“In a world of free trade and global economy, Americans are suffering severely. We have turned a blind eye and a deaf ear to our own people as we struggle to compete in the New World.” This battle cry for US self-help comes from an unexpected source – a dispute between US bondholders and the Chinese government over unpaid debt.
The statement continues: “The ABF has a vision for Americans. One that will educate our youth, feed our hungry, shelter our homeless, provide affordable safe energy, build our homeland security and protect and care for our elderly including our veterans … The ABF can and will be a blanket of security for its country and its people through its vision. A vision that is not a dream, it is a reality. A plan that really benefits ALL Americans.”
A noble cause
It’s stirring rhetoric. We all know how much Americans have been made to sacrifice for the globalized economy, ruthlessly exploited by heartless multinationals, bullied by unaccountable institutions inflexibly enforcing the austere Buenos Aires consensus, driven off their traditional lands and into destitution. But what is this ABF? And how does it plan to usher in this new golden age of wealth and security, of renewable energy and care for the elderly? A revolutionary new approach to life and society, perhaps?
Not quite. In fact, the ABF is the American Bondholders’ Foundation, and its purpose it to try to make China honour old, unpaid debt, which it says is worth about $89 billion. China owes this to about 350 US families, the ABF claims, in the form of bonds issued in the first half of the 20th century. Most of these were part of a $4 billion issue from 1913, secured on state-owned salt mine revenues. The opening quotes are taken from a section of the ABF website, entitled “Our Mission, Our Vision, Our Prayer”.
China has refused to honour debts incurred before the 1949 Maoist revolution, particularly since in 1979 it paid $80.5 million to the US in recompense for property it had appropriated over the previous 30 years, which it thinks settled the matter. The bondholders deny this and cite legal opinion to support their stance. They are petitioning US lawmakers and the Bush administration to apply pressure on the Chinese leadership. They are particularly irked because China has recently announced its intention to sell $22 billion of new bonds to US and other western investors to finance the 2008 Beijing Olympics.
The Tennessee-based ABF has gathered some support from Congress – in May, 30 legislators from both parties signed a letter pressing president George W Bush to act – as well as backing from church group the Traditional Values Coalition. It argues that Chinese citizens are leading holders of US treasuries. They receive more than $4 billion a year in interest payments alone, says the ABF. Since US bondholders cannot sue China in a US court, and have had their approaches to the Chinese government roundly ignored, they want their government to apply pressure and if necessary to withhold equivalent amounts of debt payment from Chinese holders of treasuries. They hope, though, that China can be made to pay them using diplomatic pressure and World Trade Organization rules.
The ABF has promised to give 10% of any money regained to the US government, and another 30% to various non-profit organizations, including the Salvation Army, job placement bureaux, and centres for the treatment of sexual addiction. This appears to be the root of the outlandish promises of the opening quote.
The prospect of China agreeing to repay these debts without coercion looks remote. But it is not entirely without precedent. In 1987, China agreed to honour in part its debts to UK investors that held government bonds issued before 1949. The next year it paid $23.5 million to the UK for distribution to bondholders. This gives the lie to Chinese claims that it has never honoured pre-revolutionary debts. Clearly, though, the British sum looks trivial when weighed against the hole that an $89 billion charge would create in China’s budget. Last year, HSBC estimated the payment to the UK at just 8% of the total debt. Those waiting for the US to become a paradise on earth had better not get their hopes up just yet.
