Jubilation? - Ruth Bergan
In 2000 there were 1.2 billion people living on less than $1 a day. More than 40% of sub-Saharan Africa 's population survives on even less than that. Despite the scramble to back the Millennium Development Goals (MDGs), in 2002 the Monterrey Consensus recognised that low-income countries were sending more than twice the amount back to the rich world in debt service than they received in aid. A report from the recent UN Conference on Trade and Development suggested that the 34 poorest African nations had a combined foreign debt of £58bn in 2002. In net present value terms, the total debt burden of developing countries is US$89.213 billion, reduced from the 1999 total of US$141.178 billion through the Heavily Indebted Poor Countries (HIPC) initiative.
It has long been argued that paying back these huge debts is a major obstacle to reaching the MDG of halving extreme poverty and hunger in developing countries by 2015. Campaigners argue the money would be better spent on health, education and infrastructure, central to meeting the goals. Jubilee Research (formerly Jubilee 2000) has argued that the 42 HIPC countries will need total debt cancellation if they are to have any hope of meeting the goals. Yet despite over 24 million people signing the Jubilee 2000 petition to ‘drop the debt', by May 2003 only $36.3bn had been cancelled.
Gordon Brown has received a great deal of publicity recently for his efforts to cancel debt. In a speech at CAFOD's Pope Paul VI memorial lecture in 2004, he recognised that many countries are still being forced to choose between servicing their debts and making investments in health, education and infrastructure. He suggested that rich countries should therefore commit to completing 100% debt relief. In 2005, he hopes that the richest countries will match bilateral debt relief of up to 100% with multilateral debt relief of up to 100% so that all debts will be covered. He has proposed that debt cancellation be financed using the IMF's gold reserves and urged donor countries to cover their share of the World Bank and the African Development Bank's debts on behalf of eligible developing countries. The UK has already committed to financing the cancellation of its share of the debts owed by 32 countries to these banks – 10% of the £10.75bn owed in debt interest payments between now and 2015.
In June 2004 Brown received support from George Bush for a plan for more generous debt relief for the world's poorest countries, in return for Western backing of a £48.8bn debt write-off for Iraq . The plan involves making the world's 41 HIPCs eligible for 100% debt write-offs from their multilateral creditors such as the World Bank, at a cost to rich countries of $1bn-plus per year. The UK presidency of the G8 in the second half of 2005 will offer an ideal chance for Brown to increase pressure on other countries.
Whilst recognising the importance of Brown's plans, Jubilee Research have criticised the plans on a number of counts. Firstly they argue that phasing the debts out over a decade, rather than cancelling them outright, may reduce the initiative's effectiveness as it would negatively impact on private investment and therefore on employment and economic opportunities. Cancelling debt outright would cost £1bn, but this represents less than a quarter of the shortfall from the 0.7% target for aid for one year. Jubilee Research has also criticise the imposition of ‘new conditionalities' on debt reduction; they argue that although the vocabulary has changed from ‘structural adjustment' to ‘poverty reduction', the policies are essentially the same. Brown's proposals also do not cover debts owed to the IMF.
Gordon Brown is not the first to champion the cause of debt relief. The World Bank and IMF launched their HIPC initiative in 1996. Arguably its most important aspect was that, for the first time, the debts of the World Bank and the IMF were included in write-offs. To be eligible for HIPC, countries had to be facing what the IMF/World Bank considered ‘an unsustainable debt burden' that could not be funded by the ‘Paris Club' of creditors. They also had to establish a track record of reform and sound policies through IMF and World Bank supported programmes. In other words, they had to follow ‘structural adjustment' programmes, including liberalisation, privatisation and macroeconomic stability. By 1999 the HIPC initiative was considered to be failing to deliver on its stated goal of providing a ‘lasting exit' to unsustainable debt burdens for the world's poorest countries. In 2000 the initiative was ‘enhanced' to provide for greater levels of debt cancellation. Since then, several bilateral creditors including all the G8 countries have announced that they will provide 100% debt cancellation for all HIPC countries.
Two alternatives to the HIPC initiative have been receiving increasing publicity. One option is for third world countries to take a stand and simply refuse to pay back the unfair debts. This suggestion was made by the eminent development economist, Jeffrey Sachs, , who has argued that “no civilised country should try to collect the debts of people that are dying of hunger and disease and poverty” . Romilly Greenhill, of NGO ActionAid, has noted that Iraqi exiles declared that they would not honour Saddam Hussein's military debts if they came to power in post-war Iraq . This argument is not limited to Iraq : why should the people of the DR Congo pay back the $5bn of debt wracked up by the late President Mobutu, a debt which is almost twice the country's annual income? Why should Indonesians repay money borrowed for the hawk jets used to oppress them by former President Suharto?
The second, less confrontational option is proposed by Jubilee Research, who suggest an international insolvency framework that would involve citizens in the resolution of international debt crises. It would be based on existing national and international bankruptcy laws and would be a means of allowing a country to declare itself bankrupt (as companies do), whilst protecting democratic principles and ensuring that basic services continue to be provided(as happens if a municipal government goes bankrupt). They argue that an insolvency framework would introduce regulation and discipline of the flows of international capital and would do so not just in bankrupt states but also in countries where lax lending and excessive borrowing could lead to bankruptcy.
Debt is proving to be a serious obstacle to meeting the MDGs. Gordon Brown has gone some way to reducing the burden but more could be done, including a fundamental reassessment of Western governments' attitudes to debt. Brown has received some support from other countries for his plans, but he will have to keep up the momentum if he is to achieve his aims. HIPC has come under heavy criticism, despite some progress, and it may be time to look to alternative solutions.
Sources:
‘Brown call on Third World Debt'
‘The Remittance Lifeline'
‘Us Agrees to Big Boost for Poor Nations in Return for G8 Support on Rebuilding Iraq '
Speech Given by the Chancellor of the Exchequer, Gordon Brown at the ‘Financing Sustainable Development, Poverty Reduction and the Private Sector: ‘Finding Common Ground on the Ground' conference, Chatham House, London . 22 January 2003 .
Speech by the Chancellor of the Exchequer at CAFOD's Pope Paul VI memorial lecture.
‘Brown seeks G7 support to write off third world debt'
‘ Africa 's Poorest should refuse to repay debt'
‘G8 fails to cancel debt of poorest countries'
‘ UK Chancellor pledges £100mn for Multilateral Debt Cancellation: But can we really cheer twice?'
‘Creditors Failing the World's Poor, Say Jubilee Campaigners'
‘Why the Iraqi War Might Lead to Cancelled Debts'
‘The MDG Drumbeat gets Louder – But is the World Bank Listening?'
Jubilee2000uk.org ‘ Africa 's poorest should refuse to repay debt'
posted by Development in Action at 19:19
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