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Standard Labour Party response on Mozambique odious loans

If you have received a reply from a Labour MP, please forward it to our policy officer, Tim Jones at [email protected] Tim can then guide you in how to respond. Below is some more detail on what Labour MPs have been saying.

We have seen two responses from Labour party MPs.

1) First Labour party response, what MPs say: “I appreciate the concerns you raise about several loans to Mozambique from two London-based banks. As the Jubilee Debt Campaign notes, a recent audit of the loans appears to raise a number of questions, including a lack of evidence that they had been used for their stated purposes. As you note, while the loans were given government guarantees by senior officials of the Mozambique government, they were not approved by the Mozambique parliament. I know that campaigners in Mozambique argue that the loans therefore violate the country’s constitution and are calling for the current government of Mozambique to repudiate the loans.

“However, I understand that the Mozambique loans are owed under UK law. This means that any legal dispute about their payment would be heard in London courts. Furthermore, according to the Jubilee Debt Campaign over 90% of debts from private lenders to governments in sub-Saharan Africa are also owed under UK law. I therefore agree that this makes this an important issue for the UK more widely.

“I also note your concerns about so-called “vulture funds” – institutions that buy developing countries’ sovereign debt at discounted prices, then seek to recover its full value through legal action. I welcome that the Debt Relief (Developing Countries) Act 2010 limits the amount that such funds can recover from countries designated as having unsustainable external debts. However, I appreciate the Jubilee Debt Campaign’s call that the Act be strengthened to ensure that vulture funds cannot ignore agreed debt restructuring in pursuit of large profits in UK courts. I believe it is important that the Government consider what action it can take to prevent debt crises taking place in developing countries, including supporting global negotiations on new international bankruptcy rules.”

What we think: The wording of this response is largely positive, but it does not actually commit the MP to supporting any particular policies. It would be good for MPs saying this to be pressed on whether they support 1) a regulation to ensure all loans to governments, given under UK law, are made public and 2) extending the Debt Relief (Developing Countries) Act to ensure creditors cannot use UK law to ignore internationally agreed debt relief?

2) Second Labour party response, what MPs say: “Mozambique’s default on the $2 billion worth of commercial loans from UK based banks has triggered the latest African debt crisis. Although the debt was contracted in violation of international standards, the UK government have failed to translate these principles into law, which means that countries like Mozambique have no protection under UK law from irresponsible lending by UK based financial institutions. The UK government has also frustrated attempts to create a multilateral debt workout mechanism at the United Nations which would take into account the legitimacy of private capital lending and borrowing.

“The debt crisis in Mozambique reveals how easily development finance, centred on poorly regulated private capital, can go wrong. Unfortunately, the current global governance regime has no effective mechanism in place to prevent irresponsible lending and borrowing despite there being a strong case for eradicating potentially illegitimate debts which continue to strangle the economies of many African countries. Africa’s combined economy loses more than £46 billion annually through corruption and tax evasion – more than ten times what they receive in aid. Labour has already committed to ensuring that UK Export Finance support is not available to companies engaged in bribery or corrupt practices and I believe we should build on this commitment. I will call for international trading standards, such as the UNCTAD Principles on Responsible Lending and Borrowing to be enshrined into UK law.”

What we think: The wording of this is largely positive, although it only makes a couple of commitments. The first is to ban companies engaged in corrupt practises from UK Export Finance support, which is useful but not directly related to the issue you raised as UK Export Finance were not involved in the loans to Mozambique.

The second, to enshrine UNCTAD Principles on Responsible Lending and Borrowing into UK law is very positive. One of these principles is around transparency, but MPs should clarify whether they agree that there should be a UK regulation to ensure all loans to governments, given under UK law, are made public.

This response does not directly say whether the MP supports extending the Debt Relief (Developing Countries) Act to ensure creditors cannot use UK law to ignore internationally agreed debt relief.

Key point to make to Labour MPs:

Do they support 1) a regulation to ensure all loans to governments, given under UK law, are made public and 2) extending the Debt Relief (Developing Countries) Act to ensure creditors cannot use UK law to ignore internationally agreed debt relief? If so, can they sign Early Day Motion 158? Please mention that Chair of the International Development Select Committee, Stephen Twigg MP, and expert in financial transparency and accountability, Margaret Hodge MP, have both signed the motion.

If they are a front bench Labour spokesperson, they may say they cannot sign Early Day Motions. If so, please ask them to write to Jonathan Reynolds, shadow City Minister, asking him to adopt these two proposals as Labour policy.

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