The Illegitimacy of the External Debt

Interview with the Argentine Pastors Juan Pedro Schaad of the Río de la Plata Evangelical Church and Ángel Furlan of the United Evangelical Lutheran Church, coordinators of the Lutheran World Federation Program on the Illegitimate External Debt.

Bottom of photo (Juan Pedro and Ángel) Reverend Ángel Furlan and Pastor Juan Pedro Schaad

Concretely and objectively, what is an External Debt?

It is a succession of loans granted to governments at different historical moments. It is a contract between the officials of the country that ask for the loan and the financial or banking institution, private or public, which grants the money. Up to here it is just like a private loan that we can ask for in a bank or another financial institution. To make this operation possible each one of the parts must complete a series of requirements. In the loans that the countries make there are requirements that are determined by the norms that govern this type of operation, for example: the amount that is solicited, what the money is designated for, who signs the contract, who in each government acts as a guarantor, the interest that will be paid, the payment terms, the form in which payments will be made, who arbitrates in the case of a breach of payments, who assumes the function of monitoring the funds that come and go, in which cases the debtor is released from the payment and who determines this.

How did the International Monetary Fund begin?

After World War II, in the 1950s, the countries of the western and Christian world created, within the framework of the United Nations, two institutions that have substantially affected the subject of the Debt. These two institutions were created in the first place to help the reconstruction of Germany and other countries seriously affected by the war. These two institutions are the World Bank (WB) and the International Monetary Fund (IMF). The former with a strong emphasis in studying the requests for development loans in the post-war reconstruction and the latter was in charge of the technical question of how to obtain the funds. All the countries that comprised the United Nations (with some exceptions) are members of the IMF.

As the countries that were involved in and responsible for the war were developed, a proportional impoverishment in the underdeveloped countries of the "third world," "developing," "emergent countries" was noted. Note that at this moment the initial role of the World Bank and the International Monetary Fund was steadily losing a balance of power of all of its members. In the 1970s many experts believed that its function of monitoring, observation and arbitration had been lost. The WB and the IMF occupied the place of advising the moneylenders still violating their own procedural norms.

What is an Illegitimate Debt?

I believe that it is fundamental to affirm in our work that all debt that is rightly arranged must be paid. It is worth noting here a phrase with a deep Biblical basis: "The debts are paid, the swindled is given back" (Luke 19:1-10). If the representatives of the world banks, public or private, continue wanting to not understand what is an illegitimate debt there are more and more jurists throughout the world who have absolutely no problem in determining it. They are based on each one of the contracts that have been signed and state the multiple legal violations which they themselves contain. A debt is transformed into an illegitimate debt through the following criteria:
- Unilateral increase of the interest;
- Interests of usury (determined by the payment capacity of each country);
- Funds granted to repress the people;
- Funds granted for the payment of interest;
- Contract renegotiation under pressure from the moneylenders;
- Renegotiation of new loans in exchange for the implementation of an exploitative economic
model;
- Unilateral implementation on the part of the moneylender for the renegotiation;
- Demand of payments at the cost of the violation of irrevocable human rights (food, health,
education, housing, work, etc).
These requirements that appear in the articles of incorporation of the WB and the IMF were being annulled slowly but steadily. The systematic violation of these requirements makes it such that certain external debts are considered illegitimate; they are categorized as frauds or robbery.

What are the traps of the "Service to the Debt?"

Many people in my country are still in agreement with our leaders when they pay the debt. This was such that some people have made studies on this conduct. They discovered, systematically, the following myths:
- That if we do not pay, then capital from the outside will not come (the financial capital continues coming in spite of not paying the debt)
- That if the external debt is not paid, external credibility is lost (companies continue coming to the countries, even though the external debt increases)
- That if the debt is paid to the IMF this stops its interference in the handling of the finances and the economy of our countries (the IMF is in the service of the private bank and the reserve funds of some countries, so the IMF continues functioning the same)
- That a great international boycott will come that would substantially restrain the exports (in the case of Argentina, never was so much exported as when they did not pay the debt)
- Now that there is a lot of money in the reserves it is necessary to take advantage of this and pay everything possible (many countries count on large reserves in strong currency, but without solving the problem of extreme poverty, hunger, health, the social system, education...)
- That we must have very good relations with the central power – the USA and the European Union - because they will lead us to definitive progress (this question is not located in good relations but in the advantages that the international groups want to have on our peoples)

What are the concrete alternatives when confronting the illegitimate debts?

We have dense documentation to amplify this question of the illegitimacy of the Debt. The cracks in the system are in the legal aspects. These are the clay feet of the system. Another issue is the attempt at mobilization of the governments of the North so that the creditors take into account the question of coresponsibility for the abusive concession of credit.

"If Martin Luther had borrowed 10 grams of gold in 1525 for the wedding ring for his marriage with Katharina, with an annual interest of 5%, without capitalizing the interest, the Lutherans today would owe 2,500 tons of gold." Ángel Furlan