The legitimacy of loans from ADB, WB, IMF to a corrupt govt

Debt. IMF

GreenWatch Dhaka Report

In the wake of extensive financial mismanagement and corruption, Bangladesh finds itself shackled by a staggering debt burden. According to available information, the country’s indebtedness has skyrocketed from $23 billion in 2003 to approximately $100 billion in 2023. About 53% of Bangladesh's total external debt is owed to the Asian Development Bank, the World Bank and the International Monetary Fund (IMF), and about 32% is owed to Japan, China and Russia. Should not Bangladesh's development partners take responsibility for the nation's predicament? 

These "development partners" were happy to lend to Bangladesh knowing fully extensive financial mismanagement and corruption. Thus, the crux of the dilemma lies not just in the numbers but in the ethical implications of the loans themselves—particularly the proportion that should be classified as "odious loans," which are generally understood to be debts incurred by a regime that misuses funds and does not act in the interest of its citizens. 

Given the situation at hand, one must question the moral right of the ADB, the World Bank, and the IMF to reclaim these odious loans. The issue of "odious" loans or debts is thus extremely important for Bangladesh facing economic challenges both domestically and externally. 

The recent white paper paints a dire picture: a staggering over $200 billion has been siphoned off from Bangladesh, undermining economic growth and democratic integrity. The previous regime, characterized as fascist, not only misused funds but also benefited from the complicity of external financial institutions that glorified the regime's development narrative without verifying despite being aware of wide-spread data manipulation.

While the development partners sought to profit or exert influence, the undemocratic regime claimed legitimacy. Despite this knowledge, the development partners chose to persist in their lending practices, ostensibly adhering to a facade of development assistance. Rather than acting responsibly by monitoring and controlling the disbursement of funds, the donors contributed to a cycle of debt that has only compounded the suffering of the Bangladeshi people.

The situation worsens when one considers the prohibitive nature of annual debt servicing, which has surged to $2 billion. For a country facing the adverse effects of corruption and economic mismanagement, this gargantuan sum diverts critical resources away from essential public services such as healthcare, education, and infrastructure. It raises an essential moral question: How can we justify demanding repayment for loans extended under conditions of corruption and misgovernance?

While the norms of international finance typically expect full repayment, these loans given to a known corrupt regime have scrambled the ethical foundation of such expectations. 

The people of Bangladesh have a poignant example in Ecuador, which in the past declared a portion of its debt odious and refused to repay it, challenging the moral legitimacy of its lenders. Ecuador’s broad discourse on odious debt suggests that nations, especially those suffering from the consequences of external financial negligence, have the right to contest debt obligations that stem from illegitimate sources. This paradigm raises significant considerations for nations like Bangladesh, which are mired in a complex web of global finance, corruption, and heavy debt burdens.

It is hard to overlook the role of multilateral and bilateral lenders in this unfolding crisis. By extending loans without due diligence and ignoring rampant corruption, they may share a degree of responsibility for the resulting economic malaise. With the knowledge of the regime’s misconduct—or, at the very least, willful ignorance—these "development partners" promoted the government’s development activities as a model. Their actions not only falter ethically but also raise questions about their operational standards and governance practices.

The current state of affairs begs an essential inquiry: Should a nation, particularly one that has suffered under a corrupt and oppressive regime, bear the financial burden of repayments for loans mismanaged and misappropriated? It is essential that the conversation around odious debt gains traction, encouraging not only the Bangladeshi populace but also other affected nations to challenge unjust financial arrangements.

As Bangladesh navigates this precarious financial landscape, the moral implications of odious debts become increasingly clear. The multilateral lenders must reflect on the ethics surrounding their lending practices, particularly when faced with clear evidence of corruption. The international community is called to reconsider how it classifies and manages debts, emphasising accountability, transparency, and respect for the sovereignty of the borrowing nations. It is high time for multilateral institutions to acknowledge their role in this debacle and be held accountable for their past actions. The people of Bangladesh—like those of Ecuador—deserve the right to question their obligations to repay debts that are rooted in exploitation, rather than development.

In the wake of the World Bank's Vice-President's recent visit to Bangladesh, we propose that development partners who provided financial life-lines to a corrupt and illegitimate regime, provide debt-relief by way of swapping debt for the rehabilitation and treatment of those who were injured during the movement that toppled the regime, to compensate the families of those who laid down their lives and to strengthen the social safetynet programme with a view to improving the economic conditions of those who have fallen into poverty or became poorer due to a clannish economic policy of the corrupt regime.  

Debt swap for development is not new; it was used previously by the World Bank and IMF for the Highly Indebted Poor Countries for poverty reduction programmes in the late 1990s and recently by the IMF for Covid-19 pandemic response in debt-distressed low-income countries.

Debt swap for absolving irresponsible lending is expected to achieve a win-win outcome. It may also serve as a deterrent against the lenders' irresponsible lending behaviour.