Debt Relief Falls Short

In Poor Nations, Much Remains to Be Done

NEW YORK, MAY 31, 2003 ( In the run-up to the Jubilee Year of 2000 an intense public campaign focused attention on the debt burden of poor countries. Since then, progress has been made, but the amount of debt relief obtained is limited and many obstacles remain.

Back in 1996 the World Bank and the International Monetary Fund (IMF) launched the Debt Initiative for Heavily Indebted Poor Countries (HIPC). This program established a framework to provide debt relief, in the hope of reducing the constraints on economic growth and poverty reduction imposed by the debt burden.

In 1999 the program was widened, as a result of continued pressure by, among others, the Pope, Catholic charities and many non-governmental organizations. The changes reflected in HIPC II included: lowering the threshold of debt a country must have to qualify for relief; speeding up credit relief; and making more efforts to alleviate poverty. The World Bank estimates that the total amount of relief that will be provided in coming years will be around $55 billion.

Of the 40 or so countries originally projected to enter into the program, 26 have reached what the World Bank terms their “decision points,” and are receiving relief that will amount to more than $40 billion over time. Of these 26, eight countries — Benin, Bolivia, Burkina Faso, Mali, Mauritania, Mozambique, Tanzania and Uganda — have reached their completion points, having obtained the debt relief contemplated by the program.

Among the successes noted by the World Bank is Tanzania. It has received $3 billion in debt relief, and has used the money saved from debt interest payments to increase education spending and eliminate school fees for elementary education. In Mozambique, authorities were able to increase health spending, and half a million children are being vaccinated against tetanus, whooping cough and diphtheria, increasing coverage to 80% in the last two years.

The World Bank calculates that the 26 countries benefiting from relief under the HIPC initiative are saving an average $1.3 billion a year because of lower debt servicing costs, compared with payments in 1998-’99. Debt service as a percentage of gross domestic product is down to 2.4%, from 3.7%, and as a percentage of government revenue to about 13% from 24%.

Optimistic assumptions

Progress aside, the HIPC program has had its problems. According to an internal staff study by the World Bank and the IMF, reported by the Financial Times last Sept. 6, half the 20 countries examined are likely to exceed their sustainable debt targets.

“Earlier projections often contained overly optimistic macroeconomic assumptions, reflecting … inadequate analysis of the likely sources of growth and the expected impact of planned policies,” stated the study. Among the causes of the poorer results are falling commodity prices, that have hit several of the highly indebted countries, which are heavily dependent on agricultural exports.

And last Oct. 22 the Financial Times reported that a meeting of African finance ministers criticized the debt relief program for failing to keep step with goals to reduce poverty in some of the continent’s poorest countries.

“It is clear that the HIPC initiative is not working well enough,” the ministers said. “Only six African countries have reached their completion points and for some of them the debt remains unsustainable.”

Part of the blame for failing to sufficiently reduce debt levels lies with the trade policies of developed nations, says Vikram Nehru, manager of the World Bank’s HIPC program. Nehru explained that the heavy subsidies for agricultural production in Europe and the United States impede farmers in developing countries from exporting their products, BBC reported Jan. 13.

“A case can be made that trade policies which seek to protect domestic producers of commodities in the developed world end up hurting poor countries which are receiving debt relief through another program,” said Nehru.

Other criticisms center on the conditions attached to debt relief. On April 20 the British newspaper The Observer noted that to qualify for the HIPC initiative, governments have to privatize industries, ruthlessly cut public spending, and increase charges on basic services to citizens. The article called for a relaxing of conditions to enable the program to be further extended.

Ailing Africa

On Jan. 7 this year the United Kingdom-based organization Jubilee Research issued a press release accusing creditors of reneging on their commitment to cancel the debts of poor countries. The organization is a continuation of the group Jubilee 2000 that campaigned for debt relief leading up to the year 2000. It observed that two years after the deadline set by the campaign, less than $36 billion of debt had been written off, in spite of promises by world leaders to cancel $110 billion.

In advance of the G-8 summit in Evian, France, scheduled for June 1-3, the UK Catholic aid agency CAFOD issued a press release May 23 asking that world leaders not be distracted from the “scandal of poverty in Africa.”

At last year’s G-8 summit in Kananaskis, Calgary, the leaders promised: “No country genuinely committed to poverty reduction, good governance and economic reform will be denied the chance to achieve the Millennium Development Goals through lack of finance.”

But CAFOD said, “Ethiopia, Niger and Rwanda are being prevented from doing just that.” According to CAFOD these three countries have drawn up plans aimed at cutting poverty, but are being deprived of the necessary money to put those plans into action because the extra finance would take them above their debt sustainability agreements with the World Bank and IMF.

CAFOD, Jubilee Research and the Jubilee Debt Campaign published a report May 16 titled, “Did the G-8 Drop the Debt? Five years after the Birmingham Human Chain, what has been achieved, and what more needs to be done?” The anniversary refers to a human chain protest organized at a G-8 summit in Birmingham, England, in 1998 to call for debt relief.

In 1998 the Jubilee 2000 Coalition identified 52 countries in need of debt relief. At the time, these countries (and another nation later included in the HIPC list) owed a total of $375 billion, to be repaid over time periods of up to 40 years. This was almost one and a half times their collective gross domestic product.

The report notes that it was originally projected that by the end of last year 19 countries should have fully passed through the HIPC process. So far, only eight countries have received substantial debt write-offs. The report places the blame for the delays on the IMF structural adjustment conditions, which they accuse of being “designed to protect the assets and interests of creditors.”

These conditions, states the report, “are holding up debt cancellation, forcing deflationary policies on poor countries, and in some cases reversing even the debt service relief paid in 1998-2000.” In fact, the debt service paid by all 53 countries on the Jubilee 2000 Coalition list has actually increased between 1998 and 2000, to $25 billion per year from $21.9 billion per year.

The report comments: “The majority of the world’s poorest and most indebted people remain enslaved by debt, with no real hope under existing policies of being freed from indebtedness.” Indebted countries can only hope that they don’t have to wait until the next Jubilee for attention to return to their needs.

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