Monday, October 09, 2006

Norway forgives “illegitimate” debt

In an unprecedented move, Norway has announced that it will forgive $ 80 million in debts owed to it by Ecuador, Egypt, Jamaica, Peru and Sierra Leone. Norway has decided that the loans to these poor and already debt-ridden countries were in bad faith. It’s the first time that a rich debtor nation has acknowledged its responsibility for unfairly burdening a financially impoverished country.

Between 1976 and 1980, when the Norwegian ship-building industry was in crisis, Norway sold 156 ships and accompanying equipment to poor countries. The motivation was to bolster Norway’s own economy. The projects lacked sustainability and failed, at which time Norway became their creditor. Norway admits that it did not take into account the risks and needs of their creditors and it’s now time to rectify that.

Erik Solheim,the Norwegian Minister of International Development said

This campaign represented a development policy failure. As a creditor country Norway has a shared responsibility for the debts that followed. In cancelling these claims Norway takes the responsibility for allowing these five countries to terminate their remaining repayments on these debts.

It is the Norwegian government’s attitude that the citizens of poor countries should not be held responsible for repaying debts incurred for failed projects, monies spent by corrupt dictators, or debts owed to wealthy countries that were meant for the enhancement of the rich nation’s economy.

In addition, Norway has stated that it will not consider the debt cancellation as part of its official development aid, a practice common amongst creditor countries and a practice that inflates the amount of aid actually given and gives the impression that more money is available for development than what really exists.

It’s a refreshing attitude, but it’s not likely to take much hold in the rest of the world. Norway has forgiven these debts without the consent of the “Paris Club” of which it is a member. The Paris Club is an informal coalition of 19 creditor nations that has long insisted that debtor nations are responsible for their debts and who vehemently deny that any of their lending policies are for their own economic or political reasons. However, Norway says that they will abide by the Paris Club agreements in the future.

We can only hope that Norway’s “breaking of the silence” will awaken other creditor countries into doing the right thing.

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