Shall we cancel debts?

On October 2, 2006, Norway announced the cancellation of 80 million US dollars in debt of five countries that, back in the mid-seventies, agreed to receive a combination of business and aid-loans from Norway. The Norwegian debt cancellation was unique for it was unilateral and unconditional.

 

Whistle for it

In 1976, Norway embarked on an international aid project known as the Ship Export Campaign that sold boats from shipyards on the brink of closure and gave loans with 0% interest during the first three years. This sale-aid scheme saved the Norwegian West Coast from serious unemployment. The buyers/borrowers were 21 selected poor countries.

When the debtor-countries defaulted on their loan payments, Norway contacted the Norwegian Export Credit Guarantee Agency (GIEK), a public enterprise that issues guarantees on the same conditions as banks, and realized the credit guarantees for the Ship Export Campaign had been improperly processed.

 

When one’s ship comes home

To sell the large number of boats needed to save the Norwegian shipyards, ship-owners needed to expand their credits guarantees from GIEK i.e. more money from the state. This issue ignited a parliamentary debate on the relationship between the Norwegian state and the Norwegian industry. Only the Socialist Left Party (SV) pointed out that, in practice, GIEK was supporting the Norwegian industry, not actual developmental programs in developing countries.

While political parties argued, the interested parties pulled strings, skipped red tape, and directly contacted the governments of the chosen countries. This means that deals were all-sewn-up prior to presenting the investment plans to GIEK. To top it all, unknowingly or not, the Norwegian Agency for Development Cooperation, NORAD, stamped the private boat sales as developmental aid.

 

Clinker built

As years went by, the losses caused by the faulty processed credit guarantees for the Ship Export Campaign became a budgetary problem. To solve this, the Norwegian credit guarantees and the Norwegian Export Credit Guarantee Agency underwent changes.

In the seventies, credit guarantees were under both NORAD and the Ministry of Trade but, from 1983 to 2013, they were under the Ministry of International Development. (This ministry was abolished in October 2013.)

Regarding GIEK, in the early eighties, its Committee dissolved and a special scheme for export credit guarantee for investments in developing countries was instituted. A decade later, GIEK became an independent public enterprise and, in 2000, got the subsidiary GIEK Credit Insurance which is covered by GIEK against political and commercial risks outside the Organisation for Economic Co-operation and Development (OECD) countries.

Since January 2015, the Ministry of Trade, Industry and Fisheries owns the GIEK Credit Insurance.

 

Try a new tack

In 1998, the coalition government headed by Kjell Magne Bondevik took decisive steps to quell the roving boats-aid affair and, in the name of fighting poverty in the South, Norway began drafting an encompassing plan for debt cancellation. In Minister Hilde F. Johnson’s words, the plan is a settlement for the Ship Export Campaign when the Norwegian Industry overshadowed and overrode the political and professional concerns of development.

Corporate Social Responsibility (CSR) is the base of the Norwegian plan for debt cancellation. CSR is a management concept that integrates social and environmental concerns in business operations that, also, monitors and ensures the compliance of ethical standards and norms – nationally and internationally. Simply put, CSR intends to do honest business without harming others or the planet.

This economic plan got the attention of creditor-countries, debtor-countries and usual major financial actors.

 

 

Influential mate             

The Paris Club defines itself as an “informal group of official creditors” that “provide an appropriate debt treatment” to debtor countries. It dates back to 1956 and, up to today, the debts treated within its framework amount to US$ 583 billion. This particular club goes by six principles: Solidarity, Consensus, Information sharing, Case by case, Conditionality, and Comparability of treatment.

For the reason that Norway is one of the current 22 permanent members of the Paris Club, when any of the debtor countries involved in the Ship Export Campaign defaulted, the Paris Club had a say in the loan repayment plans.

 

Took the wind out of his sails   

The pillars of the Norwegian debt cancellation are multilateralism and gradual unilateralism. One considers Norway’s obligations to the Paris Club; the other is an extraordinary financial operation that solely serves Norwegian politico-economic needs. When Norway chose to audit its own creditor credibility and cancelled debts on its own, Norway may have violated its vows to the Paris Club but, in turn, Norway released itself from the budgetary hurdles forged by the Ship Export Campaign.

While the Norwegian one-time debt cancellation policy shows economic power and diplomatic shrewdness, the re-structuration of GIEK and its re-directed relationship to one or another Ministry, display clever political moves and financial sharpness.

Norway’s debt policy, particularly its debt-fund, ought to be emulated by many countries. Then again, a debt-fund is easier to establish and maintain when an oil-fund exists…

By Marcela Román

Oct.30.2017