A debt audit is a comprehensive, public, and participatory assessment of a country’s debts. An audit of a country’s debt, despite the fact that it may sound like a bureaucratic endeavor, is actually a popular and participatory step towards fostering better economic democracy. It is a crucial tool for combating the economic dominance of entrenched elites, global banking, and affluent nations.
A Debt Audit is:
- Part of a comprehensive educational and mobilization process of a nation — helping citizens understand how their economy functions and mobilizing for it to function differently.
- A crucial step towards debt cancellation “from below” and legal action against people accountable for a nation’s debts.
- A strategy to unite diverse civil society organisations around a unified demand for economic justice.
- A first step toward making governments accountable for borrowing — and securing more democratic finance methods (like progressive taxation)
- A strategy for challenging national and worldwide economic exploitation
Why Do Nations Require Debt Audits?
Civil society organizations across the globe have protested against their country’s foreign (and occasionally internal) debts for many years. Northern governments and banking entities have utilized debt to exert control over Southern nations. Often, despicable, totalitarian governments cloaked in corruption and opacity racked up debt for projects that provided no benefit to the people. These debts remain a rope around the necks of the populace long after the dictator has been deposed.
Even in countries that were not ruled by dictatorships, debts have been used to transfer wealth from average citizens to the wealthy. Debts incurred by banks and other private institutions, or debts incurred to purchase commodities from wealthy nations, such as weaponry, are frequently paid by the poorest. The debt system has depleted the wealth of Southern countries over the past three decades, while governments and banks in the North have gained. To add insult to injury, it has also permitted the same governments and banks to dictate the economic policies of Southern nations. Here you can get additional information regarding the origins of Southern debt.
A Government May Owe A Variety of Debts:
- Multilateral debts — due to public international institutions such as the International Monetary Fund, World Bank, and African Development Bank – constitute a significant portion of the global debt burden.
- Bilateral debt — owed to foreign governments, typically to “assist” the borrowing country purchase the goods and services of the lending country.
- Owing to banks and private institutions constitute private debt.
- Governments issue bonds to create funds (often to repay old debts)
The contracting of these obligations is typically unaccountable, and the citizens of a nation are typically unaware of what is being done in their name. The purpose of a debt audit is to present the facts of this debt to the country’s citizens. In particular, they will examine the legitimacy of a debt. This indicates that:
- Illegal – debts were not authorized by the law of the relevant country.
- Odious – Alexander Sack formulated the legal notion of odious debt in the early nineteenth century. It refers to a loan granted to an unrepresentative regime for non-beneficial purposes with the creditor’s full knowledge. This page contains more information regarding odious debts. This page also contains a lengthy report. This concept has been recognized de facto on a number of occasions, including when the United States invaded Cuba in 1898 and refused to pay outstanding Spanish obligations and when the majority of Iraq’s debts were annulled after the US invasion. Most notably, in 1923, a judge of the United States Supreme Court declared that Costa Rica should not pay Britain or a Canadian bank for debts incurred during the country’s dictatorship.
- Payable – a country cannot declare bankruptcy since it can always extract more from its resources, especially its people. The opportunity cost of continuing to pay debts may be widespread poverty or even death. The International Monetary Fund’s prescriptions for debt repayments have repeatedly resulted in the decimation of jobs and state support for people’s necessities. Debts should not be paid if they prevent a government from meeting the needs of its citizens. It has been suggested that this entails a daily poverty line of at least $3.
- Has other problems associated with it – the concept of illegitimacy can also include: loans involving corruption, loans that did not benefit the people, or even worse, harmed them (most obviously arms sales and mega-projects involving relocation), projects that never took place, loans based on speculation or carrying exorbitant rates of interest, loans which damaged the environment or loans which carried conditions which harmed people or the environment (which includes most multilateral debt).
The ideal time to initiate requests for a debt audit is shortly following the fall of a dictatorship. This situation will soon pass. After the violent military junta that ruled Argentina from 1976 to 1983, President Alfonsin pledged to investigate the country’s unlawful debts. However, external constraints meant that it took 18 years for a court case to establish that the loans were unlawful, and even then, politicians obstructed action. Similarly, South Africa had a solid case for illegitimacy when apartheid ended and the new government was saddled with obligations incurred as a result of the most grave globally recognized human rights crimes. However, the government was again compelled to pay. In order to pay their debts, governments must get new loans. In effect, this transforms past debts into new debts.
How Does this Apply to Tunisia?
The economic crisis in Tunisia has yet to show any signs of improvement. The nation’s public debt continues to increase, while the economy continues to stagnate. Despite recording a budget surplus in the first quarter of this year, the country is still unable to revitalize its economy, and poverty continues to worsen.
The most recent data produced by the country’s Ministry of Finance and Economy indicates that the public debt continues to rise. Despite sustained revenues and help, the government is unable to pay the nation’s expanding expenditures, which resulted in an increase of 8.6 percent at the end of March. This trend is expected to continue in the coming year. This also hinders the expansion of the economy and the expansion of the GDP.
The current amount of Tunisia’s state debt is $35 billion. The present domestic debt is at approximately $14 billion, while the external debt has increased to $21.57 billion.
The majority of Tunisia’s debt dates from the recent decade, with a portion dating back to Ben Ali’s administration.
Multiple loans and grants had already been offered to Tunisia by international agencies such as the IMF, affluent and rising economies, and banks. These were presented as support to the revolution, but in reality they are not.
Case studies from Argentina and South Africa demonstrate that not only were illicit loans rapidly recycled in these nations, but also a tsunami of fresh financing was unleashed that greatly expanded their obligations. Debt was utilized as a means of control and to impede the adoption of alternative and democratic economic models.
How to Organize a Debt Audit
The necessity for widespread consensus
Always keep in mind that audits are fundamentally about educating and mobilizing society – empowering individuals to become economic activists. As a result, it is essential to garner support from a broad cross-section of civil society. This accord took many months to reach in Greece, but as a result, the need for an audit commission is considerably stronger. If only a few groups had proposed the concept, the audit request could have been simply disregarded. Before making an official statement or holding a public conference, it’s crucial to seek broad consensus.
Citizens’ versus official audit of the debt
There are various varieties of official audits of debt:
- A legislative audit entails that the legislature plays a central role in probing past indebtedness. The Peruvian Congress has undertaken such an initiative.
- A judicial audit is a court proceeding. On the initiative of an Argentine lawyer and journalist, Alejandro Olmos, who filed a complaint in 1982, federal judge Ballesteros initiated criminal proceedings against people responsible for the Argentine government’s debt under the military junta. During the investigation, the judge faced the notion of debt-related secrecy and ordered the production of all papers, minutes, financial accounts, and statements. The Olmos judgment exposed the illegal nature of the external debt.
- A government audit is one that has been authorized by the government, as was the case in Ecuador. In 2006, President Correa established an audit commission tasked with recommending corrective measures for his government. After more than a year of investigation by a committee comprised of civil society leaders, international observers, and government representatives, the audit commission produced a lengthy report declaring many of Ecuador’s obligations to be illegitimate, if not illegal. This provided President Correa with the rationale to default on a portion of Ecuador’s loans, resulting in a substantial write-down. Continued mobilization in Ecuador is focused on regaining the government’s sovereignty from its international creditors. In Bolivia, Nepal, and Argentina, further government audits are planned. Both Argentina and Brazil had planned audits for many years.
- A citizens’ audit is one that is conducted by civil society organisations themselves, with possible assistance from prominent persons. This audit will have challenges in getting information, but its primary objective is to raise awareness and garner support. A citizens’ audit may consist of research on a restricted number of debts and the overall impact of debts, as well as hearings and testimonies, media activity, and a final report.
How Can a Debt Audit be Organized?
The precise form of a debt audit may vary from country to country. In the instance of Ecuador, a commission comprised government and public representatives, expert experts, and civil society advisors from around the world.
The majority of audit commissions, whether official or citizen-led, will need to divide their work among subcommittees. A commission may wish to organize working groups in order to analyze particular forms of debt.
This method is described in fully in the manual on debt audits referenced at the outset, but in summary, an audit commission will want to consider:
- General examination of the debt accumulation process. This analysis will need to go back to the 1970s, when Northern banks pushed the world into a debt crisis, in order to place it in its proper historical context. It will be necessary to examine the evolution of interest rates as well as private debt and how it is frequently “nationalized” during times of crisis. It will necessitate a thorough assessment of the “recycling” of debts – the use of fresh loans to pay off existing debts – as well as the issuing of government bonds.
- An examination of the contracts. This includes gathering individual debt contracts and analyzing them in depth to determine if they contain unfair or secret conditions and if they were signed in accordance with the law and the constitution. These contracts will be extremely difficult to obtain in a citizens’ audit, although information on multinational projects may be easier to obtain.
- An investigation into the true destination of the cash. This involves determining what the loans were used to fund and the utility of these initiatives. Did the projects actually occur? Did they exceed their budget? Which corporations and nations profited from the projects? What effect did the project have on people and the environment (for instance, did it violate any international laws or regulations)? It also necessitates examining the conditions tied to loans, particularly the IMF and World Bank’s structural adjustment conditions.
- Depending on capacity, a citizens’ audit may decide to focus on just one type of debt or a handful of credits to begin with. It is relatively simple to learn about multilateral credits, such as where the World Bank has granted loans. The audit will then evaluate the impact of these loans and the ensuing indebtedness. Often, bilateral debts can be identified by collaborating with a group in the relevant lending country; for instance, excellent case studies of specific loans have been developed in collaboration with debt campaigners in European countries, which can then be used to put pressure on governments on both ends to cancel the debts.
Lastly, this is the technical procedure of the audit, but a critical component of the audit is also the ongoing participation of the public and the media in the process.
What Might the Results Be?
The ultimate goal of any audit is to obtain some form of reparation for the wrongs caused by illegal debt. This could take the following forms:
- Limited cancellation. Lenders are inclined to offer debt cancellation or a “debt swap” if the auditing process itself causes them concern. When its parliament threatened to default on its debts in 2005, Nigeria obtained a significant debt forgiveness. However, it was also required to pay a substantial sum up front (in essence, it received $18 billion in cancellation for a $12 payment). Such transactions must be scrutinized by citizen groups to guarantee that unfair debts are not recycled or that lenders do not impose additional unjust requirements.
- Default/ repudiation. A nation refuses to pay all or a portion of its debt. ChristianAid has compiled a report explaining why this may be required. In 2008, President Correa of Ecuador defaulted on unlawfully issued bonds, as revealed by a national audit. This resulted in a considerable decrease in the value of those bonds and the elimination of many billion dollars of Ecuador’s debt. Argentina committed one of the greatest defaults in history in 2001 after years of adhering to IMF instructions, which exacerbated the country’s economic catastrophe. Within three months, Argentina’s economy began to recover from recession. Politically and economically, rejection may be the best course of action. In fact, it is likely to be a crucial step in the nation’s ability to eliminate its reliance on debt and develop a more independent economic strategy. However, it is not painless. The populace of a nation must be prepared for difficulties and isolation. Debt audit experience is a necessary prerequisite for acquiring a comprehensive grasp. Such a comprehension is also required for a default to become a true first step toward broader change. Numerous people bemoan the Argentine government’s inability to create an alternative kind of development in light of their default.
- Legal action against members of the former administration. Previous administrations’ corruption and unlawful conduct can be uncovered through a debt audit. These situations require legal recourse. They can also aid a government in returning so-called “stolen assets” that have been transferred abroad through corruption.
- Proceedings at the international level on behalf of impacted communities. When communities, persons, or the environment have been harmed by specific projects or by the influence of debt on a society, foreign lenders may be sued. This will be a challenging procedure, but it could be crucial for ending a period of injustice and altering the debt system.
An Alternative Economic Vision
Ultimately, a debt audit can serve as the initial step in the implementation of a new democratic economic strategy. A highly indebted nation lacks genuine political liberty. Its budget and economic policies are governed by the conditions imposed by its lenders. Creditors, who make enormous sums of interest and gain financial access, and dictators, who can create funds without relying on their people, are the true beneficiaries of the debt system. Even in a democratic system, excessive debt can result in the flight of capital and the separation of the aspirations of the people from the actions of the government. If it is not to destroy democracy, the production of debt must be entirely transparent.
A debt audit assists in understanding this. It enables individuals to comprehend the nature of economic exploitation in their society and generate alternative concepts of economic democracy. These might consist of:
- End the dominance of the World Bank and IMF, as is currently the case throughout Latin America.
- To finance the economy, progressive taxation should be relied upon more than foreign debt. This includes a crackdown on tax evasion and the use of income and asset-based taxes as opposed to sales taxes.
- Preventing the privatization of state welfare provision and strategic industries, and instead democratizing and holding responsible such provision.
- Adopting an industrial strategy to encourage national development and commerce with nations on a comparable development trajectory.
International markets and northern governments will oppose such a far-reaching strategy. Only citizens who are effectively mobilized will be able to ensure that governments reject this pressure.
Current Audit on Loans and Grants in Tunisia
Monday’s discussion between President Kais Saied and Prime Minister Najla Bouden in the Palace of Carthage centered on the results of an audit conducted on the grants and loans obtained by Tunisia since 2011.
In this respect, a statement from the Presidency identifies a number of violations that have overwhelmed the public budget with excessive interest payments and foreign exchange losses.
In the statement, the President of the Republic was cited as saying that this situation cannot continue and must end, and that those guilty must be held completely accountable.
“In the end, it is the people who pay the price without benefiting from these enormous amounts,” he noted.
At a Cabinet meeting in October 2021, President Saied had delegated this auditing task to the Finance Ministry.