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Note: This document is from the archive of the Africa Policy E-Journal, published by the Africa Policy Information Center (APIC) from 1995 to 2001 and by Africa Action from 2001 to 2003. APIC was merged into Africa Action in 2001. Please note that many outdated links in this archived document may not work.

Southern Africa: Apartheid Debt
Date distributed (ymd): 980727
Document reposted by APIC

+++++++++++++++++++++Document Profile+++++++++++++++++++++

Region: Southern Africa
Issue Areas: +political/rights+ +economy/development+ +security/peace+
Summary Contents:
This posting contains a briefing "The Debt of Apartheid" and a report entitled Paying for Apartheid Twice, from Action for Southern Africa (ACTSA) and the World Development Movement (WDM). The documents are in aid of a campaign to urge the cancellation of £28 billion in apartheid-caused debt owed by the countries of southern Africa.

Printed versions of the briefing (50p each; 30p each for 10 or more and the report (£1 each) are available from ACTSA, 28 Penton St., London N1 9SA, UK (Tel: 171-833-3133; fax: 171- 837-3001; e-mail: actsa@geo2.poptel.org.uk). The full text of both documents follow here on the Africa Policy Web Site. The briefing, together with excerpts from the longer report, were distributed through the Africa Policy Electronic Distribution List.

For additional on-line references on African debt, see http://www.africapolicy.org/action/debt.htm

+++++++++++++++++end profile++++++++++++++++++++++++++++++

Action for Southern Africa

Action for Southern Africa (ACTSA) campaigns for the international support vital to fulfil the hopes of change in Southern Africa. Formed in 1994, it is the successor to the Anti-Apartheid Movement.

ACTSA lobbies decision-makers in Britain and Europe to win better policies for all the countries of Southern Africa. It keeps the concerns of the region in the public and political spotlight. It builds links between people here and in Southern Africa

World Development Movement

The World Development Movement is the UK's leading organisation campaigning to improve the lives of the world's poorest people. Through our national network of members and local groups, WDM tackles issues including multinational companies, debt, the arms trade and aid.

WDM is not a charity. We do not give aid. But our campaigns do change the policies of governments and companies which keep people poor.

THE DEBT OF APARTHEID

When Nelson Mandela walked out of prison, rich countries and banks handed him and the people of Southern Africa a bill for £28 billion.

Apartheid wrought destruction across Southern Africa. Now it is time to rebuild. But the financial institutions and countries which lent during the apartheid war are demanding repayment. The victims of apartheid are being asked to pay again.

Paying twice for apartheid

The apartheid regime not only oppressed its own people, but waged a full-scale war against Mozambique and Angola, made raids into all the neighbouring states, and imposed an economic blockade on Lesotho, Botswana, Zambia, Zimbabwe and Malawi.

The suffering was immense. This was a war against ordinary people, in which schools and health posts were primary targets and civilians were massacred on buses and trains. At least two million Mozambicans and Angolans died in the war South Africa waged against them; millions more had to flee their homes.

The people of Southern Africa paid a terrible price in blood and suffering. A whole generation never went to school because of apartheid. Mothers and children died because the apartheid state destroyed health centres in Mozambique, or never built them in South Africa itself.

Apartheid is ended, but the people of the region cannot celebrate, because they are being asked to pay again.

Making Mozambique poor

Apartheid helped to make Mozambique the poorest country in the world. South Africa's apartheid war cost Mozambique more than £11 billion in damage and lost production. In an attempt to smash Mozambique's economy, South Africa, and the Renamo proxy army it backed, targeted sugar mills, tea-processing factories, sawmills, and mines, which were blown up, burned or ransacked. Half of all hospitals and schools were destroyed or closed.

Faced with a sudden loss of income and the need to protect its people, Mozambique had to borrow for projects including railways, electricity lines, and a major textile mill. Many of these were later destroyed in South African attacks.

Mozambique borrowed £4.5 billion because of apartheid. International agencies like the IMF and the World Bank, as well as rich countries' governments, have agreed to write off some of Mozambique's debt. But they still insist Mozambique pays back much of the debt.

Mozambique has been forced to delay universal primary education until 2010 because it has to repay the apartheid-caused debt.

Attacking transport

The bridge over the Zambezi River is one of the longest in Africa and once carried the railway from Malawi to the port of Beira in Mozambique. South African-backed forces blew up the bridge, as well as many smaller ones and also destroyed 30 miles of railway line near Inhaminga in Mozambique. Five years after the end of the war, this railway is still closed; Mozambique has no money to repair it.

South Africa cut both of Malawi's links to the sea, so that goods had to travel an extra thousand miles, via South Africa. The cost to Malawi was catastrophic. As well as human suffering, Malawi had to borrow more than £700 million to pay the extra costs of having to feed its people. One rail link to the sea has been reopened. But Malawi is being forced to repay the apartheid-caused debt before it can spend money on rebuilding.

Malawi was not the only country that was blockaded. Angola, Zimbabwe, Zambia, Tanzania, Botswana and Lesotho have all suffered at the hand of apartheid. Their apartheid-caused debt exceeds £11 billion.

Handing Mandela a bill

When Nelson Mandela walked out of prison, the international banks handed him a bill for £11.3 billion. In 1996, South Africa paid an incredible £2,300 million in interest and debt repayments. This money was taken away from reconstruction. It was enough to give free health care to the entire population, build 300,000 new homes, and have money left over to build schools.

According to international law if a loan is "used against the interests of the local populace" then it is "odious" and need not be repaid. In 1973 the United Nations began to describe apartheid as a crime against humanity. Nevertheless, the international financial community continued to make loans. The Archbishop of Cape Town has said that South Africa's debt "should be declared odious and written off".

After other wars

Angola, Mozambique, Tanzania and Zambia have had some debt cancelled under a new initiative called the Highly Indebted Poor Country Initiative (HIPC). But in practice the actual amount they have to pay is the same as before - at least one fifth of what they earn. After World War I, the victorious powers demanded that Germany make reparation payments of less than 15% of its earnings. This was seen as too much and as an important cause of World War II. After World War II Germany was asked to pay only 3.5 per cent of its earnings, whilst Britain had to pay 4 per cent.

It was argued that it was better to spend money rebuilding rather than on debt payments. But now the international community wants Southern Africa to make massive debt repayments instead of rebuilding. Today Mozambique and Malawi are being asked to pay 23 per cent of their earnings - five times as much as Britain and Germany.

Break the chains of debt

The poor of Southern Africa are saddled with £28 billion in apartheid-caused debt. This is £210 for every woman, man and child in the region.

Whilst this seems a lot to cancel, in fact it is only two thirds the amount that the UK, Germany, Italy and Spain plan to spend on buying new fighter planes.

Southern Africa's debt burden is taking funds away from schools and clinics. It is making it harder for the countries of the region to work together to overcome the legacies of apartheid.

The people of Southern Africa fought for decades to end apartheid; millions died or were made homeless. Apartheid has ended and the people of Southern Africa want to rebuild. Instead, we are asking the victims to pay again.

PAYING FOR APARTHEID TWICE

INTRODUCTION

Nelson Mandela is free from prison but not from debt. President Mandela and all of the people of Southern Africa are still paying the cost of keeping him in prison. Children not yet born when he was freed from Robben Island will not go to school so that Southern Africa can pay the apartheid-caused debt.

This report estimates "apartheid-caused debt" at £28 billion. That is the £11 billion that South Africa borrowed to maintain apartheid, and the £17 billion that the neighbouring states borrowed because of apartheid destabilisation and aggression. This is 74% of the present regional debt of £38 billion.

Apartheid wrought vast destruction across the region; now the people of Southern Africa want to rebuild. In a remarkable spirit of reconciliation, the people of Southern Africa want to forgive the horrors of the past and look forward. But the banks, international financial institutions, and individual countries which lent to both sides in the apartheid war are demanding repayment.

The creditors are demanding their pound of flesh - quite literally, because people are dying in Southern Africa so that the debts can be repaid. In South Africa itself, the new government is committed to redressing the history of apartheid by expanding health services to the formerly excluded majority - but debt repayments are taking money away from this project. In the neighbouring states too, money is being taken away from health services to pay debts. Cancelling apartheid-caused debt would save the lives of tens of thousands of children.

After the Second World War, the United States allowed Britain to repay debt at a very low rate so that it could rebuild. In 1953, the victorious allies met in London to cancel most of Germany's debt, so that it could rebuild. Now the nations of Southern Africa want to rebuild a post-apartheid society, but the creditors of today are not willing to offer them the space Britain received from the US and the Allies gave to Germany. Instead they are demanding that the states of Southern Africa pay three to five times the level that Britain or Germany paid after World War II.

What is 'apartheid-caused debt'?

In this report, we first define "apartheid-caused debt", looking separately at South Africa and at the neighbouring states, and then we argue the case for cancelling this debt.

We group two very different kinds of loans into what we define as "apartheid-caused debt". This framework forms the basis for the estimated figures we set out below.

The debt of Southern Africa

The apartheid regime defended itself not only by oppressing its own people, but by suppressing the people of the neighbouring states as well. It waged a full-scale war against Mozambique and Angola, made raids into all the neighbouring states, and imposed an economic blockade on Lesotho, Botswana, Zambia, Zimbabwe and Malawi.

The suffering was immense. This was a war against ordinary people, in which schools and health posts were primary targets and civilians were massacred on buses and trains. At least two million Mozambicans and Angolans died in the war South Africa waged against them; millions more had to flee their homes.

The white leaders of apartheid South Africa believed that if the people of the region suffered enough, they would tell their governments to stop opposing apartheid. But the people of the Front Line States remained solid behind the liberation struggle in South Africa; they backed sanctions and provided covert support for the opposition.

But their stance was costly and the neighbouring states had to take out loans as a result of South African destabilisation. These were largely loans made by governments and by international financial agencies such as the World Bank. They were often "concessional" loans with low interest rates; indeed, many were given as part of international "solidarity" in the fight against apartheid. These loans were seen as aid, and it was never intended that they should be a burden.

Nevertheless, the cost of destabilisation was so great that loan repayments now account for a substantial expenditure - more than is spent on health and education in many of these countries. The repayment of these loans is now delaying reconstruction after the apartheid war.

It is these loans that make up the "apartheid-caused debt" and should be cancelled, both as a logical extension of the solidarity through which they were made, and, as with Germany and Britain after World War II, because it is a practical necessity to permit reconstruction.

The debt of South Africa

White South Africa took loans from international private banks to fund apartheid, because by the 1980s governments and the international financial agencies refused to lend. These private lenders took a risk in lending to the white regime when it was already a pariah state. These are also "apartheid-caused debts".

We argue below that in international law, the new government of Nelson Mandela is not liable for these "odious debts" and that the international community should say that South Africa need not pay them.

It is not straightforward to define the precise amount of "apartheid-caused debt", in part because of what financial analysts call "fungibility" - the fact that money lent for one purpose, in practice frees up funds for other purposes.

Thus banks did not lend money to apartheid South Africa overtly to allow it to wage war on its neighbours, but money loaned to South Africa to build dams and power stations released other money which could then be used by the military - and the banks that refused to impose financial sanctions knowingly colluded in this. Similarly, the World Bank did not lend money to Mozambique so it could defend itself against apartheid, but those loans were essential to keep Mozambique alive under the apartheid onslaught.

Creditors are not demanding that money be taken away from health and education to repay the debts - but they know that social services are such a large part of government spending that debt service requires cuts in these services.

This is the essence of "fungibility" of money. Loans are labelled in ways that avoid reference to "unacceptable" expenditures. We pretend that debt repayments come from a different pocket than social spending, and thus do not demand health spending cuts. But in reality, it is all money going into and out of government budgets.

In the appendix, we show how we estimated "apartheid-caused debt" and the related cost of destabilisation. In summary, these costs are:

2. South Africa's neighbours

The debts of the neighbouring states were taken to defend against apartheid, to compensate for the costs imposed by destabilisation, and to repair the damage caused by apartheid. These loans were taken, for the most part, not for productive or development purposes, but to save lives. This is "apartheid-caused debt".

Countries will be considered in three groups: Mozambique and Angola, which suffered as the direct result of wars of destabilisation, and which together account for half of the destabilisation costs and half of the apartheid-caused debts; three landlocked countries (Zimbabwe, Zambia and Malawi) whose debts result particularly from increased costs and lost markets due to South African transport disruptions; and the others (Botswana, Lesotho and Tanzania).

Mozambique

Destabilisation shattered Mozambique's economy, and made it what the World Bank says is the poorest country in the world and the most indebted country in Africa. This is very different from 1980 when Mozambique had a growing economy, a widely praised health service and major industrialisation plans.

South Africa's war, in part waged by the Renamo proxy army it supported, killed more than one million people, made five million homeless, and cost at least £11 billion in damage and lost production - more than double Mozambique's total debt of £4.5 billion.

This was a war of terror - South Africa wanted to make Mozambicans afraid to use the newly built health and education system. School pupils and teachers were kidnapped. Half of all hospitals and schools were destroyed or closed.

South Africa also targeted transport, commerce and export sectors. The Zambezi River Bridge is one of the longest in Africa and once carried the railway from Malawi and Mozambique's coal mines to the port of Beira. South African commandos blew up the bridge, as well as many smaller ones. South African-backed guerrillas used slave labour to by hand destroy 30 miles of railway line near Inhaminga in Mozambique. Six years after the end of the war, this railway is still closed; Mozambique has no money to repair it.

By 1985, exports of sugar, tea, cashew nuts, timber and sisal were down to one-tenth of their pre-war levels. Exports of electricity, cement and coal were halted completely, due to the sabotage of railway and power lines.

South Africa also imposed sanctions on Mozambique, sharply reducing use of the port of Maputo. The number of Mozambican miners who were given employment in South African mines was severely cut, which significantly reduced Mozambique's earnings.

Faced with this sudden loss of income, Mozambique had to buy on credit. Early debts were to Iraq, Algeria, Libya and Angola for oil. Later oil was also bought on credit from the USSR. Mozambique has always been dependent on imported consumer goods, and it had to turn to those who would sell on credit; the then socialist bloc did so, supposedly out of solidarity, but the successors to those governments - under IMF pressure - are trying to collect those debts.

Money was also borrowed for development projects that were subsequently destroyed or seriously damaged in South African attacks, including sugar mills, tea factories, and a major textile mill. Railway locomotives bought on credit were destroyed.

Finally, military costs escalated, and arms to defend against South African attacks were bought on credit from the Eastern bloc.

As the war continued, Mozambique could not pay its debts, so they were "rolled over" - that is, Mozambique was given new loans to pay both the capital and accumulated interest on the old loans. So it was paying interest on the interest on the interest.

Mozambique's total apartheid-caused debt is about £4.5 billion. It is less than half of the estimate of the cost of destabilisation. More than half the debt is probably accumulated interest because Mozambique is paying less than half of what is due.

Of the debt, about one-third is to Russia, one-third to the industrialised countries (particularly France, Italy and Germany), and the rest divided between smaller economies such as Algeria and international agencies like the World Bank and IMF. World Bank debt is rising rapidly because Mozambique is borrowing from it to repair roads and schools destroyed by South African attacks. About £1 billion is military debt, mainly to Russia.

Mozambique is one of the first countries to go through the World Bank/IMF Heavily Indebted Poor Countries Initiative (HIPC), and this will result in the writing off in 1999 of a substantial part of Mozambique's debt. But HIPC is only intended to write off debt that Mozambique could never pay, so will have little impact on the actual amount Mozambique still pays. During 1995-97 Mozambique paid $107 million (£64.8 million) per year in debt service; in the four years starting 1999 it will pay precisely $106 million (£64.2 million) each year.

International agencies like the IMF and World Bank, as well as bilateral creditors, have agreed to write off some of Mozambique's debt. But they still insist Mozambique pay back part of the apartheid-caused debt.

Mozambique has been forced to delay the introduction of universal primary education until 2010 because of a lack of money - because money is being diverted to repay the apartheid-caused debt.

In the 1980s children did not go to school because apartheid destroyed their schools and kidnapped their teachers. In the 21st century, Mozambican children will not go to school in order to repay money their parents and grandparents borrowed to defend themselves against apartheid.

Angola

Angola is much wealthier than Mozambique, but has been even more extensively devastated by war. The problem has been made much worse because the civil war was restarted after the results of the 1992 UN-backed election were rejected by Unita - the formerly South African and US-backed guerrilla movement.

More than 750,000 people died in the war to 1990; the cost is estimated at nearly £23 billion. It is estimated that another 500,000 people have died in the much more ferocious war after 1992 when there was further massive destruction.

In the late 1970s and early 1980s, Angola paid for both military and development costs out of the current revenues from oil and diamonds. However Unita and South Africa attacked export industries, notably mines and petroleum installations. Coffee and iron exports were virtually ended, and the Benguela Railway was closed.

By the mid-1980s, Angola was borrowing to finance the war and the "apartheid-caused debt" is £6.4 billion. Little official information is available about Angolan debt because it has not entered into international debt renegotiations yet; at least one-third is to Russia, and a substantial part is for weapons.

Landlocked states

"The region's transport and power infrastructures have been the principle targets of sabotage and guerrilla attack. This increases the dependence of landlocked states on routes through South Africa, and forces them to pay additional transport costs of at least $300 million [£180 million at present exchange rates] per year," said UNICEF's 1989 report Children on the Front Line. Extra defence costs exceeded £6 billion. Refugees imposed a burden on all the states bordering Angola and Mozambique.

South Africa imposed sanctions on Zimbabwe, disrupting its trade. It tried to cut landlocked Zimbabwe's links to the sea. Repeated attacks closed the railway line to the Mozambican port of Maputo. The oil pipeline to the Mozambican port of Beira was closed and the oil storage depot in Beira attacked by South African commandos. The railway to Beira port was repeatedly attacked and a major bridge destroyed, but Zimbabwe put substantial effort into keeping the vital railway open. It succeeded, but at one point it had 12,500 troops in Mozambique at a cost of £2 million per week. The UN's Economic Commission for Africa (ECA) estimates that extra defence spending for 1980-88 was more than £2 billion, and extra transport costs more than £400 million. Zimbabwe's apartheid-caused debt is estimated at £2.3 billion. It is a mix of military and civilian, but a substantial amount is rolled-over and rescheduled debt.

For Malawi, the main problem was that both of the landlocked country's main links to the sea were railways through Mozambique that were cut by South African commandos and South African-backed Renamo forces. This forced all of Malawi's imports and exports to go an extra thousand miles via Zimbabwe and South Africa, which caused sharp increases in the transport costs.

Many items had to be purchased in South Africa when it proved impossible to import cheaper goods. Malawi's sugar exports were halved in the 1980s, mainly due to high transport costs making exports uncompetitive. The cost to Malawi was catastrophic. As well as human suffering, Malawi had to borrow more than £700 million to pay the extra costs to feed its people.

Most of Malawi's borrowing is from international financial institutions, notably the World Bank, and was intended to offset some of the costs of the blockade. Malawi also bore extra defence costs and had to support one million refugees. This continues to the present day, because the Zambezi River Bridge, and thus the rail link to Beira remain closed, causing a permanent increase in transport costs from southern Malawi.

Malawi's new democratic government is trying to redress the heritage of the 30-year Banda dictatorship and the cost of the apartheid blockade. But Malawi's creditors say that it must repay the apartheid-caused debt before it can spend money on rebuilding.

Zambia suffered little physical damage because of apartheid, but it paid substantial extra costs. First in 1973 when Rhodesia (then backed by apartheid South Africa) closed its border with Zambia and tried to blockade it, then when Zambia kept this border closed in order to impose UN sanctions against Rhodesia, and then in the 1970s and 1980s when its rail links through Angola and Mozambique were cut. This isolation was a major reason for the construction of the Tazara railway to Dar es Salaam.

As well as higher transport costs, it can be argued that the isolation of Zambia made it more difficult for it to diversify from its dependence on copper. Zambia also paid substantially increased defence costs in this period.

Zambia's apartheid-caused debt is £1.9 billion. Half of Zambia's debt is to the IMF, World Bank and African Development Bank; the other half is bilateral. Many of the loans were given as "aid" in the face of both destabilisation and lower prices for copper, Zambia's main export; some (including early SADCC loans) relate to the Tazara railway and the oil pipeline to Dar es Salaam, which were constructed to avoid South Africa. Destabilisation costs are estimated at £3.8 billion.

Botswana, Lesotho and Swaziland

Botswana, Lesotho and Swaziland were significantly less seriously affected by the apartheid state, in part because they were small and were members of a customs union with South Africa. They did, however, take strong stands against apartheid, and were punished by various blockades and bloody raids.

This pushed up transport and defence costs. Three quarters of Lesotho's debt is with the international financial agencies, and a significant amount relates to the Highland Water Scheme - largely forced on Lesotho by apartheid South Africa. We estimate "apartheid-caused debt" at £243 million.

Tanzania

The most difficult case to estimate is Tanzania, which is far from South Africa and thus suffered no raids, blockades, or other direct effects. But it took a strong political stand against apartheid and invested substantial money to oppose it.

The ECA estimates that up to 25 per cent of Tanzanian fixed investment in 1970-74 was accounted for by the Tazara railway, the Tanzam highway, and Tazama pipeline - all built to give Zambia an alternative outlet to the sea. Thus some of Tanzania's pre-1975 debt must be seen as "apartheid-caused debt".

From 1986, Tanzania had 4000 troops in Mozambique, which helped to turn the tide against South African-backed Renamo forces in Zambezia province. Extra defence costs alone peaked at £500 million a year, at a time when Tanzania itself was strapped for money and forced to borrow. Tanzania also hosted tens of thousands of Mozambican refugees, and provided other solidarity. Its apartheid-caused debt is just under £500 million.

3. South Africa's 'odious debt'

In 1982, at the height of lending to apartheid South Africa, two lawyers from the First National Bank of Chicago wrote an article in the University of Illinois Law Review in which they warned their employers and other banks of "the consequences of a change of sovereignty for loan agreements". They noted that "if the debt of the predecessor is deemed to be 'odious', i.e. the debt proceeds are used against the interests of the local populace, then the debt may not be chargeable to the successor."

This concept of "odious debt" has a long history, arising initially from the United States' capture of Cuba from Spain in 1898. Spain demanded that the US pay Cuba's debts, and the US refused on the grounds that the debt had been "imposed upon the people of Cuba without their consent and by force of arms." Furthermore, the US argued that in such circumstances "the creditors, from the beginning, took the chances of the investment." The concept of "odious debt" was upheld and formally entered international law in the 1923 judgment of US Chief Justice Taft in the case of Great Britain vs Costa Rica.

South Africa is a prime example of a country that has had governments that systematically oppressed the majority of its people. In 1973 the United Nations began to describe apartheid as a crime against humanity. Nevertheless, the international financial community, aided and abetted by the National Party government, continued to make loans to Pretoria, particularly in the 1980s, for which the new government is now held responsible. Clearly such loans were not in the interests of the majority of the people of South Africa or in the interests of the people of sub-Saharan Africa, who were also affected to a greater or lesser extent by the policy of apartheid.

The Archbishop of Cape Town, the Most Reverend Njongonkulu Ndungane, speaking at Southwark Cathedral on 24 April 1997 noted that "as we approach the new millennium, the time has come to invoke the Doctrine of Odious Debt. ... In the case of South Africa, its foreign and domestic debt was incurred, by and large, under the apartheid regime, and should ... be declared odious and written off."

South Africa's foreign debt

Because of apartheid, South Africa remained outside the international debt reporting system until quite recently. The World Bank estimates that when the new government took over in 1994, it inherited a debt of £11 billion. Half of that is loans to government and to parastatal companies (such as electricity) and the other half is loans to private companies. Most of the debt is in the form of bonds and other marketable foreign debt, particularly syndicated loans denominated in dollars or ECUs and issued by European and US banks in the early 1980s. There are no outstanding loans to international financial agencies (IMF and World Bank) which predate the release of Nelson Mandela.

In broad terms loans increased in the early 1970s, then fell sharply after the Soweto massacre in 1976 when foreign investors began to pull out and new lending slowed. In the late 1970s South Africa paid off some of its old debts. With the intensification of the Cold War and the United States' policy of constructive engagement, banks began to lend again.

But when South Africa formally defaulted on its debt on 1 September 1985, it turned out that although banks had been happy to lend to support apartheid, they only lent for very short periods. Short term debt had been less than 25 per cent of the total in 1980, but was more than 50 per cent by 1985, when South Africa had an unusually high $14 billion out of a total of $24 billion (then £11 billion and £19 billion) in short term loans due to international banks and export credit finance agencies within a year.

It is important to compare the response of the international banking community in 1986-7 to its response after the election of Nelson Mandela. In 1987, Chris Stals, now governor of the South African Reserve Bank, negotiated a much better deal for the white government of P W Botha than he has been able to work out for the present majority rule government.

In December 1985 Archbishop Desmond Tutu called on the banks not to reschedule the debts, and in 1986 (with Rev Alan Boesak and Rev Beyers Naude) wrote to the negotiating committee calling on creditors to confiscate "aircraft, ships and other South African assets and apply the proceeds against South African indebtedness." But in a pair of agreements in 1986 and 1987 the banks made a political decision to back the Botha "reforms"; the banks agreed to collect only 10% of what was owed to them during 1987-90. In 1989, even before the unbanning of the ANC, debt was rolled over again.

During the 1985-89 period, it appears that debt service was £1 billion per year, compared to £2.4 billion in 1996. In effect, the banks gave an easy ride to the apartheid state, and presented the bill to Nelson Mandela when he walked out of jail.

But we can also see that nearly all of South Africa's debt is a carry-over from the apartheid era - unpaid principle and unpaid interest which has piled up over the years.

What was the money used for?

A large amount of South Africa's present debt is for goods which were imported a decade or more ago, both for large projects like the power stations, and for much smaller imports in the period 1984-85.

It is very difficult to tie this debt to specific projects; the issue of fungibility is paramount here, because much of the money passed through the government (which then lent it on to public companies, no doubt including arms-maker Armscor and others) or the state-controlled banking system. No one will publicly admit to lending to the apartheid security machine, but foreign banks and export finance agencies were providing the apartheid system with more than £1.5 billion a year in the early 1980s.

A recent study by the South African Institute of Financial Policy Options argues that "it is not necessary to prove that any one loan was used by the apartheid government for a purpose contrary to the wishes or interests of the majority of the population. The purpose of the apartheid state was to ensure and perpetuate the economic and social advancement of a racial minority at the expense of the majority. ... Any loan incurred by the apartheid state perpetuated its hegemony, whether it was spent on roads or schools or the military or the expansion of a parastatal. Since government policy had the specific aim of disadvantaging the majority, it can therefore be argued that the first condition of the doctrine of odious debt applies - that the purpose of the loan was against the wishes of the majority."

Thus the foreign debt of £11.3 billion which the Mandela government inherited and which is apartheid-caused is clearly odious debt in international law.

4. Why debt should be cancelled

We have argued that the apartheid-caused debt is odious and should therefore be cancelled. It should also be cancelled because it is siphoning off much needed resources. Nelson Mandela has promised that South Africa will pay its debts. Mozambique continues to pay its debts, even though debt service means that it has been forced to cut its education budget. Southern Africa made £3.8 billion in debt service payments in 1996, which is more than the region spent on health.

The Southern African Development Community (SADC) Executive Secretary, Kaire Mbuende said recently: "There is no good reason why the debt of these states should not be written off. After all, the official creditors are developed countries' governments and multilateral finance institutions owned by the very same governments." Mbuende said repeated debt rescheduling had failed to help SADC countries because it: "pushes them even deeper into debt and graduates them into heavily indebted poor countries. The debt burden is diverting funds from development and retarding the SADC programme of regional integration; the international community should just write off the debt of the SADC states."

RDP and post-war reconstruction

A clear argument for the cancellation of this debt is that for rich countries the £3.8 billion paid in debt service in 1996 by Southern Africa means very little, but for the countries of the region it means everything.

In 1996 Mozambique paid £80 million in debt service, compared to £16 million on health and £35 million on education, according to the International Monetary Fund. A recent Ministry of Education study showed that plans for universal primary education cannot be funded because of the need to meet debt service payments. The introduction of universal primary education has already been deferred to 2010 because of lack of funds.

UNDP reports that, as a general rule, for each one per cent of GDP used as additional funding for health and education, there is a 24 per cent reduction in child mortality. Mozambique's debt service, after the HIPC agreement in 1999, will be five per cent of GDP; using just half of that to improve health and education would reduce child mortality to half its present level. That would save the lives of more than 100,000 Mozambican children per year.

Six years after the end of the war, roads and bridges in rural Mozambique have still not been repaired; shops have still not been rebuilt. Mozambique has been paying debt instead of repairing the damage caused by a decade of apartheid war. The babies who die, the children who do not go to school, and the people who live in rural areas without access to basic supplies are all paying for apartheid destabilisation long after Nelson Mandela was freed from prison.

South Africa still has a long way to go to redress the huge social challenges that are a legacy of apartheid. One in three are jobless, yet South Africa paid an incredible £2.3 billion in debt service in 1996. That was enough to have given free health care to the entire population, built 300,000 new homes, and have money left over to build some schools.

After other wars

Under the World Bank/IMF HIPC Initiative, poor countries are expected to make debt repayments equivalent to 20% of their export earnings. Mozambique will pay 17 per cent in 1998, falling to 13 per cent in 2000 under the new agreement. South Africa paid 12 per cent in 1996. This is a much higher level than was expected of war-torn Europe.

After World War I, the victorious powers demanded that Germany make reparations payments of less than 15% of its exports , and this was considered so excessive that it restricted Germany's post-war rebuilding and was seen as an important cause of World War II. This view was accepted by the allies who negotiated a new debt repayment agreement with the then new Federal Germany in London in 1953; this required Germany to pay only 3.5% of exports. Similarly, in order to allow Britain to rebuild, in 1945 the United States agreed that British debt repayments should be limited to 4% of exports.

In both cases, it was argued that Europeans needed to spend money on post-war reconstruction rather than debt repayments. Yet now the international community wants Southern Africa to make massive debt repayments instead of rebuilding. Why should Mozambique, Malawi, or South Africa be asked to pay 12 to 20 per cent when Britain and Germany only had to pay four per cent?

The Allies were not giving charity to Germany in 1952. They wanted Germany to be able to rebuild and not to go back to war. And the rapid growth of Germany and western Europe in the past 50 years testifies to the wisdom of that decision.

Yet these same allies - and Germany - want South Africa and Zambia to make debt repayments at a higher level than the unacceptable German war reparations.

If Southern Africa is to be peaceful and prosperous, and also a growing trading partner with Europe, it should spend its money to rebuild, and not to pay debt service. As Europe learned, this is an investment in preventing war.

There are precedents

In the past, debt was often rolled over to be paid some time in the future. But increasingly it is being realised that debt must be cancelled. The HIPC Initiative for the first time accepts that up to 80% of debt can actually be written off and forgotten; even the IMF and World Bank are now prepared to cancel debts. The principle has been established, the question is: How much? HIPC is designed only to cancel debts that would never be repaid in any case; it pays no attention to development questions or the need for money for reconstruction.

And as Archbishop Njongonkulu Ndungane notes: "lest I be accused of wanting sacrifices only from the industrialised nations, let me point out that earlier this year [1997] South Africa wrote off Namibia's debt to it, believing it effectively to be odious debt incurred while Namibia was illegally occupied by the apartheid government."

Moral hazard

It is sometimes argued that it is wrong to simply cancel debts because it will encourage people to take on new loans and then refuse to pay. This is know as "moral hazard". Let us look more closely at what behaviour apartheid-caused debt cancellation would encourage.

For South Africa, it is the lenders who would carry the burden of the cancellation of "odious debts" - and this is exactly what we want to encourage. Indeed, to repay odious debts is to encourage lending to pariah regimes. If banks could lend to apartheid South Africa in the face of global opposition and global calls for sanctions, and still collect on the loans, then the signal to international banks is that they can lend to any regime, no matter how repugnant. There is a "moral hazard" here: that we will encourage immoral lending. There is a moral argument for cancelling South Africa's odious debt precisely to tell the international banks that they must make some ethical judgments before they lend.

Cancellation of other apartheid-caused debt is more complex. There is a cost, although the cost of this could be absorbed by the international financial institutions without any cost to the British taxpayer. But what message does it send? Cancelling debt says that the international community really does back those who opposed apartheid; refusing to cancel the debt is a warning that any country which opposes a pariah regime will pay a high price.

The "moral hazard", then, comes from refusing to cancel the apartheid-caused debt. If we refuse to erase the apartheid-caused debt, we say that immoral actions are rewarded and ethical conduct is penalised.

5. Breaking the chains of debt

Nelson Mandela and the people of Southern Africa are free from prison and war, but they are still chained by debt. We still need to free Nelson Mandela and all the people of Southern Africa.

South and Southern Africa's apartheid-caused debt should be cancelled because the victims of apartheid should not have to pay again. The region needs the resources for post-war reconstruction and poverty alleviation.

Southern Africa's 'apartheid-caused' debt

Most of the debts of these countries are owed to governments and international institutions. The British government is in a strong position to press for the cancellation of apartheid-caused debt. It can influence other creditor governments both through the Paris Club of creditors and through the G8 group of industrialised countries. It also has a permanent seat on the boards of both the IMF and the World Bank who are major creditors to the region.

• The British Government should acknowledge the illegitimacy of the apartheid-caused debt of Southern Africa.
• Building on Britain's role in furthering the HIPC initiative, the British Government should now take an international lead to cancel this apartheid-caused debt.

South Africa's 'apartheid-caused debt'

Nearly all of South Africa's debts are to banks and private companies - partly because of sanctions.

• These banks and companies should accept their responsibility for illegitimate lending. They must accept that these debts are 'odious'.
• They should establish a process that examines loans made during the apartheid era with a view to cancelling those illegitimate debts that remain.
• The British Government as a significant investor in the region should put pressure on those banks and companies to cancel South Africa's odious debt.