Debt statistics 2017
|Overall international debt burden (% of GDP)||40|
|Government payments on foreign debt (% of revenue)||7.7|
|Government foreign debt (% of GDP)||45|
|Private foreign debt (% of GDP)||4|
|IMF and World Bank debt cancellation ($ billions)||17|
|Country case studies||Yes|
Country case study
Since being claimed as a personal colony by King Leopold of Belgium, the Democratic Republic of Congo has been continually looted. Despite its huge mineral resources, it is officially the poorest country in the world. Today, very little of the country’s mining revenue goes to the government, instead being taken by local elites and multinational companies. The notorious dictator General Mobutu was propped up through extensive lending by western countries in the 1970s and 1980s, much of which was stolen. After his fall, the Congolese government still had to spend seven years making large payments on Mobutu’s debt, before some of it was cancelled in 2010.
The Democratic Republic of the Congo is, in many respects, one of the richest countries in the world. Its natural resources include diamonds, coltan, copper, cobalt. gold, tin, oil, natural gas and its forests. Yet the Central African country is listed as the poorest in the world, with a national income of £200 per person. Around 95 per cent of the population – over 60 million people – are thought to live on less than $2 a day.
The modern state of the Democratic Republic of Congo first began to be formed in the late 19th Century, when King Leopold of Belgium claimed it as his own personal colony; the Congo Free State. Under Leopold, the area covered by the Congo basin became a slave state, with the aim of exporting as much rubber and ivory as possible at the lowest possible cost, making huge profits for Leopold and the colonisers.
The situation in the Congo first began to be publicised when British shipping clerk Edmund Morel realised that huge amounts of rubber and ivory were coming out, and only rifles and chains going in. It is estimated that around half the population living in the Congo died during the Congo Free State; 10 million people. In 1908, ownership of the Congo passed from Leopold to the Belgian state.
Whilst the endemic slavery and death of the Free State began to be reduced, the Congo’s economy remained a source of cheap raw materials to be exported to Europe. In 1960, Congo achieved its independence from Belgium, with independence leader Patrice Lumumba elected as Prime Minister, with plans for economic independence. But just six months later Lumumba was dead, having been imprisoned and assassinated by elements within the Congolese army, assisted by the Belgian and US governments.
General Mobutu Sese Seko took power, and spent the next 32 years plundering the country, backed by his western allies. Between 1970 and 1997, under the dictatorship of General Mobutu, Zaire’s external government debt increased from around 5 per cent of GDP to 150 per cent. Through the 1970s and 1980s loans were given by the IMF, World Bank and directly from governments to support Mobutu as an ally in the Cold War.
A report by the IMF led by Erwin Blumenthal in 1982 found that there was “no, I repeat no, chance on the horizon for Zaire’s numerous creditors to get their money back”. The report identified seven bank accounts in Brussels, Paris, Geneva, London and New York which money was being channelled into by Mobutu.
In the early 1980s, Zaire did implement economic policy set down by the IMF. Severe austerity coupled with high debt repayments, falling prices for exports and theft by the Mobutu regime sent the economy over the edge of a cliff. Between 1980 and 1985, the economy shrank by more than half. David Seddon, David Renton and Leo Zeilig write that: “However significant the role of mismanagement and corruption, the deterioration in economic conditions as a result of policies recommended by the international financial institutions and implemented by the government in a context of global recession was ultimately to blame.”
When the Cold War ended, outside support for Mobutu began to dry up. In 1991, the IMF announced that Zaire had missed a payment would therefore not be eligible for new loans. Zaire’s inability and unwillingness to repay loans was not new. The ending of the desire of the US to prop-up Mobutu was. By 1995 Mobutu was in default on all his external debts.
In 1997 Laurent Kabila overthrew Mobutu in a coup backed by Rwandan and Ugandan government, and renamed the country the Democratic Republic of Congo. However, the Rwandan and Ugandan armies refused to leave, and Africa’s ‘world war’ began, with Angola, Zimbabwe and Namibia all also getting involved in the conflict. By 2003, all foreign armies had withdrawn except for Rwanda, but violence has continued, especially to control mineral rights in eastern Congo.
Following peace agreements, the Congo entered the Heavily Indebted Poor Countries initiative in 2003. To do so it had to both take out new loans and start making payments on its debt. Perversely, in order to qualify for debt relief, both Congo’s debt payments and total debt increased.
An IMF and World Bank condition for completing HIPC was passing a new Mining Cod, which set royalty rates of just 0.5 per cent for ferrous metals, 2 per cent for non-ferrous metals and 2.5 per cent for precious metals.
It subsequently took a further eight years for Congo to actually receive debt cancellation, in which time it paid over $2 billion servicing its debts. Today, Congo’s debt payments have fallen to around 5 per cent of government revenue, from over 20 per cent in the years spent going through HIPC.
As throughout its history, the Congo’s exports are dominated by raw commodities, these days the minerals from its mines. In 2009, the Congolese government received just $155 million in revenue from the entire mining sector. In contrast, the IMF says that the Congo’s mining and oil exports were worth $4.2 billion. The Congolese state therefore received less than 4 per cent of the minerals’ value in tax receipts.
During the war, a vulture fund called FG Hemisphere bought-up one of Mobutu’s debts from a Bosnian company for $3 million. They have since been suing the Congolese government for the debt in courts across the world, aiming for a gigantic profit of over $100 million. So far they have been unsuccessful.
One case was brought in the UK Crown Dependency of Jersey. FG Hemisphere sought to claim assets held by the Congo’s state mining company, Gecamines, via a joint venture with US mining companies, called GTL. The UK privy council, Jersey’s appeal court, ruled in 2012 that the Gecamines money could not be used to pay a government debt. It is not known why money owed to Gecamines was in the secrecy jurisdiction of Jersey in the first place.