Justice (2) – Responsible International Lending

Whether we’re talking about countries or individuals, there are responsibilities on both sides when a loan is made.

  • The borrower has a responsibility to repay the loan.
  • The lender’s responsibility is to ensure that money is only lent when it is reasonable to assume that the money can be repaid.

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In this article, we’ll explore how, and why, international loans are made to countries and when it is simply unjust to expect repayment of those loans.

The purpose of the loan

When a building society lends money to an individual to purchase a home they would not expect the money to be spent on a luxurious holiday. The problem is, that if they did so, the lender would still not have a home and paying rent and the mortgage repayments would be unsustainable.

In a similar way, if an international loan is made to a country to spend on weapons for example, the country does not prosper at all from the loan and so is likely to be unable to repay.

It is therefore unjust to their money to a country for a purpose other than the development of the infrastructure or projects which increase the country’s prosperity and therefore enable them to repay the loan.

The ethics of the loan

When in international loanis made to a country, the lender has a moral duty to ensure that the money is to be used for an ethical purpose. It is morally indefensible to lend money to a country if the loan is to be used to finance repression of the country’s population.

Unfortunately the UK government has a history of grossly irresponsible lending, for example by giving loans to the Zimbabwean police to buy British made Land Rovers. It is morally indefensible to lend money to a regime bent on repressing its own population. It is also unjust to benefit our own industry whilst adding nothing to the prosperity of the borrowing country, making it very difficult or impossible for them to repay the loan.

What happens when a country cannot repay?

When a developing country simply canont pay even the interest on the loan, we need to ask ourselves the following questions.

  • Who has benefited most from the loan? Is it the lender or the borrower?
  • Has most of the value of the loan been lost through corruption and now in private bank accounts, andwas this foreseeable?
  • Did the loan benefit the ordinary people of that country?
  • Has the loan made the country more prosperous and we could therefore expect repayments to be made?
  • Is there a net flow of capital from the borrower to the lender? Are the interest payments greater than development grants to that country?

Where most people from a country are living in extreme poverty and where insistence on repayment would cause the situation to become even worse we need to write off loans to that country.

Justice and loans

To create a fair and just system the international community need to take the following steps.

  • Write off loans to countries which would otherwise see an increase in extreme poverty.
  • Not make any loans whose prime purpose is to see a trade benefit to a British company.
  • To ensure that any new loan is not lost in a corrupt system.
  • To ensure that the benefits of the country is greater in value than the interest repayments.
  • Richer countries should consider making development grants rather than loans to developing countries whilst ensuring that those grants are used to increase prosperity with a particular emphasis on increasing the prosperity of those living in extreme poverty.

What can we do?

  • Find out as much as we can about international debt.
  • Support an organisation like Jubilee Debt Campaign.
  • Meet together with like-minded individuals.
  • Use whatever influence should have in conversation is, Facebook, Twitter etc.

Conclusion

Reducing the injustice of unsustainable loans helps, but does not solve all of the factors involving poverty or injustice. There is no magic bullet! But certainly, dealing with unsustainable debt would help a great deal in the fight against extreme poverty.

Please let me know what you think. It is easy to add comments which will appear at the foot of this post.

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Comments

  1. Jessica Hannington says:

    Great article George, it really exposes how unjust the system of loans and repayments are. Unfortunately, as a country we make decisions based purely on our economy and with our economy being tied to the European Union, our government are quite happy to help Greece because it affects us directly. However, it still doesn’t make sense as this leaves no room for countries like Mozambique, who are crippled by debt. Again, the world is viewed now in terms of its worth in wealth, and if Mozambique has nothing to offer us, we don’t help. The whole global political economy needs to change drastically, so we can begin to make decisions differently, not based on monetary wealth and western dominance, but decisions based on making people happy all over the world and showing them compassion.

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  2. Thanks Ros. Yes, its quite crazy that Greece gets far better treatment than Mozambique. It is unjust and dare I say it racist!

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  3. Well expressed George. I am no economist, just an ordinary citizen trying to make sense of the world. And I’ve been listening to the financial news over the past year and asking myself why it is that when Mozambique gets into debt, that country has to use everything it could have spent on health and education for its population to payinterest on the loan. Whereas when Greece gets into debt, the same countries that insisted on interest payments from Mozambique are falling over themselves in their eagerness to write off the debt. What do Europeans deserve that Africans don’t? Like I said, I’m no economist, but it makes for neither common sense nor justice as far as I can see.

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