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Enslaved by Any Other Name: A Comprehensive Guide to Somalia’s Public Debt in 12 Simple Steps

“The chain symbolises the chains of debt which are affecting the poorest countries … an equivalent of slavery” Barbara Crowther


The International Monetary Fund (IMF) recognised the Federal Government of Somalia in 2013, a government with little knowledge and understanding of what they were signing up to, “paving the way for the resumption of relations after a 22-year interval” which previously ended unceremoniously. As one of the preconditions for formal “recognition” entailed acceptance of liability for all outstanding historic debt, arrears, interest and penalty charges (which at the time roughly amounted to $5.3 billion – $505 per head of the population) is an issue impacting on us all. There was no public consultation, no expert independent review and no parliamentary oversight. A fragile dysfunctional state does not simply agree to saddle itself with such huge debt burdens, especially when there’re reasonable means available to legally avoid doing so. More likely, it’s precisely because Somalia is in a condition of fragility and dysfunctionality that predatory international players are able impose such usurious, unpayable and unjustifiable debt.

What follows here are some of the basic fundamental objections that I think we should all understand about our national debt, as simplistic and as interpretive as possible, to make it presentable to the average public. The rationale being, it’s first necessary to empower newly-sworn parliamentarians in order to understand that debt related issues is fundamentally within the remit of their responsibilities, failing that; secondly to give the general Somali public a clear view of how their country is being recolonised in front of their eyes whilst condemning future generations to nothing less than debt slavery.

The primary figures analysed in this piece are based on IMF data, especially its Article IV Consultation with Somalia available at the time of compiling this information, which was completed on July 2015. IMF estimated then external debt to be around US$5.3 billion (93 percent of GDP), conceding that these consisted predominantly of arrears without breakdowns of principal amounts and interest charges (with the exception of IMF-specific claims). Stating: “Debt data covers most creditors, excludes commercial debt, and shows obligations to: (i) multilaterals (US$1.5 billion); (ii) Paris Club creditors (US$2.3billion); and, (iii) Non-Paris Club creditors (US$1.5 billion).” 43% of total debt claimed by the Paris Club creditors – shared between 10 member countries – 86.4% of it is held just between the United States and Somalia’s traditional colonisers!

  1. Debt? What Debt?

As simplistic as it may sound, we should first ask ‘what debt?’ It’s not enough to dupe hapless greedy politicians to sign carte blanche debt ratification agreements. It’s also not enough to simply declare one party debtor and other parties creditors. One needs to produce original obligations pertaining to all parties, terms and conditions under which such contractual agreements were signed and proof of delivered transactions matching those stipulated in the contracts. Instead, we have unverifiable claims.

According to the IMF, debt figures “are compiled and validated by a dedicated finance ministry unit, with TA (Technical Assistance) from multilaterals, which maintains a dialog with creditors and is redressing data gaps including loan size validation and bilateral loan terms.” So we have a crazy situation where lenders claiming money from Somalia are compiling amounts owed to them, making figures up as they go along while lacking the minimum absolute formalities to validate Somalia’s debt obligations such as “loan size” and “loan terms”! Moreover, this so-called ‘dedicated finance ministry unit’ referred to by the IMF is practically an “empty desk” fronted by the Somalia Debt Management Unit; a non-entity wholly run by the World Bank and AfDB. Even if the debt management unit refuse to record any dubious claims made as fact, IMF and World Bank have a second fail-safe mechanism in the form of a ‘Technical Working Group’ on Somalia’s Debt which was initiated, established and co-chaired by these same multilateral agencies, and they can impose anything on Somalia’s Minister of Finance.

  1. No One Knows Total Debt Stock of Somalia

Below chart (figure 1) illustrates the total outstanding national debt which combines the multilateral and bilateral categories; the latter category consisting of Paris Club and Non-Paris Club creditors. I don’t have multiple sources for each and every single year of the period covered, but for the years where data could be multi-sourced, I’ve highlighted and repeated the years with conflicting figures. Clearly, no one knows the total outstanding debt and no prudent government can be that easily convinced to just accept any random figure plucked out of thin air.

Barkinka - Figure 1 – Total Somalia Debt Showing Overlapping Discrepancy Years

Barkinka: Figure 1 – Total Somalia Debt Showing Overlapping Discrepancy Years

Amazingly, or perhaps more appropriately criminally, as one independent source gives total debt of Somalia in 2013 as $3,054 billion, IMF imposed debt on Somalia under suspect circumstances for that same year of 2013 was $4,989 billion. We find a massive hike of $1,935 billion which is both unaccounted for and remains unexplained! From one year to another, IMF themselves provide conflicting figures between its Somalia Staff-Monitored Program and Article IV Consultation; for example the discrepancies between IMF sources for 2014 where an intra-year mysterious jump $348 million takes place. They’re just slapping numbers on Somalia, left and right, like cattle in the auction market led by chains.

  1. Debt Hegemony in Lieu of Direct Colonial Rule

This problem is one of the most serious threats facing Somalia! Where the previous two issues were a matter of technicalities associated with the legal intricacies we used as a starting point from the point of view of principled moral formulation, imperialist debt hegemons are using their creditor statuses for manipulative purposes to shape Somalia’s destiny. Let’s first start by pointing out the glaring anomalies between the amounts Paris Club creditors officially publish on their website and what appears to be politically concocted Paris Club claims published by the IMF. Below chart (figure 2) compares the two figures for 2014 which speak for themselves.

Barkinka - Figure 2 – Official Paris Club Claims vs IMF Paris Club Claims

Barkinka: Figure 2 – Official Paris Club Claims vs IMF Paris Club Claims

It’s clear that the IMF figures are fraudulently inflated! Official annual Paris Club creditors’ publications go back to 2008 so we have the whole series for 2008-2015, whereas IMF’s numbers start from 2013 and were collected during the Western powers’ stampede to acquire more political currency. IMF sovereign debt restructurings database for period 1950-2010, records Somalia’s Paris Club debt on March 1985 as $39 million and two years later on July 1987 as $132 million. Of course we can wonder if this is partial recording and at the time may have existed non-restructured non-distressed short-term debt. One might also argue that these were distinct credit lines, one of many, and therefore unrepresentative of total debt to the Paris Club, but that’s beside the point. Unfortunately Paris Club creditors don’t produce a country-by-country breakdown of these aggregated loan amounts, therefore we cannot verify authenticity of IMF breakdown for said figures. But one glance at the following chart (figure 3) allows us to make several simple observations.

Barkinka - Figure 3 – Paris Club Creditors Claims Breakdown as of 2014

Barkinka: Figure 3 – Paris Club Creditors Claims Breakdown as of 2014

One of the most obvious observation is seeing donor countries who allegedly contribute 100’s of millions of dollars to Somalia’s cause, funding UN programmes, giving aid grants and promoting multi partner development funds, claiming relatively modest amounts of debt against Somalia. As we’ll come back to this later, the conclusion that it’s not about the amounts and that in fact there are ulterior motives becomes inescapable. When we look at the types of breakdown the Paris Club of creditors do disclose, however, we get the below details (figure 4).

Barkinka - Figure 4 – Aggregated Paris Club Creditors 2008-2015

Barkinka: Figure 4 – Aggregated Paris Club Creditors 2008-2015

We have first ask ourselves: Why are these figures fluctuating? We don’t remember the transitional governments of Somalia ever being authorised to borrow, and no information has ever been divulged concerning bilateral loans from any country, let alone members of Paris Club creditors in these years. Noting that Official Development Assistance (ODA) and Non- Official Development Assistance (NODA) are both booked as loans, we need answers very quickly. The second concern is that, although these fluctuations appear random in the first instance, in reality it’s anything but. Here’s a visual demonstration (figure 5) of what significant events these changes have been coinciding.

Barkinka - Figure 5 – Year-by-Year Variability History of Paris Club Claims

Barkinka: Figure 5 – Year-by-Year Variability History of Paris Club Claims

Either of the entries in pre-election or post-election years can equate to actual non-declared expenditures being booked or written off against Somalia’s debt, for want of better description. Now, no one in their right mind will have any doubts as to the manipulative purposes hidden behind these patterns of credit flows in pre-election years which then appear to be immediately offset on post-election year anyway. Post-election year, as in figurative sense, given it’s the year when the election process comes to its “completion” which is why the chart is in reverse.

  1. Usurious and Compounding Interest

Amounts constituting interest charges on Somalia’s debt is much higher than original principal loans. For example, we can compare the original principal owed to the IMF relative to where it now stands as of 2014 (figure 6).

Barkinka - Figure 6 – IMF Principal vs Interest Breakdown

Barkinka: Figure 6 – IMF Principal vs Interest Breakdown

Almost 53% of their of their claim is added interest, and we should also remember the IMF is applying one of the most conservative interest rates, which means we can assume as a minimum for all the other multilateral agencies like World Bank and AfDB. It’s very hard to obtain exact original principal amounts for the total debt stock of Somalia, therefore it’s impossible for me to calculate the total applied interest charges on these loans. However, we can opt for the second best option and assume the total debt stock as it stood before Somali Democratic Republic was destroyed, and use that as original “principal” to act as referential guide (figure 7).

Barkinka - Figure 7 – Total Somalia Debt Stock Principal vs Interest Breakdown

Barkinka: Figure 7 – Total Somalia Debt Stock Principal vs Interest Breakdown

We find that interest charges here make up more than 55% of the debt stock, meaning, Somalia is being charged almost $3 billion for outstanding loans as of 1990!

  1. Passive Bilateral & Multilateral Creditors

The 55% interest is actually unrepresentative and significantly skewed downwards by multilateral & bilateral lenders who didn’t apply interest charges. That’s the equivalent of 28% of total outstanding debt stock held by Non-Paris Club bilateral creditors and further 10% kept in books of non-traditional multilateral agencies – together representing 38%. I consider these ‘passive’ creditors due to the absence of any observable manipulations where debt is used as tools for leverage to advance any neo-colonialist agendas. For informational purposes, here’re their details (figure 8):

Barkinka - Figure 8 – Non-Paris Club Creditors Claims Breakdown as of 2014

Barkinka: Figure 8 – Non-Paris Club Creditors Claims Breakdown as of 2014

IMF, using ‘preliminary and estimated’ debt figures from the World Bank debt database, 2013 & 2014 Non-Paris Club creditors claims were stated as $1.201 billion and $1.202 billion respectively; a remarkable consistency. The IMF goes on to apply extrapolations of late penalty interest rates for Kuwait and thereby increasing their claim from $176 million in 2014 to an estimated $273 million for 2015. Nevertheless, Somalia should deal with these creditors on bilateral level, away from the clutches of IMF & co, which will increase the probability of being written off.

Barkinka - Figure 9 – Non-Traditional Multilateral Creditors Claims Breakdown as of 2014

Barkinka: Figure 9 – Non-Traditional Multilateral Creditors Claims Breakdown as of 2014

The above pie chart (figure 9) projects proportional shares of the additional $543 million owed to the Non-Traditional Multilateral creditors in the remaining ‘passive’ category.

  1. An Offering on the Altar by Means of Debt

We shouldn’t forget the conditions under which initial loans to Somalia were granted. All the due diligence, assessments and creditworthiness criteria were based on Somalia’s economic expectations. Central to these conditions were expected revenues accounting for economic activities as well as prospects from all its natural resources & productive capabilities, ports & logistics, tariffs & taxation, etc. and not least, its strategic location encompassing all geographic territories under its control. However, Somalia is now under occupation. The very same creditors claiming these extortionate amounts, have been in bad faith, breaching all implied terms under which such loan agreements were originally conducted. In direct violation of the sovereignty of an independent state, prominent Western countries continue to systematically undermine Somalia’s ability to create a necessary environment conductive to exploiting and utilising all its collateral wealth from which original creditworthiness concessions were derived.

The now infamous Trojan horse signed on the day after IMF’s recognition of Somalia, better known as the Ankara Communiqué, in a sinister display of cunning orchestration served as the rubberstamping of this unprovoked hostile act which violated fundamental terms. As if by way of incapacitation, these prominent Western creditors have been indirectly sabotaging potential autonomous political evolution for Somalia to rid itself of the debt burden. All subsequent rolled-out neo-colonialist policies in Somalia was designed along that framework, and it was not just the ‘Somaliland Special Arrangement’ that acted as de facto poison pill for further state disintegration. This was made easy for them due to a combinations of various factors, among others, newly-formed clueless government with a simpleminded “president” out of his depth, meaningless “parliament” stuck in the politics of gutter tribalism and opportunistic corrupt officials whose greed could only be matched by their embarrassing impotency.

Initiatives spread across all political and operational levels, especially those externally funded, had the intent to capitalise on various conduit vehicles which included, but not limited to, Somalia Development and Reconstruction Facility; the New Deal Compact; most of the Development Partners Groups; High Level Partnership Forum; the National Planning Commission; High Level Aid Coordination Forum; Inter-sectoral Forum; Sector Coordination Forums; and so on, and so on. Impact of each of these vehicles may not amount to much in isolation, but their collective sum taken together has a drastic imprint on Somalia. This will not stop until these structures are institutionalised across all regions and sectors, even down to the very lowest denominator of Somali clan systems so it can fuel itself in the future. One example is the Public Resource Management in Somalia, so-called ‘PREMIS’ programme spearheaded by the British and the European Union which was launched only this month, must also be seen in that light.

  1. All Stick and no Carrot: The HIPC Domineering Initiative

We know that sovereign debt is an expedient weapon in the repertoire of Western foreign policy tools which has been heavily linked with imperialist agendas. Debt cancellations are routinely implemented for geo-strategic reasons (Poland, Myanmar, etc.), for bribery reasons (Egypt, Nigeria, etc.) or as part of a military invasion plans (Afghanistan, Iraq, etc.); otherwise it’s kept and debt servicing is harshly imposed like a chain of enslavement. Heavily Indebted Poor Countries (HIPC) is supposed to function as a conditional debt relief mechanism where, depending on developing countries’ submissiveness to prescribed programmes, countries suffering from unsustainable debt levels could qualify for debt forgiveness. This is demonstrably false as decisions are always political and never objectively applied because debt relief is only granted when it serves imperialist agendas. Conversely, debt is purposefully held in place as yoke if powers that be can use it to subjugate – this perverse logic was applied in the Horn of Africa as Eritrea and Somalia were tormented while Ethiopia enjoyed an estimated debt relief of over $2 billion!

If we take a look at this objectively, starting with how HIPC initiative eligibility criteria can be met in order to participate in the debt relief program, we can make the following reasonable assessments. One requirement is that a country must be facing “unsustainable debt burden that cannot be addressed through traditional debt relief mechanisms.Reliable academic commentaries indicate that there’s minimum quantifiable target which can be tested. The minimum requirements for meeting debt unsustainability levels under the “Enhanced HIPC Initiative” (HIPC II) are set as debt-to-export ratio of 150% and a debt-to-government-revenues ratio of 250%.  A quick calculation and comparison for Somalia shows that, not only does Somalia meet these minimum required ratios (figure 10), it exceeds many times!

Barkinka - Figure 10 – Somalia Debt-to-Revenue & Debt-to-Export Ratios as of 2014

Barkinka: Figure 10 – Somalia Debt-to-Revenue & Debt-to-Export Ratios as of 2014

The IMF further stipulates that given country must establish “a track record of reform and sound policies through IMF and World Bank-supported programs” and must have “developed a Poverty Reduction Strategy Paper (PRSP) through a broad-based participatory process in the country.” As Somalia has no independent economic policies, neither monetary nor fiscal, the only track-record available are the implementations initiated by the IMF and World Bank themselves. Originally IMF tasked itself back in 2013 with: “(i) developing macroeconomic frameworks and policies; (ii) establishing a functional central bank; (iii) modernizing tax and customs administration; (iv) strengthening public financial management; and, (v) improving statistics.” Now that they’re implementing ‘Staff-Monitored Program’ they’ve expanded responsibilities with near-total control of all government economic institutions; in their own words, here’s how IMF describes Technical Assistance (TA) offered to Somalia:

In the period ahead, extensive TA is planned. In the fiscal area, TA will assist with: (i) preparation of the 2016 budget; (ii) tax policy; and, (iii) public financial management. In the monetary and banking sector, TA will support: (i) central bank governance; (ii) currency reform; and, (iii) bank licensing and supervision. TA for statistical systems will assist with: (i) balance of payments compilation; (ii) the consumer price index; and, (iii) monetary aggregates. Legal assistance will help with the preparation of central bank by-laws.

Therefore any failure to comply or establish a track-record is not Somalia’s failure, but becomes IMF’s failure! However, the most crucial requirement for Somalia is to be “eligible to borrow from the World Bank’s International Development Agency, which provides interest-free loans and grants to the world’s poorest countries, and from the IMF’s Poverty Reduction and Growth Trust” is purely discretionary with invisible thresholds that can be manipulated at will. This is their magic trick. As a final insult to intelligence, the IMF declared that they’ll not clear Somalia of this stumbling block (to be eligible to borrow from IMF’s Poverty Reduction and Growth Trust) because:

While Somalia has been welcomed back as an active member of the Fund, it remains ineligible for financial assistance pending the clearance of its longstanding arrears. Arrears clearance will be an important part of normalizing relations with the international community and establishing a roadmap to debt sustainability” (emphasis mine). In other words, Somalia has to pay off its debt before it can qualify for debt relief!

  1. Conflict of Interest: Whose Development Partners?

we are closely coordinating our efforts with other development partners, including the World Bank, the African Development Bank, and the European Union, as well as a number of traditional donors (Japan, Norway, the United States, and the United Kingdom)…Rogerio Zandamela, IMF Mission Chief for Somalia

So why are these “active” creditors, mainly from the Western hemisphere and their controlled multilateral agencies, on one hand directly obstructing Somalia from qualifying for debt relief, and on the other hand indirectly undermining Somalia to regain its abilities to forge a path that may lead economic prosperity allowing for debt restructuring or even affording to pay it off? Don’t they want their money back? There’re two answers, both of which are detrimental to Somalia. The first answer is ‘no’ because, contrary to their adopted phrase of “development partners” as we read in some of their Somalia engagement materials, in reality they’re true development partners of Somalia’s neighbouring countries. For example, Paris Club creditors and aligned multilateral agencies made spending commitments to fund Ethiopia’s ambitious Growth & Transformation Plan(s) and Kenya’s Medium Term Plan to realise its ‘Kenya vision 2030’ which is in the region of $150 billion. That is excluding other past and present multichannel funds, in both instances, since exact figures don’t matter here to get the general point across.

World Bank on Ethiopia:

“The overarching goal is to turn Ethiopia into a lower-middle-income country by 2025.” 

World Bank on Kenya:

“Under Kenya Vision 2030, Kenya aims to be a middle-income rapidly industrializing country by 2030.”

Therefore these Western creditors and their controlled agencies are naturally more invested in the successful realisation of the development goals of Ethiopia & Kenya, for the simple reason that they’re spending over 45 times the debt amount they “demand” from Somalia. So the IMF mission in Somalia is inherently incentivised to look after Somalia’s neighbouring countries where their reputation is more at stake. This is why northern Somali regions are being made subservient to Ethiopia’s economic interests (or ‘economic bondage’ as Ethiopia prefers to call it); same reasons as to why Somalia will be prevented from developing manufacturing and other labour-intensive industries designated for Ethiopia; and why southern Somali regions will not be allowed to infringe on Kenyan designated sectors such as ICT, petroleum refineries and logistics. If the three countries were baskets, all eggs would be kept in Ethiopia and Kenya. Somalis must not lose sight of these long-term neo-colonialist economic and geostrategic projects.

  1. From Bad Debt to Grip of Death

Second answer to aforementioned question on whether these creditors want Somalia to repay its debt can be answered ‘yes’ – sort of. It’s not per se about the debt itself which they could cancel at any given moment, but it’s about obtaining in exchange for this debt the maximum value they can extract from Somalia. Let’s view this in basic terms; creditors either see Somalia as insolvent with no hope of ever becoming capable to repay its debt; or they think Somalia has illiquidity problem and although incapable of paying anything in the short-term, they would be able to do so in the future because of its richness in natural resources. Creditors’ position is overwhelmingly the latter. IMF notes in its Article IV Consultation Mission to Somalia that “Somalia has large potential for revenue from natural resources” and does not even pretend to hide intentions behind its institutional machinations in poorly disguised bureaucratic language. A see-through moment for their push to federalist system for Somalia comes when the report states: “The natural resource management strategy should incorporate best practices while facilitating private sector participation and ensuring transparency. Somalia also needs consensus regarding fiscal federalism, including responsibilities for service delivery, and revenue collection and sharing” (emphasis mine).

The IMF, World Bank and other predominantly creditor countries have created the Somalia Multi-Partner Fund (MPF) as vehicle to develop foundations of monopolising policy frameworks. North American and European petroleum interests are lining up and the mechanisms for exploitation of this sector in Somalia is being put in place under a secretive condition of creditors’ cloak as I write this. This may explain why they prefer to leave their $2.3 billion claim intact if that means entertaining the possibilities of extracting $230 billion worth of assets from the country. What other explanation can be offered for some of the policy instruments managed under the MPF, for example the ‘Petroleum Sector Inclusive Development’ project currently chaired by Canada (a nation with large extractive industry interests) with stated objectives as: “(i) facilitate a process to harmonize issues of ownership, control and revenue sharing in the petroleum sector; (ii) support the development of a petroleum strategy and a policy, legal and fiscal framework; and, (iii) build government capacity to negotiate and manage petroleum contracts” (emphasis mine).

It’s important for us Somalis to discard any altruistic illusions we may have had towards these countries’ intentions, because many of these nations have ulterior motives. It’s also important not to be too impressed by the relatively meaningless sums showcased by MPF’s or MDTF’s (multi-donor trust funds) as committed to “aid” Somalia. To put this into perspective, the Somalia Development and Reconstruction Facility (SDRF) couldn’t muster to accumulate more than $152.3 million as of June 2016. By comparison, the British are renovating the Buckingham Palace, official residence of their queen, for an amount that is three times more than what SDRF fund has available to develop and reconstruct a whole country!

  1. Forget Debt Obligation: Somalia should be compensated

If we briefly cast our eyes back to the periods Somalia’s Debt problems started, it becomes plainly obvious that the reasons why Somalia borrowed money included the drain on finances during the 1977 war, withdrawal of Soviet support and most importantly, ease and availability of cheap petrodollars. Unfortunately Somalia couldn’t afford to service its debt by 1980 due to conspiring circumstances and external shocks which included the Iranian revolution, Soviet invasion of Afghanistan and OPEC production cuts increasing the price of oil; and the Federal Reserve (FED) increasing the interest rates to 20% on dollar denominated holding accounts to curb inflation. But when it became clear that the biggest victims of FED interest rate hikes were the Western banks involved in recycling petrodollars once developing countries started defaulting on these loans, Paris Club creditors decided to bail out their banks by taking over these failing debt portfolios and leverage them for political ends. They saw this as a golden opportunity to recolonise the “third world” because through this additional relationship of debtor-creditor status, they could dictate domestic economic policies that worked to their advantage.

It’s within that context that we ought to view then, that when Somalia requested extension to terms of payment, both Paris Club and the IMF refused to grant debt rescheduling to Somalia. Even though they were accepting that for some other states, nonetheless. Somalia had little choice but to agree to the new conditional terms offered, which meant subjecting themselves to the Structural Adjustment Programme (SAP) – budget cuts and low credit growth, deregulation, privatisation, and market liberalisations.

IMF - Figure 11 – Somalia - Use of Fund Credit and Arrears, 1979-1990 - SAF=structural adjustment facility

IMF: Figure 11 – Somalia: Use of Fund Credit and Arrears, 1979-1990 | SAF=structural adjustment facility

The IMF likes to present in its literature on Somalia’s debt problems during the SAP administered periods in 1980s, as simply a relationship of extending credit facilities whereby in turn Somalia failed to honour for reasons exclusive to conditions outside their control. Above graph (figure 11) is a perfect illustration of the revisionist approach whereby total IMF end-year arrears steeply climes as Somalia lacked foreign currency to service its debt. Because we cannot list all the damages Somalia sustained through the oppressive measures imposed upon by the IMF, in sectors of the economy, I’ll limit here to just one example demonstrating both its relationship and how it directly contributed to Somalia’s spiralling national debt. IMF demanded that Somalia devaluate its currency, the Somali Shilling (SOS), which it started implementing in 1981 and continued periodically throughout of the 80’s, leading to massive domestic price increases (such as fuel and other imports) that translated into gradual decline in purchasing power. Even as government expenditures in critical domestic services were drastically reduced, wages supressed and government made mass redundancies, creditors still insisted on more SOS devaluations.

Barkinka - Figure 12 – Somalia Shilling Exchange Rates Against the Dollar 1981-1989

Barkinka: Figure 12 – Somalia Shilling Exchange Rates Against the Dollar 1981-1989

The effect SAP had on the SOS currency can be seen in the above chart (figure 12). In 1981, USD1 was equivalent to SOS6 and by January 1989 USD1 was valued at SOS491. So serious was the hyperinflation that within 10 months by October 1989, official exchange rate was SOS650; but Abdi Ismail Samatar mentions based on his research in 1989 that the black-market rate was in fact SOS1100. An artificial perfect storm developed whereby debt-servicing was nearing 200% of export income and therefore hard currency earnings couldn’t keep up with Somalia’s demands to pay for imported goods as well as clear its debts at the same time. All you have to do now is compare my graph with the IMF graph to fill the holes. It was the IMF and the World Bank who helped push Somalia of the cliff that eventually caused the country to crumble!

  1. Time for Full Sovereign Default

Why on earth did the IMF insist on SOS devaluation when its debt was primarily dollar denominated? The optimum way out would’ve been for Somalia to completely default on all its debt obligations back in 1981. As supposed to private borrowers which can be coerced by state laws or the courts system, sovereign borrowers are not subjected to any third-party enforcement that could compel them to repay their debt other than voluntary ‘self-enforcement mechanism’ due to being in their interest. Unlike other normal states, Somalia doesn’t have any incentives to honour its debt obligations. Yes, default may restrict our access to finance, but it’s good in the case of Somalia as borrowing at this stage would be stolen by corrupt politicians. No need to worry about shocks to macroeconomic stability or impact on relations with international capital markets as ratings are of no relevance about; nor associated currency risks or capital flight.

Although seeing the European Union Naval Force (Operation Atalanta) patrolling Somali seas since 2008 may give the impression of otherwise, it’s generally accepted that gunboat diplomacy and naval blockades by western creditors to extort debt repayments under threat of force is out of fashion. Between 1975 & 2012 there were 77 defaults between 40 countries, of which 11 African countries recorded 22 sovereign defaults and rescheduling events; Somalia was not among them (Reinhart and Rogoff). Bank of Canada ‘Database of Sovereign Defaults, 2015’ applying more stringent definition of what constitutes default (i.e. rescheduling and arrears in late 1980s) does imply that Somalia defaulted, but even if that was the case it’s time to formalise that.

  1. Odious Debt!

Odious debts is an internationally recognised legal doctrine in which Somalia is perfectly placed to invoke and its hands completely off historic predecessor state debt. Professor Robert Howse explains this concept asa moral and legal foundation for severing, in whole or in part, the continuity of legal obligations where the debt in question was contracted by a prior “odious” regime and was used in ways that were not beneficial or were harmful to the interests of the population”. Odious debts include sub-categories such as “war debts” and “hostile debts” where the latter is defined as “debts incurred to suppress secessionist movements” or spent to generally dictatorially repress population uprisings, and in such circumstances succession states are legally not obliged to pay.

Under normal conditions, we should accept predecessor state debts in accordance with Vienna Convention on the Succession of States in Respect of Matters other than Treaties, if and only if, Somalia’s creditors can demonstrate beyond reasonable doubt, that their loans were; a) spent on projects that benefitted Somalia as intended or continues to be beneficial; and b) that Somalia’s creditors weren’t aware of any state crimes or civil unrests which were violently repressed at the time of granting the loans. Just imagine a scenario where previous dictatorship government in Somalia was borrowing money to purchase weapons which were used on its citizens, and when the government was destroyed, these same weapons fuelled the civil war where many massacres against innocent were committed. Are we so disgustingly hopeless as to agree to pay for the weapons we used for atrocities against each other?


The IMF Mission Chief said that IMF’s recognition of Somalia “is an important step that will provide confidence to international partners” but what about providing confidence to the Somali people? If we’re a people to learn from the past, then we should already know that we can’t trust the IMF and other creditors for which it acts as an agent. Experiencing neoclassical economics and getting burned once is enough; we shouldn’t expect any different outcomes to being subjected neoliberal economics this time round.

Any new government in Somalia will have to resolutely reject these unjustifiable debt claims – unjustifiable not only morally, but also legally and contractually. The next government should also freeze all Trojan horse economic activities conducted under the various guises of multi donor and multi trust fund vehicles managed by different external entities. Somalia should insist on full autonomy over the management of these funds, otherwise we should do without as the country will be better off without in the long run.

e-mail: liban.farah@barkinka.com
twitter @Barkinka1
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