This is a standard reply which does not directly address the issues raised in the campaign. It does not directly respond to the request for the UK to introduce legislation to require private lenders to take part in debt relief.
The part of the response which is most relevant is:
What they say: “the UK government is committed to ensuring that private sector creditors participate in debt restructurings when necessary. When undertaking a debt restructuring, a key principle of the UK and other Paris Club members is ‘Comparability of Treatment’. This requires all bilateral and commercial creditors to participate in a debt reorganisation arrangement on terms comparable to those of the Paris Club.”
What we say: Of the four countries which have applied for debt restructurings through the new G20 debt relief process, none have yet had any debt cancellation. Zambia has been trying, and failing, to get private creditors to participate in debt restructurings for two-and-a-half years. Zambia’s debts to private creditors are all governed by English law, but the UK government has done nothing to ensure that they participate in the debt restructuring. The claim that the UK government is committed to doing so therefore rings hollow.
Historically, the evidence is that private creditors are paid back more than government (bilateral) creditors. The Paris Club including the UK government say private creditors have to cancel as much debt as government creditors, but in reality this does not happen, and the UK has not yet brought in measures such as legislation to make it happen.
Otherwise the letter does not respond to the request for the UK to introduce legislation to make private lenders take part in debt relief.
On the other tangential points the letter does make:
What they say: “I can assure you that the UK continues to be at the forefront of international efforts to promote responsible lending and borrowing practices. This includes ongoing support for the IMF-World Bank Debt Sustainability Framework and OECD lending principles covering official export credits.”
What we say: The UK has overseen the most infamous unjust lending of recent years, the $2 billion of loans given by London banks to state-owned companies in Mozambique in 2013/2014. Much of the money was stolen by the bankers and officials involved, and precipitated a debt crisis in the country which has still not been resolved.
There are many weaknesses in the IMF-World Bank Debt Sustainability Framework and OECD principles. This failure to prevent debt crises means that debt payments for lower income countries are at the highest level in 25 years.
What they say: “The UK also supports the African Legal Support Facility, which provides legal advice to countries facing litigation”
What we say: Legal advice does not change the law, which is biased towards creditors. As Head of the World Bank David Malpass has said: “Given the depth of the pandemic, I believe we need to move with urgency to provide a meaningful reduction in the stock of debt for countries in debt distress. Under the current system, however, each country, no matter how poor, may have to fight it out with each creditor. Creditors are usually better financed with the highest paid lawyers representing them, often in U.S. and UK courts that make debt restructurings difficult. It is surely possible that these countries—two of the biggest contributors to development—can do more to reconcile their public policies toward the poorest countries and their laws protecting the rights of creditors to demand repayments from these countries.”
What they say: “The UK also supports … the World Bank’s Debt Reduction Facility (DRF) which enables countries to buy back their commercial debt at a deep discount with donor backing. Since its inception, the DRF has played a significant role in extinguishing commercial external debt from the books of the public sector low-income countries.”
What we say: The World Bank’s Debt Reduction Facility was a scheme that used aid money to partially pay off private creditors in return for them participating in debt relief. It can only be used for debts covered by the debt relief scheme of the 2000s – which is hardly any of the debt owed by lower income countries today. It was last used in 2010 by Liberia – thirteen years ago.
By paying private creditors off, it incentivised them to keep lending recklessly. Instead of using aid money to pay off private creditors, our proposed legislation would require private lenders to take part in debt relief without any cost to public finances or aid budgets.
What they say: “Ultimately the regulation of UK banks is a matter for the independent Financial Conduct Authority (FCA). The FCA has robust powers to investigate potential cases of misconduct and to enforce UK financial rules; this includes any issues around the lending practises of UK financial firms operating overseas.”
The rules the FCA enforces are set by the UK parliament. In the case of the Mozambique scandal, it has fined one of the two banks involved, Credit Suisse, £147 million – but this is a drop in the ocean compared to the $11 billion to $15 billion damage the loans inflicted on the people of Mozambique. Moreover, the second bank involved – the London branch of Russian bank VTB – has not had any action taken against it by the FCA.
We have been calling for new rules to require all loans to government to be publicly disclosed. The UK government has refused, saying it prefers banks to take voluntary measures to make their loans transparent. In 2019, the banks agreed a voluntary scheme to disclose the existence of loans to lower income countries. But in the four years since, only two banks have disclosed the details of six loans in total.
 Matthias Schlegl, Christoph Trebesch and Mark L. J. Wright, The Seniority Structure of Sovereign Debt, National Bureau of Economic Research Working Paper 25793 (May 2019).