billion. External and Domestic Debt According to the 2019 Budget Statement, of the total debt amount, external debt was valued at US$7.7 billion and domestic debt was US$9.6 billion. External debt is owed to multilateral institutions such as the World Bank, African Development Bank and the European Investment Bank (US$2.6 billion) and bilateral creditors (US$4.7 billion). US$5.9 billion, more than 70% of the external debt consisted of arrears and penalties for non-payment. Most of these arrears have remained unpaid for nearly two decades after Zimbabwe defaulted. The other component of the public debt is domestic debt. These are debts incurred when the government borrows from the domestic market. Since Zimbabwe has struggled to borrow from external creditors, it has increasingly relied on borrowing from the domestic market. One instrument which it uses to borrow money is called the Treasury Bill (TB). A TB is issued to a buyer on the promise that the government will pay at a later date (maturity date). The buyer gives government cash in return for a TB which is generally considered a safe investment. A study of recent budget statements reveals that the government issued TBs to fund various government commitments including, paying debts assumed from the RBZ in 2015 and funding broke public enterprises such as NRZ, POSB, etc the fancy term used for the latter is called “recapitalisation”. The rise in domestic debt was also driven by a huge increase in the government’s overdraft facility at the RBZ. It rose from US$1.4 billion in December 2017 to US$2.5 billion in September 2018. This huge growth in domestic debt fuelled by high levels of borrowing was after the coup which toppled former leader, Robert Mugabe. Squeezing out private sector The problem with excessive government borrowing is that it squeezes out the private sector from the debt market. Debt is a critical instrument in financing business in a capitalist system. Both start-ups and established businesses depend on borrowing to fund their businesses. Since TBs are considered to be very safe investments, lenders will prefer lending to government than to the private sector. This is why excessive borrowing by the government squeezes out the private sector. Unless government is borrowing for large infrastructure projects which generate jobs, raise income and promote the buying power which is critical for other sectors of the economy, public sector borrowing can be wasted in consumption. Cognisant of the challenges of excessive borrowing from the domestic market, the government has repeatedly made commitments to reduce domestic borrowing. It did not start with the current Minister, Professor Mthuli Ncube. Even the previous Finance Minister, Patrick Chinamasa understood the challenge of excessive domestic borrowing and made repeated but unfulfilled commitments to reduce it. Ncube has made similar commitments. While he has hailed measures taken to reduce government’s penchant for borrowing, the recent about-turn regarding Command Agriculture will probably dilute any advances. 1999 as a landmark moment Zimbabwe first defaulted on its loan obligations in 1999 when it failed to repay the IMF debt. All along, it had faithfully met its obligations even as the situation was getting dire. 1999 was the turning point - a landmark moment in Zimbabwe’s relationship with its creditors - and things have never been the same. Therefore, in creditor-debtor relations, Zimbabwe became a delinquent debtor 20 years ago. Needless to say, debt defaults triggered penalties and closed doors to further loans from these creditors. At the moment, US$5,9 billion of the external debt represents arrears and penalties. The story of how Zimbabwe accumulated this debt by 1999 is complex and requires a nuanced analysis to reveal the different actors who must also take some responsibility beyond the government. Indeed it is an important story to be factored when it comes to resolving the debt challenge. I deal with it separately in this #BSR. However, it is worth noting at this stage that when the landmark moment of the debt default happened in 1999, the Movement for Democratic Change was only being formed. If anything, the economic challenges played a role in creating the perfect storm that led to the formation of the MDC. Furthermore, it is worth noting that the debt default happened well before the United States and the European Union imposed their regimes of targeted sanctions on members of the Zimbabwean government and associated companies. Nevertheless, while sanctions did not cause Zimbabwe to default, did their imposition affect Zimbabwe’s ability to repay or reschedule existing debts? That’s an important question to be considered later in the #BSR. Credit history Debt financing is usually available to those who have the capacity to pay back. The borrower is in fact borrowing from his future self. He does not have the money today but believes his future self will have the money. A loan is tomorrow’s income being enjoyed today. A lender cannot be certain that a borrower will repay his loan. He considers a number of factors before making a decision whether to advance a loan or not. One of these factors is the borrower’s credit history. Has the borrower had loans before? Has he repaid previous loans on time? If the borrower has a good credit history the lender will have a measure of confidence. If he has a bad credit history the lender will be reluctant to lend and if he does he will impose tough conditions and raise the interest rate which will make the loan more expensive. With this background in mind it’s not hard to see why Zimbabwe has had a tough time in the credit markets given its evidently bad credit history after defaulting in 1999. In the 2016 Budget Statement, the then Minister of Finance Patrick Chinamasa admitted the arrears situation had had an “adverse impact” on the country as it was limiting access to critical development finance. Clearing arrears was important as any delays would only accelerate deterioration in Zimbabwe’s macro-economic environment”. In its Article 4 report in 2017, the IMF confirmed that the arrears had “limited access to financing and increased the country’s international isolation”. Economists such as Paul Krugman have long pointed out that this “debt overhang” impacted development in heavily-indebted countries as limited resources had to be allocated to servicing debts. Writing in the Daily Maverick in September 2018, days before he became Zimbabwe’s Finance Minister, Mthuli Ncube admitted that Zimbabwe was in “debt distress”. Hence, while Zimbabwe was in severe economic distress, in its bid to win favours it paid US$107,9 million to the IMF in 2016. Less known is that back in the early 1980s after the IMF had cancelled a line of credit on account of an excessive budget deficit, the Mugabe government had responded by faithfully meeting its loan obligations for purposes of repairing its credit credentials. These resources could have been used elsewhere in a distressed economy but they had to be allocated to debt repayments and clearing arrears in attempts to improve the credit rating. The 2016 payment to clear the IMF arrears was part of the Lima Plan, a 2015 strategy on debt resolution which eventually collapsed. As the then Finance Minister Patrick Chinamasa explained at the time, this payment saw “the IMF Board remove sanctions which had been imposed on Zimbabwe on account of its failure to meet its loan obligations. It’s opened some routes to support under the Poverty Reduction Growth Trust.” The next step would have been to clear obligations to other multilateral agencies like the World Bank, ADB and EIB as well as bilateral creditors- Paris Club and non-Paris Club. However, the Lima plan stalled. How did Zimbabwe end up with a public debt that it could not repay as far back as 1999? Was it just Government recklessness? No doubt involvement in external wars and reckless spending played a role in causing government to become incapacitated. However, this would only provide a simplistic narrative because long before then, Zimbabwe’s public debt was already accumulating. Let us look at the origins of Zimbabwe’s unsustainable public debt. Origins of Zimbabwe’s debt distress There is a fair amount of excellent research and scholarship on Zimbabwe’s debt crisis. Foremost among scholars who have produced great research and analysis on this is Patrick Bond, whose 1998 book is a critical read. Others include Masimba Manyanya, Karen Openshaw and Patrick Terry, whose work I have used in this article. There is also useful literature from public debt campaigners such as Zimcodd, Afrodadd and the Jubilee Debt Campaign, which I have relied upon. The key themes that emerge from this literature are that Zimbabwe’s current debt includes: odious debt, reckless and self-serving loans from developed states and incompetent loans from multi-lateral institutions. Bond and Manyanya have argued that some of these loans should never have been made. There is also a lack of transparency in the lending process which raises the risk of corruption and misuse of public funds. Finally, it is also important to investigate the link, if any, between the public debt crisis, sanctions and political reforms. Odious debt Scholarship on Zimbabwe’s debt crisis suggests that a portion of the debt could, for various reasons, qualify as “odious debt”. The doctrine of odious debt has a long history. To put it in simple terms, it is debt which is regarded as repulsive both on account of the nature of the public authority which contracted it and the use to which the debt was put by that authority. According to Robert Howse, the concept of odious debt in public international law “seeks to provide a moral and legal foundation for severing, in whole or in part, the continuity of legal obligations where the debt in question was contracted by a prior “odious” regime and was used in ways that were not beneficial or were harmful to the interests of the population.” The question is whether the debt was incurred by a legitimate regime or whether it was used in the interests of the public. If the regime or the use of the debt was repugnant, it might be regarded as odious debt. The issue of odious debt is most pertinent in a situation of political transition from one regime to another. Should the new regime recognise and accept debts incurred by the old regime? The general rule in state succession is that the succeeding regime would normally take over debts of the old regime. But what if the debts were odious? This is where the doctrine of odious debt becomes relevant and it is not without controversy. The doctrine is particularly relevant where the creditors knew or ought to have known of the circumstances that they were lending to an odious regime or the funds were meant for odious purposes. This is why campaigners urge lenders and foreign governments to carry out comprehensive social impact assessments before approving loans. They must answer the question whether the loans will be beneficial or detrimental to the people before they approve the loans. For example, there may be a situation where a creditor lends money to a regime and the money is used by the regime to buy arms of war which are then used to repress the population. When that regime falls, should the new, democratic government pay back that loan when the creditor knew that the debt was used to repress the population? That type of debt could be classified as odious debt and the argument would be that it should not be repaid. Instead the creditor should carry the cost. Colonial Debt In the Zimbabwean case, the issue of odious debt has been raised both in scholarship and debt and development activism. Bond, Manyanya, Openshaw and Terry have all made reference to the debt inherited from the colonial government by the new Zimbabwean government in 1980. In their paper, Uncovering Zimbabwe’s Debt - the case for a democratic solution to the unjust debt burden, the Jubilee Debt Campaign, et al has argued that most of the public debt relates to or is connected to loans that were acquired in the 1980s and 1990s from private lenders, foreign governments and multi-lateral institutions. At independence in 1980, the new government inherited debts of up to US$700 million from the colonial regime. They argue that most of this was “unjust debt” which was incurred to buy arms of war to resist the fight for independence. These short-term, high-interest loans to the Rhodesian regime were given by private lenders, including Swiss and German banks, violating United Nations sanctions. Military spending by the Smith regime had escalated from 20% of the budget in 1975/6 to 50% in 1978/9. In their work, Bond and Manyanya have argued that the Mugabe government would have been well within its rights to repudiate this colonial debt, a view that finds support from Openshaw and Terry as well as public debt campaigners. In fact, according to Bond, “Mugabe initially resisted - but then under pressure agreed upon - the repayment of the country’s “odious” foreign debt inherited from the Smith regime at independence”. This pressure apparently came from local and international bankers who worked upon Mugabe until he gave in. Why did he give in? Apart from the pressure, Mugabe would have been conscious of the negative reputation that his new government would earn from repudiating the loans, however odious they were. Lenders would have been sceptical to lend when it appeared property rights were violated. Mugabe had long been feared as a communist and repudiating foreign loans would only have cemented that narrative in the minds of his detractors. The desire to attract foreign investment meant keeping old creditors happy, even those that had extended odious debts. There is also a view that Zimbabwe was to be a role model for South Africa, which was not yet free from Apartheid. The argument is that a radical approach by the new Zimbabwean government in repudiating colonial debt would have scared the Apartheid Regime and become a disincentive to negotiations for transition in South Africa. As it happened, when South Africa got freedom, contrary to the single-sides contrasts often made between the two men, Nelson Mandela followed the Mugabe path and accepted all apartheid debts, however odious they might have been. Curiously, this similarity between Mandela and Mugabe in relation to their treatment of odious debt does not enjoy the same profile as their contrasting approaches in other issues. Bond and Manyanya have been highly critical of this approach taken by Zimbabwe because it actually became a bad role model for South Africa. The argument is that Zimbabwe should have taken a more “progressive” approach of repudiating the odious debts. If Zimbabwe had repudiated the odious debt maybe the Apartheid Regime would have collapsed earlier as its financiers would have realised that their loans would be repudiated by a future democratic government. Openshaw and Terry argue that Zimbabwe would have been justified in repudiating the colonial debt as there is “no positive rule of customary international law obliging it to assume responsibilities for the colonial era debt”. It could also have invoked the odious debt doctrine in its defence. As we will soon observe, Bond and Manyanya take this further and challenge the public debt incurred in the 1980s and 1990s, most of which they criticise as “incompetent” and of no real benefit to the people of Zimbabwe. But surely, at only 4% of the GDP in 1980, the colonial debt was small and affordable, it might be argued. That is true but that appearance of being small and affordable was misleading, argue colonial debt critics. The issue in any event is not affordability but the principle. If providers of odious debt know that their loans will not be repaid, it will deter them and others from doing so in future. In any event, as Bond and Manyanya have pointed out, the loans to the Smith regime were illegal because they were against UN sanctions. It would have been perfectly justified to refuse repayment of loans that were contracted illegally. This is an important argument in light of current loans - if it is discovered that they are illegal or the funds have been used illegally, surely there would be justification for repudiating them in future. More significantly, the money used to repay the debt could have been used to support the government’s social services delivery programmes in health and education where it was making great strides in the 1980s. Indeed, when a serious drought struck in 1981/2 the country continued to pay its debts while contracting new loans for drought relief when repudiating odious debt could have freed the funds. These loans for such relief and to repay private lenders came from multilateral institutions such as the IMF, World Bank and ADB. The idea of new loans in order to repay old loans simply places the debtor in a vicious cycle of debt. Dubious and Incompetent Loans Bond and Manyanya are particularly critical of the loans advanced to the Mugabe government in the 1980s and 1990s which they believe were “incompetent” and not in the interests of the people. The ratio of debt payments to GDP rose from 4% in 1980 to 35% in 1987. Zimbabwe did not have a chance to reschedule debts or of getting debt relief despite the increasingly precarious situation. Instead, it got more loans even as the currency devalued and it became increasingly difficult to make repayments. The Jubilee Debt Campaign is also critical of these loans which were contracted in the 1980s and 1990s, the majority of which indirectly form the current debt burden as new loans were taken to repay them before falling to arrears. The Jubilee Debt Campaign is critical of the fact that drought relief was partly funded by loans instead of grants for emergency relief when it was clear that there would be no capacity to repay. Such loans are extremely hard to repay because they do not generate income. The Jubilee Debt Campaign also alleges that the World Bank gave a US$50 million loan for HIV/AIDS relief in the 1990s which it describes as “morally unacceptable and economically inappropriate” given that this was a crisis and there was no income to ensure repayment. Other loans in the 1990s from multilateral institutions were tied the adoption of new policies which were demanded by lenders. Such loans include those acquired as part of the Economic Structural Adjustment Programme, which eventually failed. The Jubilee Debt Campaign estimates of structural adjustment loans from the multilateral institutions at US$750 million. Self-serving loans A particularly pernicious type of loan is one provided by a foreign government but tied to a condition that funds have to be used to buy from companies associated with that foreign government. This type of arrangement is actually more beneficial to the foreign government and its people than the recipient country. A modern example is the US$100 million loan from China for the National Defence University in which almost everything was contracted to and done by the Chinese. But there are older examples. Britain gave a loan in the 1990s for the purchase of Land Rover vehicles for the Zimbabwe Republic Police. In a 2015 interview with New Africa magazine, Mnangagwa recounted how the government had taken advantage of a clause in the loan agreement which prevented such vehicles from being used to suppress rights by refusing to deploy police to quell the violent farm invasions in the 2000s. The British had included this clause presumably to make the debt less odious. But still these vehicles were used by a police force which violated human rights. All in all the Thatcher regime is said to have given 8 loans worth £60 million most of which was tied to engagement of British companies. Spain is also named as having learnt €11 million for the purchase of Spanish military aircraft and vehicles in the late 1980s. Spain claim €10 million is still owed. Another €6 million loan from Spain was used to purchase Spanish vehicles. About €9 million is owed to Spain on this debt. Spain also gave €28 million loan for the purchase of healthcare equipment from Spanish companies in the 1990s of which €8 million is still owed. According to the Jubilee Debt Campaign Report, Germany is owed €384 million but there was no information for what the original loans were meant for. Other loans simply didn’t work out for Zimbabwe because they were bad deals although they benefited the countries that were giving them. The loans for the Hwange Power Station in the 1980s are cited as an example by the Jubilee Debt Campaign. The World Bank initially gave a USD105 million loan between 1982 and 1991 before the European Investment Bank and the UK government’s CDC injected a further US$250 million worth of loans. British and Italian companies also chipped in with provision of parts for the plant. There were also loans from private banks. However, the power plant did not produce the projected levels of electricity. According to the report, in 1987 production was 37% below the World Bank prediction and it had fallen 25% below predictions in 1990. Furthermore, due to the devaluation of the Zimbabwe dollar during the period of construction, it meant the cost to the Zimbabwean economy was 65% greater than initial projections. The conclusion reached by the Jubilee Debt Campaign is unequivocal: “The debt burden created by Hwange power station was far greater than any economic benefit”. It’s worth noting that less than 30 years after the completion of the Hwange Power Station Zimbabwe is facing more energy woes than ever before and part of the reason is the constant breakdown of that power station. Yet the debt incurred in its construction still have to be paid. The European companies which participated in the projects were duly paid and left the scene. These are just selected examples of debt some of which might be regarded as odious, both by the nature of the regime (the repressive colonial or Mugabe regime) or the purposes for which the loan funds were used (repression of human rights) or they simply did not benefit the people who must now pay for them. Bond argues that repudiation of these loans from the IMF and World Bank would have been justified on the grounds that they were incompetently designed”. How come the issue of odious debt is not raised more often? In view of these arguments, which the government could have used, why has the issue of odious debt been such low priority? Even in his article before he was appointed Zimbabwe’s Finance Minister, Mthuli Ncube talked about debt relief but said nothing whatsoever about the odious nature of debt. One reason is probably that as a product of the international financial establishment he does not find the argument relating to odious debt appealing. After all, it challenges the orthodox position in international financial institutions which are accused of extending odious or incompetent debt. He is likely to prefer policies that go along with rather than rock the Washington Consensus. We have already considered why the Mugabe regime did push the argument against paying odious debt in 1980. The fear of upsetting creditors was an issue for the new regime. But it’s important to recall that after UDI, facing UN sanctions, Smith had actually done what Mugabe was reluctant to do in 1980: he repudiated the public debts. That was probably because his regime had nothing lose having been banished already by the international community. Curiously, while Zimbabwe has complained of sanctions (just like Smith), it has actually made payments, including paying off the IMF in 2016, in the vain hope of placating the IMF. Whereas Smith was resolute and decisive, Mugabe prevaricated - unsure whether to stick by repudiation or to make payments. Why does the Mnangagwa regime not talk about odious debt given that there’s a lot more scholarship and activism around the issue compared to 1980? Part of it might just be ignorance although this is doubtful. They must be familiar with the concept since they were forced to take up the war debts which they would have found odious. I have already explained why his Finance Minister may be conflicted on the issue of odious debt given his professional background. Another reason could be that as with the whole debt issue, the issue of odious debt is not as convenient and easy to sell compared to the sanctions narrative. Although the odiousness of debt supplies a narrative of victimhood, just like sanctions, the latter provides more political capital without the complications that come with the odious debt narrative as shown below. It is easy to package the sanctions narrative but the odious narrative requires more detail. A third possibility is that the issue of odious debt risks entangling them in a web of double standards since some of the odious debts were incurred during the Mugabe regime, in which they were an integral part. They cannot therefore challenge odious debts that they incurred since 1980 without carrying some of the blame for most of it. Furthermore, raising the issue of odious debt might open a Pandora’s Box for the Mnangagwa regime because it has incurred odious debt and may still be incurring odious debts. It is therefore not in their interests to raise the issue of odiousness. This could scare the creditors who are giving them odious loans while also putting them on the spot as they have to account for odious loans they are acquiring. There have been recent loans or “facilities” as they are often called, from lenders such as Afreximbank, whose details remain a secret, contrary to the constitution and legislation governing public debt. Finally, raising the issue of odious debt would mean they have to raise their own standards and demonstrate that the loans they are acquiring are legitimate. However, as we have already seen the modus operandi so far is to maintain a strong seal of secrecy on all loans and so-called “facilities” they are acquiring from creditors even if that conduct is illegal. The constitution requires the government to disclose terms of all loan agreements and public guarantees to Parliament within 60 days of the agreement. This never happens, even under a Minister who is supposed to be a technocrat. The issue of legitimacy of debts is one that may become more relevant and actionable after, rather than during the course of the current regime. This is why campaigners like Zimcodd have been calling for comprehensive debt audit. This will not only reveal the true extent of Zimbabwe’s indebtedness (which according to Zimbabwe Independent investigation remains doubtful) but it will also help separate odious debt from legitimate debt. This could significantly reduce the level of indebtedness if odious debt could end up being cancelled altogether. However, such negotiations are unlikely to happen unless there is significant political change. Costly Misadventures The discussion of odious debt would not be complete without a note on the DRC Misadventure. In 1997, Zimbabwe launched Operation Sovereign Legitimacy (OSLEG), a costly war to support the regime of Laurent Kabila in the DRC. Millions of dollars were spent on a war which brought nothing to the people of Zimbabwe. Instead, it brought vast wealth to political and military elites. The DRC War was different from the war in Mozambique in the 1980s where Zimbabwe intervened to safeguard its economic interests against the destabilising forces of the Apartheid Regime. Vast resources which could have been used to support the welfare of Zimbabweans were deployed in the DRC. It only added to Zimbabwe’s financial woes. In any event on 14 November 1997, the Zimbabwe Dollar took a significant nosedive, falling by 74% against the US dollar in under 5 hours following extensive capital flight after the government had committed itself to make huge pension payouts to war veterans. This spending was outside the budget. The reckless payments, the misguided war and the capital flight created a perfect storm leading to significant riots in 1998 as inflation rose and the economy plummeted. It’s not a coincidence that Zimbabwe defaulted on its IMF loan in 1999. Government is aware Away from the headlines, the government is conscious of the debilitating effects of the debt problem. Beyond the political rhetoric, technical staff knows that there can be no movement without resolving the debt question. That is why during the Inclusive Government, the Zimbabwe Accelerated Arrears Clearance and Development Strategy was launched in 2010. The Zimbabwe Debt and Aid Management Office (ZADAMO) was also set up following passage of the Public Debt Management Act. Scholars have criticised the implementation strategy and the lack of political will for the ZAADDS’ failure to achieve its objectives. Writing in an economics journal, Mbawu and Nkala have also pointed out that the debt challenge is an “albatross to the country’s economic recovery and development agenda”. The current Minister of Finance reiterated the problem in his Mid-Year Budget Statement last August when he said, “The continuous accumulation of arrears remain a major setback on Zimbabwe’s development agenda, hence, the need for advancing the re-engagement agenda” Is Zimbabwe unfairly treated? The US and the EU imposed regimes of targeted sanctions on specific members of the government and institutions associated with them. The government has focused on this as the reason for Zimbabwe’s troubles. But quite separately, as we have already observed, Zimbabwe had already defaulted on its loans to multilateral and bilateral lenders. The fact of the matter is that even if there had been no targeted sanctions, Zimbabwe would still have been in default and it would have been frozen out by creditors until it had cleared the arrears or found a settlement with them. However, since Zimbabwe is not the only country in history to have defaulted on loans, it is important to examine whether it has been treated differently and if so, why. One can point to Argentina in the 1990s or Greece in more recent years as countries that have defaulted on their loans. Violation of property rights It is possible that Zimbabwe’s treatment of property rights was a key factor. It is hard to imagine a Western creditor agreeing to renegotiate and reschedule a debt during that period in the 2000s when the defaulter was on a spree of property rights violations in the name of land reform. The institution of credit in a capitalist system is built upon the right to private property. In fact, ownership rights are central to capitalism. In credit markets, property is used as collateral for loans. If you violate property rights you are demonstrating disregard for one of the cardinal commandments of the capitalist system: thou shall respect and protect rights to private property. In the choice between protecting property rights and remaining in good books with the lords of the capitalist system and carrying out land redistribution ostensibly to achieve social justice, the government chose the latter. That choice came with the price: it lost the trust and confidence of the institutions of the international capitalist system. Having defaulted on its debts already, there was simply no room for renegotiation. It did not help that Zimbabwe had also breached Bilateral Investment Promotion and Protection Agreements (BIPPAs) with countries that were also some of its bilateral creditors. Their nationals were aggrieved by the land reform programme and were taking their cases to the courts or arbitration. There was no way they would renegotiate loan repayments at the same time. Nevertheless, Openshaw and Terry have an interesting perspective on the connection between the land issue and odious debt. In their view, the unequal and unjust pattern of land distribution inherited at independence from the colonial era is an even more odious form of debt. This is because the law required the new government to compensate existing farmers, even though the initial land grab during the colonial era was unjust. The lack of adequate compensation from the former colonial power means the obligation to pay for the land fell upon the post-independence regime. Although the government argued that the former colonial power had made promises to assist in paying compensation, there was nothing written down at the Lancaster House Constitutional Conference in 1979. It has remained a big bone of contention ever since. The government has repeatedly refused to pay this compensation for land, arguing that it is for the former colonial power to pay. This is now enshrined in the constitution, which states that compensation will only be paid for improvements. Using the nuanced argument by Openshaw and Terry this refusal to pay for land might be seen as justified repudiation of odious debt. Yet it does not fully resolve the matter. The legacy debt is one that requires a broader assessment which includes the role of other actors, including the former colonial power. What about the issue of sanctions? The same bilateral creditors were members of the European Union which had imposed targeted sanctions. It is inconceivable that a country whose leaders and institutions were under targeted sanctions would be able to renegotiate unpaid loans with member states of the European Union. It is also possible that even if the country clears its arrears, it would still struggle to access loans or debt scheduling or relief because of the sword of Damocles represented by provisions in sanctions legislation such as the US’s Zimbabwe Democracy and Economic Recovery Act. There has been too much acrimony for there to be any renegotiation at all without Zimbabwe meeting the minimum conditions set by those countries. Since they are creditors, the government of Zimbabwe needs their ear more than they need the government of Zimbabwe. The government allowed pride to get the better of it and so the stand-off continued, arrears and penalties escalating. Now after the departure of Mugabe, the government has been advocating for re-engagement but like its predecessor it is still failing and/or refusing to meet the minimum conditions for re-engagement: namely political reforms. Political reforms As I have pointed out and as confirmed by Finance Ministers and debt relief campaigners over the years, dealing with Zimbabwe’s indebtedness is a critical step in the economic recovery process. In order to access new financing, Zimbabwe needs to find a way to repay or reschedule the debt. But if it is agreed that odious debt should be cancelled, it also means creditors will be wary of giving out odious loans in future. There is no point in cancelling odious debts when new odious debts are going to be incurred in their place. Creditors will be wary of extending loans if they end up being classified as odious debts. This means the circumstances that are likely to cause debts to be classified as odious have to be removed. This is why it is important to carry out genuine political reforms. Political reforms will reduce the risk of future loans being classified as odious debts. As long as the current regime carries on like it is doing, violating human rights and attar ting bad press not only does it affect its reputation, it also raises the risk of odiousness. Now more and more aware of the campaigns against odious debts and the risk of losing out if they are cancelled, creditors will hesitate before lending to the country. That is why it is critical for the government to ensure political reforms are carried out. Seen in this light, political reforms are indeed a key issue in the country’s efforts towards economic recovery. As an ardent campaigner for debt justice Jubilee Debt Campaign pointed out, “any movement on the debt issue is clearly tied to the political challenges facing Zimbabwe”. Conclusion The matter of public debt presents opportunities for convergence and divergence between the ruling party and the opposition. Convergence because there are genuine concerns over the legitimacy of some of the debts inherited at independence and incurred in the 1980s to pay those odious debts and for structural adjustment. There’s a good case to be made for cross-party advocacy over these odious debts. Divergence because some of the post-independence debts implicate members of the current government. Debt audit would mean investigating even the more recent debts which have been shrouded in secrecy. They may also qualify as odious debts. The opposition would push for debt audit while the government might be reluctant to get into that territory, knowing it would expose it and its members. If sanctions were invoked to prevent renegotiation of the public debt then that would be a problem. However, when Zimbabwe cleared its arrears to the IMF, its sanctions that had been affectingaccess to some facilities was removed. If Zimbabwe were to pay its arrears it would be harder for the multilateral institutions to justify their refusal to lend. The problem is that Zimbabwe does not have the money to clear these arrears. What stands between and kinder consideration of its legacy debts Zimbabwe is its ugly political reputation. It is not the first country to default on its debts. However defaulters have not had the political baggage that Zimbabwe carries. It is important to implement political reforms. It would be very hard even for those that have imposed targeted sanctions to maintain them and prevent debt relief if there is genuine political reform. Countries that have taken measures against Zimbabwe are unlikely to support debt relief in the absence of political reforms as that would be regarded as incentivising bad political behaviour.
There are legitimate questions over Zimbabwe’s legacy debt. But the lack of transparency and accountability which the current regime continues to incur is making things worse. Mugabe made great mistakes in his time, but his successor is continuing in that tradition. As a people we have incurred odious debts before, but our government has learnt nothing and forgotten nothing. Our generation s a burden on future generations. We must work on political reforms. There is only one answer: We must work on political reforms. That will open many doors and allow us the moral capital to challenge odious debts of the past.