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Rutgers Model United Nations 2008
Delegation: Rwanda
Committee: Economic and Financial Committee
Topic: Irresponsible Lending
Delegates: Rohan Thakore and Jay Chen
EAST BRUNSWICK HIGH SCHOOL
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With over six billion people living in the world today, nearly two billion are
currently living below the poverty line, mostly in Africa. Living on less than a dollar a
day with no access to clean, safe drinking water, and sanitation facilities, these people
struggle to survive. This often results because their governments are entangled in heavy
debt resulting from decades of irresponsible and often corrupt lending from developed
countries or private organizations. This is from often ill-advised spending by totalitarian
dictatorships, unfair hidden interest clauses, lack of transparency over the transactions,
and disregard for a nation's ability to fulfill an initially complicated settlement. Thus,
Rwanda believes that the system of lending, mainly the institutions of the International
Monetary Fund and World Bank needs to be reformed in regards to their policies and
goals, as lives are being lost for the sake of ensuring that a nation receives every cent
owed in interest.
Massive amounts of lending were not sought by the country accepting the loan; it
was in fact, by the lender. After World War II, several European nations along with the
United States looked for new markets to export their goods. Since these nations were in a
general recession in 1975, they decided to offer loans to developing nations in the
southern hemisphere at low interest rates. These loans endowed these nations with buying
power for Northern goods. When the World Bank and International Monetary Fund were
founded at Bretton Woods in 1944, they offered more and more loans, inciting the South
to become involved in the world market by using capital to trade and modernize industry
(Toussaint 19-21). The developed nations knew that the money was not going towards
modernizing industry or overall development; it was going into the hands of dictatorships
such that in Argentina who used the capital to purchase arms to kill Argentines from
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1976-1983 (Toussaint 26). They were also aware these nations would be unable to pay
back these loans, which would give them an excuse to demand more money in interest as
well as direct control of the nation itself to pay back the loans, thus violating sovereignty,
using policies such as structural adjustment programs that the developed nations dictated.
Today, this debt has led to the inability of a many countries to fulfill the basic needs of
their people as well as modernize. In 2000, debt-servicing cost 38% of all budgets in SubSaharan African countries; money that could be put into failing education, health,
maintenance of infrastructures, employment, housing, and research fields. In addition,
nations have been forced to undergo environmentally as well as fundamentally
destructive acts, such as the exploitation of natural resources, frantic development of cash
crops, as well as the deforestation of hardwoods in order to pay back the settlements. The
United Nations Food and Agriculture Organization (FAO), reports 94 million hectares of
forest from Developing Countries were destroyed for the sole purpose of logging to pay
back debts (Toussaint 14).
As a nation directly involved with lending currently, Rwanda believes that
lending is important for countries that need help to recover from difficult economic times.
However, Rwanda strongly disagrees with some practices as well as policies that occur in
regards to the system of lending, and believes that unless something is done, that such
injustices will continue to prevail in the future. Due to past lending in the 1970's and
1980's, Rwanda along with many other countries has fallen into an issue with debt
(Jubilee 1). Much of the loan money went to worthy causes such as clean water systems
(Jubilee 2). That, coupled with a worldwide price decline of coffee which is one of
Rwanda's integral exports, set Rwanda into a less than fortunate situation. As a result,
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Rwanda has sought help using the HIPC (Heavily Indebted Poor Countries) initiative to
improve these problems and meet its full potential (Toussaint Appendix). While being
cooperative with developed nations, Rwanda has implemented many domestic reforms as
well as good economic policies that have been approved by lending institutions like the
World Bank and the IMF. Following the Poverty Reduction Strategy Paper, Rwanda has
set out specific sectors such as agriculture that it will focus on to generate revenue and
pay back loans. The World Bank and IMF, acknowledging Rwanda's willingness to
cooperate has removed Rwanda's bilateral debt stock and has sent debt
relief of $1.4 billion from the United States (Government 2). At the 2005 Development
Partner's Meeting, it was acknowledged that Rwanda has received $240 million in
lending from other developed nations. However, unlike other states who have also
received aid, Rwanda has made significant changes with aid received. For example,
Rwanda has implemented Vision 2020, an initiative that will make Rwanda a middleincome country by the year 2020 (Government 1). Under Vision 2020, Rwanda has
developed communications, a $30 million dollar tourism industry, and a thriving
agricultural system (Fick 403). Rwanda's per capita annual revenue is projected to
increase by 9 percent each year (Fick 403). Rwanda acknowledges that foreign lending
has helped it make strides of improvement in recent years. However, Rwanda plans to
slowly transition itself off dependency on lending. The government hopes that its own
domestic income will be able to sustain itself and pay off all debt that it currently owes.
Rwanda plans to mobilize domestic resources, as well as improve the financial system
which will oversee all economic transactions the country undergoes and make sure that
progress is being made.
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Currently, there is a wide range of possible solutions that could be
implemented that would help combat the problem of irresponsible lending. Large
financial institutions that loan money to developing countries, such as the World Bank
and IMF, should keep, record and maintain receipts and files of where the money being
lent is going to as well as what development projects are being implemented with that
money. This will ensure that the capital being borrowed is being used for appropriate
measures and projects. Furthermore, these financial institutions should consider lending
to specific programs and aid effort organizations within the nation, not just the
government itself. This too, would ensure proper use of money lent. This type of lending
could also expand into micro-lending, where individuals receive small loans based on
their goals and aspirations. Since micro-lending is usually a small sum, there is not much
risk in resulting in the country falling into debt. Also, the person being lent money would
have enough background checks for the lender to be sure the money is going to be put to
good use. In addition, the institutions should : send representatives to live in the
borrowing nation and order valid transaction sheets of the money lent being used to be
made out to the public, in order to create transparency and oversight over the usage of the
money. To deal with the countries currently struggling with debt, new terms of past loan
contracts in regards to interest need to be renegotiated. For every $1 owed in 1980, 4.5
dollars has already been paid back with 7.5 dollars left to pay: all resulting from interest
rates (Toussaint 122). Thus, we encourage the creation of an arbitrary UN bureau to serve
as a middle-person between the negotiations of new interest rates, ensuring the terms are
fair. This bureau shall contain members of the lending country as well as the borrowing
country, ensuring representation for both sides. Another appropriate solution would be
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the cancellation of debt as long as it rightfully justified. For example, International law
has dictated several legal arguments as legal justification for unilateral cancellation of
external debt. One is the state of necessity, where it is imperative that a nation weighed
down with debt and is failing to meet the needs of its people (food, housing, clothing,
work, education, healthcare services) have all debt cancelled or postponed until a more
appropriate date. Another argument is Odious Debt, where a county once had dictatorial
regime unjustly called for loans for unethical uses, but a legitimate regime is now in
power. In this case, it is not the responsibility of the new government to pay the loans of a
totalitarian ruler, and thus should not be restrained for another’s mistakes. These legal
arguments should be better enforced. Thus, we encourage a branch to be created by the
United Nations in the IMF or the World Bank to survey all countries struggling from
loans and decide whether or not their situation or terms of the loan constitutes ability for
debt cancellation or allow NGO’s as well as organizations such as the Committee for the
Cancellation of World Debt to be incorporated into the UN influence. Finally, large
banks that keep giving out loans and such to other countries should be able to be
benefited by the aid they provide. Their time, effort and energy they put in raising the
money to lend should be rewarded in some way. This can be in the form of foreign direct
investment in the developing nation’s economy. For example, if a country is building up
its economy of tea, and a bank or organization such as the Highly Indebted Poor
Countries initiative, donated money for the growth of tea agriculture, then that
organization receives part of the share in that industry. If developing countries feel that
this practice is unsafe, the amount of foreign investment can be limited. This practice
would better both parties’ economies. Another possible solution is the idea of the floating
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tranche: a type of loan used in the HIPC initiative as well as the Brady plan. In this loan,
the principle of a loan is divided into several different portions, with one portion being
allocated to the borrower at a time. To receive the next portion, the borrower must
display ability to pay back the loan as well as appropriate usage of the capital lent. This
way, a developed nation feels more comfortable lending the money, while the developing
nation has more incentive to use the money responsibly (IMF 2).
The many decades that have passed has seen the rise of lending to other nations.
Countries, organizations and third-party affiliates give money to the needy countries that
can use the aid. Yet the money that goes to these countries is ridden with the burden of
high interest that must be paid, or it simply does not reach them at all. Whatever the case
maybe, it is now a growing concern, because these starving, poverished, developing
nations do not receive the adequate funding they would need in order to reduce the
poverty and debt and increase aid. The money that is given as well does not always
become the money that would be used to save lives, but instead becomes the money that
fits in the pockets of corporate bosses, corrupted governments, or simply just disappears.
There is a strong urge to reduce the ongoing irresponsible lending and to improve and
monitor the successful rise and development of poor, developing countries.
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