Chinese loan: cause for national outrage

Parliament, it is said, has consented to the loan. These reports, if true, and we know they must be because no journalist has been arrested, are cause for national outrage. Of particular worry is the fact that the peoples representatives in parliament have approved this loan -never mind the heated debate. According to press reports, some legislators, predictably from the MDC, protested the bill – arguing that no time had been given for their consideration. The minister justified ambushing parliamentarians with the bill by saying it was an urgent matter.
Others challenged the wisdom of the loan, given the violence against citizens by the security forces. Considering other pressing national requirements, a defense college was not a priority at the moment, it was argued. Characteristically, The Herald celebrated the passing of the loan as a victory against those who wanted to throw spanners in its works.

Priorities
It is mind-boggling how funding a defense college can be an urgent matter given other pressing national requirements. Look at the status of our roads, the railway system, hospitals, industry and other public infrastructure. Government, it seems, has its priorities all messed up.
The country is already saddled with a debt of close to $7 billion, and has been defaulting on repayments given the low revenue base and an underperforming productive sector. We have been unable to pay our civil servants decent wages – despite their wage bill taking nearly 70% of total government expenditure.
Those of us in the Debt movement have always insisted that the Public Finance management system, particularly loan contraction and debt management, needs to be democratized. That such a matter of national significance is rushed through parliament betrays a sinister agenda. In essence the legislature assented to a bill whose content and implication they did not fully comprehend. The ordinary women and men in the street ultimately bear the burden of the debt.
It seems not to be in the interest of those who rule for the governed to know how they are doing business. From the little information that journalists have managed to put into the public domain, there is nothing about the loan that warrants public blessing. This $98 million loan is a classic example of what constitutes an odious debt. With a repayment schedule spreading over 20 years and the current political status quo certain to end in less than three years, no future government worth the peoples confidence will repay such a loan.

Military onslaught
Of course the history of this country does not give us reassurance in this regard. In 1980 Zimbabwe inherited $1,5 Billion in colonial debts. Unfortunately, the new government agreed to repay this debt despite it being clearly odious. It had been accrued by Ian Smith to sustain his 1970s military onslaught against the people of Zimbabwe.
One cannot imagine that the Chinese are not aware of the risk tied to issuing such a loan. They probably have it all figured out. The risk of a new government refusing to honour the loan is real. There is precedence here. Ian Smith for example chose to default on British guaranteed debt after Rhodesia had unilaterally seceded from Britain in 1965. Ecuador’s President Rafael Correa did it in 2008.
For China to insist on this path makes me suspect that the risk is averted somewhere and not in the agreement itself. While the loan has a repayment period of 20 years it may be that there is guarantee of some quick returns somewhere to offset the risk associated with a 20 year period. Curiously the repayment strategy, according to the report, is tied to the extraction of diamonds in Chiadzwa. Government will have to forgo its dues from Anjin to settle the loan at a time when civil servants are surviving on peanuts.
The loan will fund a project whose construction is reportedly being done by a Chinese contractor. What this means is that the Zimbabwe government has borrowed money from the Chinese government to benefit a Chinese contractor. Others have pointed to the hypocrisy that the said company does not meet the empowerment law requirement of 50 plus 1% indigenous shares.
That the loan repayment strategy is leveraged on minerals resources is not new in Zimbabwe. The government of Zimbabwes overall debt strategy is underpinned by the widely discredited and creditor led Highly Indebted Poor Country Initiative (HIPC) and resource pledging. This path infringes on generational justice. How can one generation mortgage the countrys future? The God-given natural resources of this country belong to all who live and shall live in this country. Every generation has the usufruct of the earth during the period of its existence and no generation has a right to limit the developmental needs of those who will come 10 or 20 years after it.
Despite the general implications, the contractual economics of this deal stinks. The agreement assumes that Marange diamonds will last and remain viable. It is not clear who will pay the costs in the event of a depreciation of diamond prices or exhaustion of the resource. If repayment is tied to diamond revenue it means the cost of repayment rises with decline of world diamond prices. There is yet to be agreement on the quantity of diamonds in Chiadzwa and longevity of extraction.
The way the bill was passed reflects badly on the legislature. We are still waiting for that day when MPs across political divide will unite to take a stand against the excesses of the executive in the interest of the country. – Mawowa is a PhD Development Economics Scholar at the School of Development Studies (UKZN) working with the Zimbabwe Coalition on Debt and Development (ZIMCODD). He writes in his personal capacity.

Odious debt
Odious debt is a principle of public international law that states that repayment of a sovereign debt whose contraction did not benefit citizens is not enforceable. The concept was formulated by Russian legal scholar Alexander Sack in 1927. It is applied to, firstly were the citizens of the debtor country did not consent to the borrowing and they did not receive a benefit from the debt incurred by the borrowing government. Secondly the creditors knew at the time they lent the money that the citizens of the borrowing country did not consent to the borrowing and would not receive any benefit from the money being lent to the government.
The current loan is targeted at supporting a state institution that stands accused of violating its own people and whose credibility is firmly contested. Attempts at reforming this institution have been resisted. The Chinese surely ought to have been cautioned on this.