What about debt?
“The debt burden of the poorest countries remains completely untenable, and the poorest countries still pay the rich world $100m each day in debt repayments.”
- The debt problems of low-income countries arose primarily from changes in the global economy in the 1970′s and early 1980′s which were beyond the control of the debtor countries.
- International institutions did nothing to prevent the crisis, and have constantly stalled on measures to deal with it, seriously aggravating its economic and social impact. This reflects creditor countries’ complete dominance in decision-making processes.
- Essential lending and debt relief has been made conditional on ideologically-based policies serving creditor interests, which have proved to be ineffective and socially harmful. Debt relief has been deliberately delayed to enforce such conditons.
- Debt cancellation remains seriously inadequate, and the debts of many beneficiary countries remained unsustainable even before the current global financial crisis.
- Much of the debt arises from loans made knowingly (and sometimes illegally) to corrupt and/or unrepresentative governments, providing no benefit to the population (odious debt), or to fund unsuitable projects which failed due to bad advice from lenders.
What is debt relief?
- In 1996, when it had been clear for more than a decade that the debts of many low-income countries were unsustainable, the Heavily Indebted Poor Countries (HIPC) Initiative was established to reduce debts of 41 of the poorest countries to a level defined by creditors as ‘sustainable’.
- To be eligible, countries have to meet economic policy conditions for a period of six years.
- In the first 11 years of the initiative, only 24 of the 41 eligible countries qualified for full debt relief.
- The 2005 Multilateral Debt Relief Initiative (MDRI) offers full cancellation of debts owed to the World Bank, IMF and African Development Fund to countries which have completed the HIPC process including meeting all the imposed conditions. (For more information on HIPC and MDRI see the Jubilee Debt Campaign website)
What are problems with debt relief schemes?
- Debt reduction came far too late, seriously damaging development prospects of insolvent countries.
- Too few countries are eligible for the HIPC scheme.
- For those who are eligible, the process is seriously delayed by policy conditionality.
- Many of the policies on which debt relief is conditional have proved economically ineffective and socially harmful.
- The criteria for “sustainability” are arbitrary, and do not reflect social or developmental needs.
- No mechanisms are available for the cancellation of odious debts.
- The HIPC and MDRI schemes do not include debt relief to other multilateral lenders (e.g. the Asian and Inter-American Development Banks).
What needs to change?
- All countries’ debts should be reduced without delay to a level consistent with poverty eradication, health for all and sustainable human development.
- All illegitimate and odious debts should be canceled.
- This would allow governments to redirect the money saved in debt repayments towards poverty eradication and improving social determinants of health.
- All harmful policy conditions on debt relief should be removed.
- Mechanisms should be developed to ensure that developing countries governments are transparent and accountable to their populations in their spending of the money saved by debt relief.
- Debt relief should not be included in aid budgets of developed countries, but should be additional to their commitment to provide 0.7% of national income in aid.
- Future loans should be given responsibly, according the priorities of recipient countries, without harmful conditions, with financial accountability and transparency, and on terms consistent with future debt sustainability.
- Effective mechanisms should be established to prevent future crises and to resolve future crises quickly, effectively, independently and at minimum human cost.
For anyone interested in reading further, we suggest:
- Thomas M. Callaghy “Innovation in the Sovereign Debt Regime: From the Paris Club to Enhanced HIPC and Beyond“
- Stephen Mandel “Debt Relief as if People Mattered“
- Stephen Mandel “Odious Lending“
- Stephen Mandel “Debt Relief as if Justice Mattered“