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The Arab Spring and international debt: Egypt’s debt to Norway

On 17 December 2010 Mohamed Bouazizi set himself on fire after the police had denied him the permission to sell food on the street. This incident set off a series of uprisings throughout Middle East. In certain countries, like Bahrain, we have seen an end to the demonstrations without significant political change. However, in other countries, we know that previous regimes have been removed from power, and that new governments are taking shape. This is – in different ways – the case in Tunisia and in Egypt. These regime changes have led to an international discussion about debt cancellation

Tuesday, 27 March 2012, by HRH Oslo, based on SLUG international information

This following article is based on report by SLUG International which identifies Norway’s loans to Egypt, and discusses the legitimacy of this debt. Norway has lent money to these countries through bilateral debt and through investments in government bonds. Tunisia and Egypt have in different ways experienced a regime change: previous political leaders have been removed. Neither of these countries can today be said to be well-functioning democracies. It is nevertheless relevant to ask the following questions: Should a new regime, when it has been established, inherit the debt from the previous regime? Was it irresponsible of the lender, in this case Norway, to lend money to the previous regimes? Are today’s Norwegian guidelines for bilateral loans and investment in government bonds sufficient to secure responsible lending and prevent lending to illegitimate regimes? 

Calling for debt cancellation

Shortly after the 2011 rebellions, international initiatives for debt cancellation for the involved countries appeared. One of the notable personalities recommending debt cancellation for the aspiring new democracies was Nobel Prize laureate in economics, Joseph Stiglitz in his interview to Financial Times: “We do not want a democratic Egypt to be saddled by the debts of its past. So we will relieve a democratic Egypt of up to $1 billion in debt, and work with our Egyptian partners to invest these resources to foster growth and entrepreneurship.  We will help Egypt regain access to markets by guaranteeing $1 billion in borrowing that is needed to finance infrastructure and job creation.  And we will help newly democratic Governments recover assets that were stolen”.

Secretary of State Hillary Clinton also encouraged other countries to support Egypt economically, for instance through debt cancellation. The Argument put forward by Obama’s administration complies with the argumentation behind the concepts: dictator debt and illegitimate debt. These concepts have been a part of the campaigning of the international debt cancellation movement for several years. The international debt cancellation movement also argued that Egypt’s debt had to be cancelled along with the fall of Mubarak. According to Jubilee Debt Campaign, Egypt has paid over 80 billion USD in foreign debt and interests since 1981, the years in which Mubarak came to power. Tunisia is also mentioned by the international debt cancellation movement. During the reign of Zine el Abidine Ben Ali, Tunisia has serviced debt and interest for more than 40 billion USD. The campaign argues that one has to question the legitimacy of both the Egyptian and the Tunisian debt. 

The concept of illegitimate debt 

Illegitimate debt is a relatively new concept in the international debt cancellation debate, and describes something illegal, unfair, immoral or unacceptable. Today there is no internationally agreed definition of illegitimate debt. The definition of this concept is something that the civil society and politicians, including the Norwegian Government, have worked on and are working on continuously. In 2002, Dr Joseph Hanlon wrote the report Defining Illegitimate Debt for Norwegian Church Aid. To date, this report is probably the most thorough attempt to define illegitimate debt. Hanlon distinguishes between unpayable debts, which cannot be repaid and thus should be cancelled due to human rights considerations, and illegitimate debt, which should not be repaid, but cancelled due to principles of justice. Further, Hanlon defines four categories of debt that can be illegitimate due to the actions of the lender: unacceptable loans, unacceptable conditions, inappropriate loans, and inappropriate conditions. 

Norwegian Church Aid and Changemaker have previously referred to dictator debt as a particular example of illegitimate debt, arguing that such debt should be considered for cancellation. By Hanlon’s definition, dictator debt would be defined as unacceptable loan. Typical examples of such debt are South Africa’s debt after apartheid, the Philippines’ debt from Marcos, and Congo’s debt after Mobutu. The principle of dictator debt is particularly relevant in cases in which a state has gone through a transition from an illegitimate to a legitimate regime. Just like the term illegitimate debt, responsible lending is a relatively new concept. However, it has received increased attention in the past years. UNCTAD has recently launched a set of principles for responsible lending. The organization has stated that the aim of establishing a set of principles about the responsibilities of the lender is to set a global standard for the creation of loan contracts. Also, these principles can be used to analyse the quality of a contract and a debt’s sustainability. 

Egypt’s debt to Norway  

Egyptian government owes debt to Norway in 2011 through government bonds approximately $27 million) and bilateral debt– approximately $5.5 million. In the preparation for this report, the Norwegian government has been asked to consider the possibility of debt cancellation for Egypt. The Ministry of foreign affairs’ position on this is that this “has to be considered relative to other and poorer countries[needs]", and thus it is unlikely that further debt cancellation will be considered for Egypt. Thus the Ministry’s approach to the question is based on an assessment of the need for debt cancellation, rather than on an analysis of whether the debt is legitimate. 

The bilateral debt that Egypt owes Norway originates from a regime that did not have democratic legitimacy among the Egyptian people. However, the debt is from a period characterized by optimism and hopes for more democracy. The loans were given to projects in which a private Norwegian company was involved as a seller. The majority of the debt is from the building of the Port Said container terminal, where the buyer was the government and the loan was guaranteed for by a public Egyptian bank. This loan has thus from its origins been a loan in which the official Egypt has taken a certain responsibility. There are quite a few documents exempt from the public in this case, and an evaluation of the loan’s legitimacy would demand a more in-depth study than what the limitations of this report allow. It is not given that this debt is illegitimate by Hanlon’s definition, or within the principles for responsible lending. However, as Egypt has been through a regime change, and as there are several disclosed documents in this case, one should review this debt in a debt audit.

HRH Oslo, based on SLUG international information

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