2 - 1999

The Debts of poor Countries

Debts from the "socialist fraternal aid" of the GDR

Joint Conference Church and Development

One aspect of Germany’s position as international creditor is unique: Some poor countries - notably Angola, Ethiopia, Mozambique, Nicaragua, and Zambia - are indebted to Bonn partly because the German government has inherited claims on debt from the communist German Democratic Republic (GDR) when it collapsed and Germany was re-united in 1990. According to a position paper of the Joint Conference Church and Development (GKKE) in Bonn, this debt should be immediately cancelled.

If the German Federal Government maintains its claims from loans given by the German Democratic Republic to Mozambique, Ethiopia, Angola and Nicaragua, it is in danger of benefiting from debts for the financing of dubious goods and services which came about under dubious conditions.

It is true that the GDR presented itself as being in a special way linked in solidarity with the young national states in Africa and Latin America. However, the "socialist fraternal aid" and the "trade to mutual advantage" with the "chosen and especially friendly states" Mozambique, Ethiopia, Angola and Nicaragua were used by the GDR first and foremost as a way of acquiring foreign exchange goods, in order to prevent the impending insolvency at the close of the seventies.

Rising prices for raw materials worldwide, the increased prices for raw materials from the Soviet Union, the inflexibility in foreign trading of the GDR firms and the high level of investment and consumer goods imports from the West led in 1977 to a serious financial crisis in the GDR. To win or to save foreign currency the Politburo decided that, beside speculation on the western stock markets and the sale of gold reserves, trade with the politically close developing countries Angola, Ethiopia and Mozambique be increased or be started in the first place.

In the case of Ethiopia and Angola the acquisition of raw coffee in "goods for goods" trade was the main interest. Commerce with Mozambique was concentrated especially on the import of coal, rare ores and the commercial setting up of large agricultural projects for supplying fodder to the GDR. The GDR had to buy these products with foreign currency on the world market until then. The GDR supplied as the other side of the deal weapons, trucks and industrial plants which they otherwise could not sell on the world market. In an agreement "On Cooperation in Developing Countries" Libya and the GDR, agreed upon the financing of large GDR projects and the supplying of materials (for example the truck W 50) to Arabian and African countries by Libya. The developing countries were informed that Libya would finance goods and services from the GDR. This agreement was indeed signed in 1978 but never fulfilled. The credit for these projects became claims of the GDR on Angola, Ethiopia and Mozambique.

The trade activity of the GDR with these nations jumped shortly after 1977. Yet the expectations of the GDR leadership for large imports of raw materials were not fulfilled. Shortly after the signing of the friendship and cooperation agreements with Ethiopia, Mozambique and Angola in 1979 it became evident that the plans of the GDR were unrealistic and harmful to the African states.

The goods exported as partial payment for the deliveries of raw materials were valued above their worth and remain as a commercial claim of the GDR on a US dollar basis. The trade treaties signed between the GDR government and the African governments contain a standard clause. This prescribes that the "goods-for-goods" trade is reckoned to world market prices (in part clearly below the world market price to the GDR’s advantage, for example, coal from Mozambique) in US dollars and that in case not enough goods were delivered would have to be paid in dollars. In this way the GDR could show high claims in their balance and thus show internationally a higher liquidity than it actually had.

With the union of the currencies on July 1, 1990, the "goods for goods" trade ceased. The Federal Government took over, according to paragraph 24 of the unification agreement, the debts of the GDR towards western countries and the claims against developing countries. Of the claims of the GDR from trade in the amount of only 8.2 billion DM, 6.2 billion were on developing countries. At the end of 1997 the ex-GDR claims against developing countries still amounted to 4.5 billion DM. Of these, 3.2 billion have not yet been rescheduled. The "chosen and especially friendly states" Mozambique, Ethiopia, Angola, Nicaragua, as well as Zambia and Uganda are thereby burdened with a total of 1.2 billion DM.

The Federal Government classifies these claims as commercial trade credits and does not consider it possible as yet to cancel these claims. This classification is not justified in light of the character of the services and goods supplied by the GDR, because it is based on the classification criteria of the West German financial system. This knows, by and large, two groups of credit for developing countries, namely, commercial trade credit and development cooperation credit. Yet the credits of the former GDR were neither classic trade credits, because the GDR allowed no private foreign trade, nor classic development credits, because the services described can surely only cynically be called development aid.

A large, if up to now not precisely identified part of the claims are based on weapons delivered. Nearly all of the large projects financed through credit are development ruins because they were one-sidedly oriented to an import interest of the GDR. They only brought the nation debts, no real increase in production and, even less, in foreign currency proceeds.

Ways and opportunities should be sought to cancel these debts for the welfare of the poor people of these countries or to transform them. This will not be easy with the governments in Ethiopia and in Angola, which are at war. A debt remission with conditions attached, though, is already necessary because to maintain the claims makes little economic sense ... and is ethically scarcely justifiable.

Part of a position paper by the Joint Conference Church and Development, published in May 1999 in Bonn in the runup to the summit meeting of the G7 and Russia in Cologne (abridged).