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On 100% Debt Cancellation

Actual amount of Debt Relief to Date

Only $36 billion has so far been delivered from debt stocks. $70 billion is the 'projected' amount

Why does the government insist on using the figure of $70 billion? The HIPC initiative confuses matters by committing debt cancellation at Decision point, but only actually providing it at Completion point. World Bank, IMF and staff of creditor institutions are fond of over-blowing the amount of debt that has actually been cancelled by counting all the commitments to provide relief as if the relief had already happened.
Jubilee Scotland calls for a clearer use of figures on debt relief delivered so far.

Debt Sustainability Definition

Any efforts to increase debt relief are welcome, yet we believe these will always be insufficient while basic flaws in HIPC remain unaddressed.

Under HIPC, a country’s debt is considered ‘unsustainable’ (and eligible for debt relief) where it's debt stock is 1½ times or more its level of exports. Calculations are based on overly optimistic IMF/World Bank forecasts for economic growth that exclude the possibility of external economic shocks, e.g. export price collapse or natural disaster.

We challenge this definition of debt sustainability and argue the only debt a poor country should be asked to repay is that which it can afford to service after it has funded the basic needs of its people.

Why does the government not support a criterion for debt cancellation that is based on the resources that a country needs to meet the Millennium Development Goals? (ie. halving poverty by 2015)

On Good Governance and PRSPs

The idea that countries must draw up a Poverty Reduction Strategy Paper (PRSP) in order to receive debt relief is a good one – in theory. The extent to which these are ‘nationally owned’ is debatable. As PRSP’s have to be approved by the IMF/World Bank.

Policies included in PRSPs are often similar to the damaging ‘Structural Adjustment’ policies imposed in the 1980’s and 90’s i.e. cutbacks in state expenditure, privatisation leading to high unemployment and exposure of vulnerable economies to unfair competition from powerful multinationals.

There is a requirement that civil society organisations are consulted in drawing up PRSPs, yet evidence suggests this is often token. Research undertaken by Christian Aid with developing country partners points to consultation papers in English rather than indigenous languages and of consultation on the ‘social’ but not ‘macro-economic’ parts of PRSPs. In 2001 consultants to the UK government’s Department for International Development (DFID), identified that: ‘In the majority of countries, participation by civil society in the PRSP has, as yet, been limited and superficial’ (source: Christian Aid: Ignoring the Experts).

 

Debt Sustainability After Completion Point

The World Bank and IMF have admitted that their export projections had in fact been grossly inaccurate and that up to half the countries that were expecting to reach Completion point in the next few years would not achieve the HIPC debt sustainability targets.

19 out of the 26 HIPC countries will not have sustainable debts even after the completion point of the HIPC process. What more proof does the government need to show that the HIPC process is failing to deliver debt sustainability for low income countries?
(Did the G8 Drop the Debt?)

 

On the Limits of Debt Relief as a Tool for Tackling Poverty

Debt relief alone, no matter how generous cannot guarantee long-term debt sustainability, economic growth and social development. Good governance, prudent new borrowing, and sound debt management by HIPC countries, as well as responsible financing by creditors and donors, are also essential elements of the policy framework needed to achieve these goals. Further measures beyond debt relief are needed to halve the proportion of the world’s population living in extreme poverty by 2015. Such measures include the improvement of health through the Global Fund to combat HIC/AIDS, increasing the availability of education through higher quality and quantity of spending, and trade reform.

True. An increase in aid and trade reform are vital, yet debt cancellation remains an extremely efficient way of releasing resources urgently needed for development. Debt relief provides a stable, guaranteed long term income, whereas aid is subject to changing political priorities in donor countries. The richest countries including the UK must not be allowed to move onto new agenda’s and initiatives while neglecting to finish the job of canceling unpayable debts.

 

New Loans

The 26 HIPC countries have seen debt cancellation of $29bn since 1998. They have nevertheless transferred $14.5bn over the same period to the rich North in debt service payments. Moreover, their debt stocks have only fallen by $19bn because of the volume of new loans they have taken on.

Despite the growing international attention being paid to the problems of long term debt sustainability, the loan pushers just keep on pushing.
- Congo DR which has just qualified for $10bn debt relief, is a war ravaged country with a colossal $12bn foreign debt. Between June and August alone it has received $1bn worth of loans from the World Bank.
- The World Bank alone has lent Uganda $850 million since the year 2000, against total debt cancellation under HIPC of around $2bn.

While the new loans do at least represent a positive transfer of resources to these poor countries, does the government not agree that the implications of new loans for future debt sustainability are worrying to say the least?
(Did the G8 drop the debt? Jubilee Research

 

The world Bank and IMF have been working to improve the fairness and conditions attached to their lending instruments
The chancellor will be working with other G7 ministers to review Mechanisms to encourage good governance

It is encouraging that the UK is pressing for change. However, we call on Gordon Brown as Chair of the Finance Committee of the IMF and Hilary Benn as a director of the World Bank
- to push the WB/IMF to democratize its voting rights.
- improve transparency in decision making
- to reform the conditions on countries that require loans.

 

The Chancellor has proposed an International Finance Facility (IFF) - a new mechanism to raise significant additional resources for development.
The facility would be built on developed countries' long term commitments to increased aid flows and on this basis, would leverage additional resources from international capital markets. The facility would seek to double aid from US$50 billion a year to $100 billion a year in the years up to 2015 - the sum needed to meet the internationally agreed Millennium Goals by then.

While it is agreed that the IFF is in general a good idea, there are some areas that need clarification
- How will the IFF money be distributed?
- If this front loads aid up to 2015, what will happen to aid flows after that date?
- Is debt relief to be financed by the IFF? Voters are under the impression that debt relief is being written off through past commitments (ie. HIPC) not future aid budgets
- Will the scheme divert attention away form existing initiatives ie. debt relief. To reach the MDG's indebted poor countries require 100% debt cancellation fair trade and an increase in aid.
- Will the money be available without imposing damaging free trade conditions?

The government says more debt relief would reduce aid going to other poor countries

This would only be the case if no new resources were available. In fact recent research shows the IMF and World Bank have enough unused resources to write off all their Heavily Indebted Poor Countries Initiative (HIPC) debts without affecting their existing operations. This could be achieved by selling some of their gold reserves and mobilising internal resources such as retained earnings and future income allocations.
(Can the World Bank and IMF cancel 100% of poor country debts? 2003 by Jubilee Research for Debt and Development coalition Ireland.)