World Bank Defines Illegitimate Debts

Every organization has their own manner of defining debts – that is – relating to a top management decision override.  In this case, illegitimate debt consists of loans which were not properly granted and are the sole liability of the lender.  Thus, these debts are not to be repaid, independent of the status of the borrower.  World Bank classifies six (6) illegitimate debts, as follows:

1. Usurious Debt – loans taken out to pay interest charges;
2. Debt from loans that ”contravene ordinary principles of fair dealing” – no choice in their financial circumstances but to accept the terms of the loan;
3. Debt incurred from poorly designed conditionality – through direct policy-based lending and other loans which are failing projects;
4. Debt incurred from poorly planned lender-linked projects – supply expertise that the poor country does not have;
5. Debt incurred from corrupt and illegal loans – moving part of the loan into foreign bank accounts; and
6. Dictator’s debt - imposed upon the people without their consent and by force of arms.

People around town need to understand that the burden of proof is nested to the lender and creditor to prove the contrary (analyzing the twist from the six (6) classifications).  Two (2) fiscal issues now reflects on loans of fungibility and laundering.

First, goods are fungible if they (all components) are identical and substitutable.  Examples are electricity – originating from either a windmill or a nuclear power station; and money – no guarantee that a loan really goes toward the purpose for which it was meant (or taken).

Second, laundering where the new loan retains the taint of the original one.  There are loans that have been refinanced and rewritten several times, and somehow, new loans retain the illegitimacy of the original ones.

The worst scenario here is that debts would be taken to pay a previous debt.  Obviously, mischief is on its World Bank’s ways and operations.