South Africa's widely commended Truth & Reconciliation Commission has a blind spot. Surprisingly, no attention appears to have been given to the foreign corporations, individual investors and Western governments that helped create and sustain the racial dictatorship which came to be known as apartheid.

The Cape Town-based Alternative Information & Development Centre (AIDC) undertook a study and produced a report on a strategy for challenging the foreign debt incurred during the apartheid era but which democratic South Africa is now expected to pay. The Report, located in the search for truth and reconciliation in South Africa, seeks to address the omission of apartheid's international face. Post-apartheid South Africa has inherited a foreign debt of $18.7 billion (some R90 billion). The dominant view amongst economists and politicians is that this sum presents no special problem. According to the measures most economists use in such matters the foreign debt is not a cause for concern.

The AIDC's Report challenges this complacency on three grounds. First, R90 billion is an awful lot of money for the vast majority of South Africans who, in varying degrees, remain deprived of the basic necessities of life. Any unnecessary and unjustifiable diversion of resources away from meeting these needs has to be opposed and stopped. Second, the balance of payments, which is already near to the danger zone, might not be able to bear the additional burden of the debt repayments. These repayments, of between $1.5 billion and $2.6 billion a year for the period 1997 to 2001, are more than enough to create a balance of payments crisis. Morality and international law provide the third basis for challenging the debt.

Morality and international law lie at the heart of the AIDC's strategy. The Report revisits the Doctrine of Odious Debt, a doctrine of jurisprudence the US Government and a US Chief Justice helped develop. The US Government, in the aftermath of the American-Spanish War of 100 years ago, used the doctrine to repudiate Cuba's debt to Spain. The US Government argued that the debt was "odious" and unenforceable since it been incurred without the consent of the Cuban people and by means of force of arms. The US Government further maintained that the creditors knowingly took the risk of investment when they made the odious loans.

In 1923, the Royal Bank of Canada sought to recover debt from the recently established democratic government of Costa Rica. In the Costa Rican submission, the debt was illegitimate. The new government argued that the debt had been incurred by a dictator not the people of Costa Rica; the submission being that, at the time the loans were made, the people had been engaged in a political and military struggle to bring democracy to their country. The case was heard by Chief Justice Taft, of the US Supreme Court. Just, sitting as arbitrator, fully upheld the repudiation of the debt.

The legal authority who did most to codify the Doctrine of Odious Debt was the emigre Russian, Alexander Sack, while he was a Professor of Law in France. It was his opinion that Government's invoking the doctrine would be required to prove that the debt ill-served the public interest and that the creditors were well aware of this. Provided these proofs were met, the onus would be on the creditors to show that the funds were utilised for the benefit of the country. If the creditors could not do so before an international tribunal the debt would be unenforceable.

Using Sack's principles, the Report argues that all debts incurred during the apartheid years are illegitimate because the apartheid regime itself was illegitimate. The UN and the International Court of Justice were the most authoritative of the wide range of international bodies that proclaimed apartheid to be a crime against humanity.

Apartheid loans came from three sources: the IMF/World Bank, foreign private commercial banks and individual speculators in various countries around the world. The Report shows how each of these three groups actively and continuously supported apartheid and worked to undermine the international campaign to free South Africa from its racial dictatorship.

The Report's central proposition is that the democratically elected government of the new South Africa should invoke the Doctrine of Odious Debt and should then enter into negotiations with the creditors for the cancellation of all the foreign debt from the apartheid years.

The Report recognises, however, that, even if sympathetic to the claims of democratic South Africa, the banks and their governments would probably balk at the precedent it might set for countries with debt burdens much greater than South Africa's. The strategy therefore anticipates the need for international solidarity action in support of democratic South Africa and suggests that the people who formed the anti-apartheid movements around the world would be a natural initial constituency to promote such action.

The Report further calls for the internationalisation of both Affirmative Action and South Africa's universally praised Truth & Reconciliation programme. It invites the outside world - more especially governmental and business forces in Britain and elsewhere - to acknowledge their own long role in the creation, development and defence of what eventually came to be known as apartheid. Moreover, many shareholders, speculators and ordinary citizens in the West benefited, whether directly or indirectly, from the very features that helped make apartheid a crime against humanity The injustices inherited from apartheid that Affirmative Action is supposed to redress thus also have an international dimension.

The Report acknowledges that the debt cancellation might well have a price-tag for a number of Western citizens, not just large, anonymous and enormously wealthy transnational banks. The document suggests that the debt cancellation should also be seen as a form of reparation. By cancelling the debt, the banks, governments and peoples of the West would be acknowledging their debt - both financial and moral - to the oppressed people of South Africa and that this acknowledgement would in effect be the West's acknowledgement of its responsibility before the Truth and Reconciliation Commission.

The Report acknowledges that similar arguments can be made for the cancellation of the internal debt that the beneficiaries of apartheid passed on to democratised South Africa. Tackling the bigger internal debt, however, requires further research and would be a logical consequence of the settlement of the foreign debt. The AIDC is currently addressing this aspect of the debt problem.

The Report asks what would happen if South Africa fails in its attempts to negotiate the cancellation of its foreign debt. In this event, the strategy calls upon the South African Government to be prepared to invoke the Doctrine of Odious Debt unilaterally. The strategy anticipates that the government will almost certainly need to be encouraged to take such a unilateral measure. Should South Africa's negotiators be left with little option other than unilateral implementation of the Doctrine of Odious Debt, the proposal is for a campaign by civil society to urge the government to take such a step.

The Report predicts an outraged response from business and some politicians in South Africa to any move that challenges aparthed's foreign debt. These sources, it says, will seek to terrify the South African public with dire warnings of economic collapse. Debt repudiation, according to these predictions, will result in South Africa alienating such powerful institutions as the World Bank/IMF and 'being cut off from international capital'. To allay these fears - and thereby also to facilitate the mobilisation of civil society - the document brings three certainties to the caution it acknowledges. These certainties are:

* the manifest failures of the World Bank/IMF policies elsewhere in the world and particularly in Africa;

* the fact that the South African economy survived the unilateral debt freeze that the apartheid government actually imposed in 1985;

* and the clear inability of the Government's existing macro-economic policy, with its focus on "foreign investor friendliness" to address the basic needs of the majority of the population.

The document draws attention to three precedents: the Government of the new South Africa unilaterally cancelling the debt owed to South Africa by Namibia and doing so because of the immorality of the debt; and the Paris Club of western creditor governments cancelling a large part of the debt owed by Poland and Egypt.

The Report ends on a note of urgency. Apartheid's debt is being paid back now. The strategy to challenge apartheid's foreign debt is seriously weakened by time. The need is to act now.

April 1997
http://aidc.org.za/adc/adc-summary.html