news analysis advocacy
AfricaFocus Bookshop
New Gift CDs
China & Africa
tips on searching

Search AfricaFocus and 9 Partner Sites

 

 

Visit the AfricaFocus
Country Pages

Algeria
Angola
Benin
Botswana
Burkina Faso
Burundi
Cameroon
Cape Verde
Central Afr. Rep.
Chad
Comoros
Congo (Brazzaville)
Congo (Kinshasa)
Côte d'Ivoire
Djibouti
Egypt
Equatorial Guinea
Eritrea
Ethiopia
Gabon
Gambia
Ghana
Guinea
Guinea-Bissau
Kenya
Lesotho
Liberia
Libya
Madagascar
Malawi
Mali
Mauritania
Mauritius
Morocco
Mozambique
Namibia
Niger
Nigeria
Rwanda
São Tomé
Senegal
Seychelles
Sierra Leone
Somalia
South Africa
South Sudan
Sudan
Swaziland
Tanzania
Togo
Tunisia
Uganda
Western Sahara
Zambia
Zimbabwe

Get AfricaFocus Bulletin by e-mail!         More on politics & human rights | economy & development | peace & security | health

Print this page


Visit AfricaFocus Bookshop US | UK

Africa: Debt, Unfinished Business

AfricaFocus Bulletin
Jul 1, 2008 (080701)
(Reposted from sources cited below)

Editor's Note

"In May 1998, 70,000 people from across Britain and the world took part in one of the biggest demonstrations the UK had ever seen: a human chain around the Group of 8 (G8) summit in Birmingham, demanding an end to poor country debt. ... Significant amounts of debt cancellation have been secured for the world's poorest countries, making a real difference to the lives of millions of people in poor countries. .. [But] not all that has been promised has actually been delivered - and further, what was promised was far from enough." - Jubilee Debt Campaign

As G8 leaders prepare to meet in Japan next week, African development, along with global issues affecting Africa, such as climate change and the food crisis, will be on the agenda. But there are serious doubts whether the group of rich countries will deliver on their 2005 pledge to raise annual levels of aid to Africa by at least $25 billion (see http://tinyurl.com/6q4j65) And a new report by the UK's Jubilee Debt Campaign notes that the promises of action on debt cancellation are also still outstanding.

This AfricaFocus Bulletin contains excerpts from the Jubilee Debt Campaign report "Unfinished Business." The full report is available at http://www.jubileedebtcampaign.org.uk

For previous AfricaFocus Bulletins on debt cancellation issues, see http://www.africafocus.org/debtexp.php For information on the campaign in the United States and the current Jubilee Act, see http://www.jubileeusa.org, http://www.afsc.org/africa-debt, and http://www.africaaction.org/campaign_new/debt.php

@@@@@@@@@@@Editor's Picks: Crisis Updates/Background@@@@@@@

Zimbabwe: detailed July 27 election results by province, compared with March 29, plus map of violence
http://www.sokwanele.com/

Zimbabwe June 27 Election Report: SADC
http://allafrica.com/peaceafrica/resources/00011577.html

Zimbabwe June 27 Election Report: Pan-African Parliament
http://www.africafocus.org/ictexp.php http://allafrica.com/peaceafrica/resources/00011576.html

Zimbabwe: : hunger, terror, displacement and death
by Mary Ndlovu (2008-06-26)
http://www.pambazuka.org/en/category/features/49051

Zimbabwe Solidarity Fund - Africa Action, TransAfrica Forum, Priority Africa Network
http://capwiz.com/africaaction/issues/alert/?alertid=11510781

Previous AfricaFocus Bulletins on Zimbabwe
http://www.africafocus.org/country/zimbabwe.php

@@@@@@@@@@End Editor's Picks: Crisis Updates/Background@@@@@@@

++++++++++++++++++++++end editor's note+++++++++++++++++++++++

Unfinished business: Ten years of dropping the debt

May 2008

Jubilee Debt Campaign
info@jubileedebtcampaign.org.uk
http://www.jubileedebtcampaign.org.uk

Jubilee Debt Campaign is part of a global movement working for full cancellation of unjust and unpayable poor country debts, by fair and transparent means. It is a UK coalition of around 90 national organisations and 100 local and regional groups, as well as thousands of individuals.

[Excerpts only. The full 44-page report contains 7 chapters, plus appendices and endnotes. The chapters are 1. A brief history of the debt crisis; 2. The debt problem unpacked; 3. The Jubilee movement so far; 4. Promises made, promises kept?; 5 Flawed processes; 6. Debt relief is working; 7 Next stages on the journey ]

Introduction and summary

In May 1998, 70,000 people from across Britain and the world took part in one of the biggest demonstrations the UK had ever seen: a human chain around the Group of 8 (G8) summit in Birmingham, demanding an end to poor country debt.

It was a day that changed the world for millions of people. The issue of debt was catapulted to the top of the G8 agenda, leading to large commitments for debt cancellation. It was a turning point in the ability of ordinary people directly to influence the policies of global financial institutions - and to move towards justice on behalf of the world's poor.

But it was not enough. Ten years later, we look back ...to assess just how far we have - and haven't - come. ...

Continued lobbying and active campaigner engagement around the world over the past decade are cause for celebration; the report highlights some of the key moments on the journey, as well as the main debt deals that have been agreed. Significant amounts of debt cancellation have been secured for the world's poorest countries, making a real difference to the lives of millions of people in poor countries. The impact of debt cancellation should not be ignored: it is a very effective means of tackling poverty. But the results remain woefully inadequate. Not all that has been promised has actually been delivered - and further, what was promised was far from enough.

There are fundamental problems with the debt relief process: the conditions that have been attached and the delays, stigma and loss of control faced by countries receiving debt cancellation.

Even worse, far too little debt has been cancelled for far too few countries so far. Poor countries are still shelling out more than $100 million a day in debt payments; and for every $1 they receive from rich countries in aid, the developing world still returns $5 in debt service payments.

Jubilee Debt Campaign estimates that over $400 billion of debt must be cancelled for around 100 countries, simply to allow them to meet their people's basic needs. The schemes established for debt cancellation have so far wiped out around $88 billion. Put in simple and very approximate terms, around a fifth of the debt cancellation that would be required simply to meet the basic needs and rights of citizens in poor countries has so far been delivered. On top of this, much of the debt is unjust, originating in irresponsible lending decisions. This debt should be cancelled outright, on the grounds of illegitimacy.

Our demand is the same one that united 70,000 people in Birmingham in 1998. We call for an end to unpayable and unjust debt. We demand:

  • The cancellation of the unpayable debts - over $400 billion for around 100 poor countries.
  • A new definition of 'sustainable' debts, in terms of human need, to be used as the basis for cancelling unpayable debts.
  • The auditing of poor country debts and the cancellation of those that have resulted from irresponsible lending.
  • The establishment of a fair and transparent process for working out debt disputes.
  • The participation in debt cancellation processes of those creditors who have been least engaged in the process so far, especially commercial creditors; this would prevent 'vulture fund' activity.
  • An end to the imposition of economic policy conditions attached to debt relief.
  • The creation and implementation of enforceable criteria for responsible lending.

It's not a matter of charity. It's a matter of justice.

...

From Chapter 1: A Brief History of the Debt Crisis

The situation today

In the early 1980s, the interest rates on the loans tripled and even quadrupled, causing the debt crisis. While these interest rates have since come down, developing countries continue to be burdened with huge debts which many cannot afford to repay. The total external debt stock (that is, owed to creditors outside the country) of all developing countries in 2005 was $2.74 trillion, with some $514 billion paid back to the rich world that year alone. This consists of: multilateral debt, owed to institutions like the World Bank and regional banks; bilateral debt owed to other countries; and commercial debt owed to banks and private companies.

To repay this debt, poor countries have to forego crucial spending to meet their people's basic needs and to reduce poverty. Debt is one of the main barriers to development in poor countries today. Moreover, successive generations are still paying off odious and illegitimate debts - incurred by loans made to oppressive regimes; to known corrupt officials; for obviously useless or overpriced projects; or granted on unacceptable terms, such as usurious interest rates. These should be cancelled on the basis of their illegitimacy.

Debt relief schemes impose conditions on countries that wish to benefit from them, often including a host of economic policy conditions, such as privatisations of state-run enterprises, opening of markets, and drastic public spending cuts. These reforms often harm the poorest people, for example cutting their wages and reducing their access to basic services. They also undermine democracy: if policies are determined in Washington, local parliaments become powerless, and political engagement becomes meaningless.
...

From Chapter 2 The debt problem unpacked

There may well be good reasons for nations to take out loans responsibly: for example, to invest in the creation of industry, or to provide infrastructure, like roads and electricity, to support the development of local businesses. ... [we are] not calling for an end to all borrowing and lending. We are calling for an end to those debts which are unpayable or unjust. ...

Debt exacerbates global poverty and inequality

In paying back over $500 billion in external debt service per year, governments in the developing world are forced to prioritise debt payments over their people's basic needs, regardless of the levels of poverty in the country, the need for investment in essential services and infrastructure, or problems relating to recent war or disaster. ...

When poor country governments service huge debt burdens, they often do so with funds urgently needed to provide basic education and healthcare for their citizens. For example, sub-Saharan Africa has 25% of the world's disease burden, but only 1.3% of the trained health workforce; altogether it paid out more than $23 billion in debt payments in 2005. ...

Debts also contribute to global inequality; for example, as stated above, for every $1 of aid that poor countries receive, they pay back $5 in debt repayments. As long as North-South financial flows are skewed against poor countries in this way, the gap between rich and poor will only continue to grow.

Debt leads to human rights violations

It is a principle of human rights and of common sense that a government should ensure its people receive their basic needs, such as healthcare, safe drinking water, education, food, shelter and those other rights laid out in the Universal Declaration of Human Rights. Governments should not be forced to forego providing these basic needs in order to service debt owed to rich countries. Debts whose repayment has such consequences are 'unpayable' and should be written off.

Unjust debts

A large proportion of poor country debt is unjust or illegitimate; resulting from loans made irresponsibly, for which the lender should be held liable for the outcome. 'Illegitimate debt' includes: loans made to oppressive regimes; to known corrupt officials; for obviously useless or overpriced projects; or granted on unacceptable terms, such as usurious interest rates. ...

Unfair process

When it comes to resolving debt disputes, it is clear who holds all the power, and it's not the debtor countries. Imagine that you have started a business and have unfortunately gone bankrupt; you cannot pay some of your outstanding bills without denying your children food, water and medical care for years on end. But you cannot go to court to declare bankruptcy because no court exists. So you call up some of your creditors to tell them the situation. In response, you are called to a private room where all your creditors have gathered. You wait politely outside while they discuss their common position. Then you are called in, the doors close and the negotiations begin. There are twenty people in the room: nineteen representing your various creditors, and you. You're not allowed to tell anyone about the inner workings of the deal that is worked out. How likely are you to receive a fair deal?

This is a fair approximation of what it has traditionally been like for poor, heavily indebted countries to negotiate a reduction in their unpayable debts. ...

Future unpayable and unjust debt

While it is crucial to cancel current debts, it is equally important to make sure that a similar debt crisis will not occur in the future. ... even some of those countries that have had some debt cancellation through HIPC are now once again facing unpayable debt burdens. ...

From Chapter 3 - The Jubilee movement so far

The world's biggest petition

The world's biggest petition gathered 24,319,181 signatures from 166 countries by the time it was completed. Those who gave their support were signing up to the following:

We, the undersigned, believe that the start of the new millennium should be a time to give hope to the impoverished people of the world.

To make a fresh start, we believe it right to put behind us the mistakes made by both lenders and borrowers, and to cancel the backlog of unpayable debts of the most impoverished nations.

We call upon the leaders of lending nations to write off these debts by the year 2000. We ask them to take effective steps to prevent such high levels of debt building up again. We look for a new beginning to celebrate the millennium.

Top countries in each of the main continents by number of signatories:
USA 5,328,856
UK 2,961,768
Bangladesh 2,175,895
Peru 1,850,060
Australia 457,620
Zambia 306,512

2001 and beyond

After 2000, the 'millennium moment' for the debt campaign had of course passed but, despite its achievements, it was clear that the debt issue was not resolved. Responding in part to the desire of grassroots supporters to carry on, and after several consultative gatherings, the debt campaign was re-launched as Jubilee Debt Campaign in March 2001. ... Jubilee Debt Campaign has continued to press for the cancellation of unpayable and unjust debt.

From Chapter 4 - Promises made, promises kept?

[Achievements and limitations of debt relief initiatives, See full text on http://www.jubileedebtcampaign.org.uk]

Fudging the numbers: how much aid are donor countries really giving?

Debt relief is a highly effective tool in combating poverty - the Commission for Africa, for example, describes it as highly efficient when compared to other kinds of aid - because it represents in essence direct budget support. However, it shouldn't be used as an excuse for donor countries to covertly slash their commitments to other important forms of development aid.

Unfortunately, that's exactly what often happens. When it comes to calculating and reporting official aid to poorer countries, donors have become very creative accountants, making themselves seem more generous than they really are. ...

While it can be argued that, as an effective poverty reduction tool, debt cancellation should be defined as aid, this is problematic if it conceals how much finance is actually going to developing countries to help tackle poverty. Resources to fund debt cancellation should be separately identified from other forms of aid, and countries should not count money for debt cancellation towards the agreed target of giving 0.7% of their Gross National Income (GNI) to aid. ...

Jubilee Debt Campaign, along with hundreds of partner organisations, calls for donor countries to stick to their publicly announced commitments; these include making debt cancellation additional to other forms of aid they have pledged. This means, as was promised at the FfD conference in Monterrey in 2002, that debt relief should not be included in the aid figures pledged to reach the UN commitment of 0.7% GDP.

From Chapter 5 - Flawed processes

The debt cancellation that has been delivered has made a real difference on the ground, as we will explore below. But ... the vast majority of countries in the developing world still have huge debt burdens which prevent them from spending enough money on strategies for battling poverty.

The problems lie with how debt relief is currently structured. Unfair, arduous conditions and delays in the HIPC and MDRI initiatives prevent countries from quickly receiving desperately needed relief, thus costing lives in the process. Furthermore, many needy countries are excluded from the process altogether.

Unfair conditions

Conditions attached to debt relief are similar to those attached to loans by the IMF and World Bank; these conditions have played a central role in development assistance for many years. They are based on a set of policies known as neoliberalism, or the 'Washington Consensus', which includes: fiscal discipline, tax reform, liberalising interest rates, trade liberalisation, privatisation and deregulation.Many of these prescriptions have been discredited but beyond this, the main concern of civil society and developing country governments is that these countries should not be strait-jacketed into any policy formula, but should rather be able to determine their own course of development.

Countries going through HIPC now have between ten and twenty different 'trigger conditions' they must meet lest the IMF declare them 'off-track' and therefore ineligible for debt cancellation. These conditions often hurt the poor and fail to secure growth or reduce poverty.

...

Ironically, such measures involve strict restrictions on spending for basic services such as infrastructure, healthcare and education - and this is for the countries and populations that most desperately need these services. ...

And indeed, such restrictions can have absurd and tragic outcomes. For example, the IMF refused to allow Zambia to employ more healthcare workers even when the Canadian government offered to foot the bill for five years, because to do so would have meant exceeding IMF spending ceilings. Similarly, when a drought in Malawi caused food shortages, its government was forced to borrow money from domestic banks to prevent its citizens from dying. The IMF, however, viewed such a measure as irresponsible and declared Malawi 'off-track' from HIPC. ...

...

Inclusion and exclusion

Perhaps the most pressing problem with HIPC is that it leaves many highly needy countries out of debt cancellation - often for arbitrary reasons. ... we estimate that more than $400 billion of debt cancellation is still needed for around 100 countries.

Kenya is one of the many countries left out in the cold. Kenya does not qualify for debt cancellation through HIPC and MDRI because, according to criteria set by the World Bank, Kenya's debt is 'sustainable'. This is despite the fact that, in 2005/6, 46.1% of Kenyans had levels of consumption that do not meet basic food and non-food needs, even according to the World Bank's own standards for such measures. The Government of Kenya spends more each year on debt servicing ($236 million in 2005) than it can afford to spend on essential services, or receives in aid for tackling hunger and extreme poverty.

From Chapter 6 - Debt relief is working

Changing lives: the effects of debt cancellation

Despite the problems and limitations of the debt cancellation process, debt relief has had a hugely positive impact. There is clear and mounting evidence that debt cancellation is among the most effective forms of financing poverty reduction for the developing world. While detractors had originally argued that money from loans cancelled would only line the pockets of corrupt regimes, facts on the ground show just the opposite. In fact, some of the very same multilateral institutions that initially resisted the idea are now agreeing that the initiative has shown real results.

According to the World Bank, countries that received multilateral debt cancellation increased their social spending by an average of 45% between 1999 and 2003, meaning that funds for essential services like education and healthcare have increased dramatically. ...

Increasing school enrolment: In Uganda, debt cancellation enabled the government to abolish fees for primary school. Not only did this cause a doubling of school enrolments, it also drastically decreased inequality between girls and boys. Before debt relief, there were 20% fewer girls than boys in school, now numbers are almost even.

Uganda was not alone. In Tanzania, for example, the abolition of school fees has seen the number of children enrolled in primary school rise to 7.5 million in 2005, from 4.4 million in 2000.

Improving healthcare: Bolivia and Mauritania both directed funds from debt cancellation towards improving healthcare. Before debt relief, only around 40% of births in each country were attended by a health professional. Now it is nearly 60% in Mauritania and 70% in Bolivia, thus greatly improving infant and maternal mortality rates.

Recruiting teachers: Malawi has used funds from debt cancellation to train nearly 4,000 new teachers each year. Benin has used it to recruit teachers for vacant posts in rural areas, and Mali to pay 5,000 community teachers.

... In fact, a survey of ten African countries showed that spending on education went up 40% overall in just four years after getting debt cancellation.

...

Enhancing democracy and accountability

Popular opinion in the West often worries that corruption in poor countries means that all aid money will go to waste. Happily (and ironically), the reality with debt cancellation is quite the opposite. Not only is debt cancellation clearly linked with dramatic increases of direct provision of much needed basic services to the poor; more and more, it is also shown to boost the participation of the poor and more marginalised communities in the democratic process of their countries, thus improving the accountability of developing country governments. ...

While donor governments raise concerns about current corruption, they do not make the link with their own past corrupt lending, or take responsibility for this. Dealing with corruption now, also means redressing past acts of corruption. It is legitimate for taxpayers in the North to demand that development aid and loans are well spent in poor nations, but it is also legitimate for taxpayers in the South to ask why they should pay the debt service on corrupt loans that Northern governments and banks made in the past. ...

From Chapter 7 - Next stages on the journey

This report shows how much has been achieved in the past ten years. About $88 billion of poor country debt has been cancelled through international schemes, making a real difference to the lives of millions of people in poor countries. But we still need much wider and deeper debt cancellation, based firstly on a revised understanding of what a sustainable level of debt would be, and secondly on an acceptance that some debts should be cancelled on the basis of their illegitimacy. We also need a radical overhaul of the process by which debts are cancelled.

...

More debt cancellation for more countries

Based on human need, as well as legitimacy, many more countries should have their debts cancelled. Campaigners are clear that much wider debt cancellation is necessary for a lasting solution to the crisis to be reached.

A numerical expression of this can only ever be an estimate, but we calculate, based on New Economics Foundation (NEF) research, that around 100 countries still need somewhere in the region of $400 billion of their debts cancelled if they are to meet their people's basic needs (see Appendix 3 for details of this approach). This is without taking into account those debts that should be cancelled outright on the basis of their illegitimacy. As was noted earlier, some $500 billion in debts can be attributed to dictators, and could be defined as 'illegitimate' debts. ...

A sustainability revolution

Civil society groups have argued for years for a different measure of sustainability to be used as the criterion for debt cancellation. Sustainable levels of debt payments should be those allowing a population's human rights and basic needs - such as food, shelter, health and education - to be protected, and not undermined by their country's debt payments.

In contrast, in calculating a 'sustainable' level of debt, and thus who qualifies for debt relief, currently the international financial institutions and creditor clubs assess poor countries in purely financial terms; the purpose being to reduce debts to a level that each country can just afford to repay. This takes no account of other demands on public funds, or of the poverty of the people. The aim is to protect the creditors, and to maintain some participation of the country within the global economy, such as providing an opportunity for international investing and trading.

Establishing a fair and transparent process

The current process of debt cancellation must be urgently and radically reformed. In its place, an open, independent, impartial, transparent and comprehensive process should be developed to resolve debt crises and disputes. This would take account of both the origin and the impact of the debts, and would give equal treatment to both debtors and creditors, acknowledging their coresponsibility for the creation of the debts. ...

Common elements of such proposals include the following:

  • An impartial and independent panel would arbitrate the dispute.
  • The debtor country's need for financial resources to fulfil the basic needs of its population would provide the guiding principle.
  • Equal treatment would be given to debtors and creditors, public and private.
  • The process would be transparent and would involve civil society.

AfricaFocus Bulletin is an independent electronic publication providing reposted commentary and analysis on African issues, with a particular focus on U.S. and international policies. AfricaFocus Bulletin is edited by William Minter.

AfricaFocus Bulletin can be reached at africafocus@igc.org. Please write to this address to subscribe or unsubscribe to the bulletin, or to suggest material for inclusion. For more information about reposted material, please contact directly the original source mentioned. For a full archive and other resources, see http://www.africafocus.org


Read more on |Africa Economy & Development||Africa Debt|

URL for this file: http://www.africafocus.org/docs08/debt0807.php