debt relief

september'08

One of the most welcome phenomena of the 1990’s was the momentum of the campaign which challenged international creditors to cancel the debts of the world’s poorest countries.

It all started when the IMF and World Bank set up the $7-$10bn HIPC (Heavily Indebted Poor Country) Initiative in 1996 in an attempt to resolve the problems some of the world’s poorest countries were experiencing in making debt repayments. In this historic change of attitude, the IMF and World Bank accepted that some debt cancellation would be required if the poorest countries were to make any meaningful attempt at tackling the extreme poverty experienced by their people. In practice, however, it soon proved disappointing in both the amounts available and in the conditions laid down by the creditors before any relief became due.

Just before this in 1994 Jubilee 2000* was set up by a small group of concerned NGO's and individuals with the call to the international creditors to cancel the unpayable debts of the world’s poorest countries by the end of 2000 as a celebration of the millennium. Starting off with very little money behind it, one of Jubilee 2000's first actions was to draw up an international petition addressed to the international creditors asking them to cancel these debts under a fair and transparent process.

In 1997, the movement became more influential and better organised with the support of the churches and the major charities and NGO’s working on poverty relief in the Third World. With this backing and catching the mood of the time, Jubilee 2000 now started to make waves and at the G8 meeting in Birmingham in 1998, it mobilised 70,000 supporters and presented 1,500,000 signatures from 50 countries to Clare Short, the UK International Development Secretary. The result - a promise by the G8 to cancel $50 bn of the debts of the world's poorest countries.

Rising media coverage, increasing international build up, along with support coming all the way from the Pope to the pop world, meant that Jubilee 2000 was now on a roll. In 1999, a human chain consisting of 50,000 peaceful demonstrators snaked its way round the centre of Cologne where the G8 was presented with the latest number of signatures on the petition - 14,700,000. In another impressive display of people power, the G8 now doubled the amount of debt relief to US$100 bn. By December 1999, through bilateral promises, that figure had increased to US$110 bn. As one economic commentator remarked, Jubilee 2000 had become the world’s most effective single issue initiative. Some ordinary idea, some extraordinary people!

With all this money piled up on the table, inevitably expectations had raced far ahead of reality. To qualify for debt relief a country has to draw up a Poverty Reduction Strategy Paper highlighting how it intends to use the money saved as well as how it plans to promote economic growth. The IMF and World Bank then have to pass the paper. On agreement, each country then has to reach a Decision Point when their debt is crystallised and later a Completion Point where the final amount for cancellation is calculated so as to leave each country's debt on a 'sustainable' level. However, according to many economists and international aid agencies, this still left the world's poorest countries with an intolerable burden.

To date international loans totalling more than $68bn have been written-off the books of the 23 countries which have already reached the HIPC Completion Point as at May, 2008. These countries are - Benin, Bolivia, Burkina Faso, Cameroon, Ethiopia, Gambia, Ghana, Guyana, Honduras, Madagascar, Malawi, Mali, Mauritania, Mozambique, Nicaragua, Niger, Rwanda, Sao Tome & Principe, Senegal, Sierra Leone, Tanzania, Uganda and Zambia.

At the same time 10 other countries which have reached the HIPC Decision Point (Afghanistan, Burundi, Central African Rep., Chad, Rep of Congo, Dem Rep of Congo, Guinea, Guinea-Bissau, Haiti and Liberia. These nations will now see most of their international debts cancelled once Completion Point has been reached.

In total it will save these 33 countries $2bn annually in interest payments which will now be ring fenced and be made available for investment in health education, clean water and infrastructure.

In early 2005, with the birth of the Make Poverty History campaign and the report by Tony Blair's Commission for Africa, debt relief for the poorest nations was again high up on the political agenda. And at the G8 meeting held at Gleneagles in July Tony Blair persuaded his fellow leaders to agree to cancel the outstanding international debts of countries which had reached the HIPC Completion Point.

The IMF and World Bank duly endorsed this decision in September, 2005 under the Multilateral Debt Relief Initiative (MDRI). So now once countries get through HIPC, MDRI means that they get cancellation of more World Bank, IMF and African Development Bank debts than was originally agreed at Completion Point. To date this has meant that countries completing HIPC have seen another $49bn wiped off their outstanding debts as a result of MDRI.

A good example of how these savings can be put to good use is in Uganda which was one of the first countries to receive debt relief under the HIPC Initiative. Here all money saved goes into a Poverty Action Fund which is monitored by civil society under the Ugandan Debt Network. Some of this money is helping to build new classrooms in schools. This has meant that primary school attendance has rocketed from 2.5 million to 7 million in just four years after debt repayments were reduced in 1997. And further debt relief should re-inforce this progress.

G8 finance ministers also agreed that another 8 countries classed as 'pre-decision point countries' would also see all their international debt cancelled if and when they complete the HIPC process. These countries are Comoros, Cote d'Ivoire, Eritrea, Kyrgyz Republic, Nepal, Somalia, Sudan and Togo.

In another move the Paris Club of international creditors have now written-off $18bn or 60% of Nigeria's outstanding bilateral international debt of $30bn after Nigeria agreed to repay $12bn. However, Nigeria still owes $5bn - mainly to the World Bank. (Nigeria is benefiting massively at present from the rise in oil prices which saw $25bn paid by international oil companies to the Nigerian Treasury in 2005)

Flushed with all this success debt campaigners are now moving on insisting that at least another 23 countries need 100% cancellation in order to meet the UN Millennium Development Goals < see globalisation>.

Now that rich countries have taken the pragmatic approach and forgiven most of the debts owed by many of the world's poorest countries what does the future hold for those countries whose debts have been cancelled?

For them the slate is now wiped clean and the money which would previously have been set aside for debt service payments is now freed up for investment in poverty reduction. And treasuries in these countries will no longer have the burdensome task of calculating interest payments. But these nations should no longer attract new loans from the World Bank and rich countries should no longer extend credit to them. Any future investment should only be in the form of grants that can be properly monitored for the last thing we all want to see is poor countries again getting into difficulties with loan repayments.

In a further move to help all developing countries ease the burden of debt service payments, the IMF has started to float the idea of international insolvency for countries. (Although municipalities and companies can file for insolvency, it has not been possible for countries to do so before.) This would mean that all creditors, apart from the IMF and World Bank, of course, would be forced to accept reduced or no interest payments on their loans or even a reduction in principal. This is a welcome step which will be difficult to administer and will inevitably lead to developing countries paying higher interest rates on future borrowings to compensate creditors for increased risk.

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* Jubilee 2000 was set up as a time limited campaign (1994-2000) seeking to convince rich countries and international institutions of the need to help the world's poorest countries by cancelling their unpayable debts as a celebration of the millennium. In these 7 years the Jubilee 2000 petition gathered 19.6m signatures from 165 countries making it the largest international petition. And taking the amount of debt relief promised by the G8 at December, 2000 - $110bn (£55bn) - this meant that each signature was worth $5,610 (£2,805). None of us regularly sign cheques for £2,800 yet each signature often from people who had literally nothing else to give was worth this large sum.

And in what could be claimed to be another record, the income of Jubilee 2000 from 1994-2000 was probably no more than £5,000,000. If we take again the total debt relief promised by the G8 and the international institutions - $110 bn (£55bn) - it means that every £1 donated returned an incredible £11,000. Some investment!

Furthermore those supporters of Jubilee 2000 who went to Birmingham in May 1998 and took part in forming the human chain round the Conference Centre can each proudly claim to be responsible for 60 children now being in primary school in Uganda, the first country to receive debt relief.

And so now within the space of less than 10 years this small group of people who set up Jubilee 2000 which later became Jubilee Debt Campaign have now seen their dream realised and many Africans are no longer being born into debt. Surely a magnificent example of how a small group of dedicated people can change the world.

for more information and latest campaign news see http://www.jubileedebtcampaign.org.uk

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