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Still living on promises

Forget the claims of 100 per cent debt cancellation – rich nations are still failing the world’s poor, says Mike Rowson

Campaigners are having a hard time. People think that the Third World debt problem has been dealt with, that rich nations agreed at their last summit to cancel $100bn of outstanding loans, and that the only dilemmas now are about what developing countries do with their new found wealth.

Sadly, this perception couldn’t be more wrong. The true story is one of nifty public relations and delaying tactics on the part of creditors.

Despite the $100bn promise and the vows of all the G7 countries to cancel 100 per cent of the debts owed to them individually, the shocking truth is that just $13bn dollars of debt have been cancelled and only five countries have benefited. Worse, what is currently on offer still isn’t enough to make a significant difference to health in poor countries.

Officially, the 40 countries classified by the World Bank as highly indebted and poor owe over $200bn to rich nations. So the $100bn promise only applies to about half of the outstanding debt. But in reality, the picture is worse than this because it is not at all clear why just 40 countries should receive debt relief. There are about a dozen other extremely needy cases such as Nigeria, Haiti, Bangladesh and the Philippines who could justly claim to be both highly indebted and poor, but who will not benefit at all from the deal currently on the table. Jubilee 2000 argues that 52 countries need debt cancellation and that the total debt outstanding is closer to $370bn.

Bizarrely, Nigeria was in fact on the list for debt cancellation two years but was suddenly removed in 1998. All the economic indicators show that it should still be on the World Bank list – but it isn’t and nobody seems sure why. Nigeria desperately needs debt relief if it is to recover after the dreadful period of military rule. The collapse of this nation would be disastrous for the whole of West Africa.

And the $100 billion dollar figure is a promise of debt relief, not a reality. As we have seen rich nations have so far only delivered on about 10 per cent of this figure. This is scandalous for two main reasons.

First, the $100bn commitment is only the sum of several previous offers of debt relief dating back to 1994. It has taken 6 years to deliver a miserly $13bn dollars of debt relief, despite important declarations in 1996 at the IMF and World Bank meetings, and in 1998 and 1999 at the G7 Summits of world leaders, which indicated repeatedly that the process was going to be shortened, streamlined, and broadened to include more countries.

Second, $100bn dollars of debt cancellation doesn’t mean that poor countries will have $100bn worth of resources freed up to use on health and anti-poverty programmes. The world’s poorest countries are in fact only able to make a fraction of the scheduled interest payments on their debts, so creditors are often only writing off debt which will not be paid back anyway. This is an exercise which has very little real cost to them, and is of little benefit to poor countries as many do not see their interest payments reduced.

This can be illustrated by looking at the table which distinguishes between cuts in the debt stock (‘nominal reduction’ in the table below) and reduction in interest (‘debt service’) payments for the first five countries coming through the Highly Indebted Poor Countries (HIPC) initiative.

Although the variation is wide (from 7 per cent reduction in debt service in Tanzania’s case to 67 per cent in Uganda’s) it is plain that 100 per cent debt cancellation is not on the cards for any of the countries benefiting from the HIPC initiative. It is currently predicted that only a handful will see debt repayments cut by half or more.

Zambia is one of these countries. It is one of the world’s poorest nations and in its capital city, Lusaka, one in four adults is HIV positive; TB and malaria are out of control and the health system has basically collapsed. Child mortality rates are rising. Yet after coming through the HIPC initiative and receiving debt reduction it will still spend twice as much on debt repayments as it does on health and education combined.

Despite the fact the G7 countries have now all made statements promising 100 per cent cancellation, this claim often has to be interpreted with caution.

• The G7 countries each interpret ‘100 per cent’ differently, so some are not really cancelling all debt.
• This ‘100 per cent’ is limited to a small range of countries – many which desperately need debt cancellation are excluded.
• Multilateral debt (owed to the World Bank, International Monetary Fund and regional development banks) is still not being cancelled and forms a large proportion of the total outstanding.
• 100 per cent commitment is not the same as the delivery of 100 per cent cancellation. Poor countries have first to complete a long and controversial set of economic adjustment measures overseen by the IMF. So far only one G7 creditor (the UK) has delivered 100 per cent cancellation and this has only been granted to Mauritania.

The Japanese offer of 100 per cent cancellation is a good example of how the process can be abused. Japan has said that it will not cancel the debts, but each year after the payments are made, it will give them back in the form of grants. These grants must be used to buy imports, and so cannot be used for essential domestic spending on poverty reduction; and, although the government claims the money is ‘untied’, the Jubilee 2000 campaign in Japan claims that in practice the money is released only for imports from Japanese companies.

Bill Clinton was the first G7 leader to make an offer of 100 per cent cancellation last September. Since then the US has helped to stall the whole process, as Congress is blocking the disbursement of the $210m necessary to underwrite debt cancellation by the IMF and the World Bank. In response the European Union has refused to hand over its share of the debt relief costs. The World Bank meanwhile argues that writing off its HIPC debt would damage its triple A credit rating, despite the fact that the Bank is guaranteed by over $180bn of subscribed capital from members.

The Cologne Summit also made debt relief conditional on countries designing poverty reduction plans, in addition to complying with the usual harsh economic conditions. Although potentially a good idea, in practice the move has merely delayed the disbursement of debt relief further. Clare Short highlighted this when she criticised the ‘search for the perfect poverty reduction plan’.

The demand for 100 per cent cancellation is no longer a radical one. Kofi Annan has recently called for donor countries and the World Bank and IMF ‘to consider wiping off their books all official debts of the heavily indebted poor countries in return for those countries making demonstrable commitments to poverty reduction.’ For the poorest countries it is the only solution imaginable if they are to have any chance of tackling poverty and disease in the years ahead.

Paying off the debt: the first five countries coming through the Highly Indebted Poor Countries initiative

Country Debt stock Nominal Debt service Debt service % reduction in Education Health

($m, 1998) reduction before HIPC after HIPC debt service spending spending

Uganda 3935 1950 155 50 67 174 126

Bolivia 6078 2060 329 240 27 442 325

Mauritania 2589 1200 116 80 31 51 17

Tanzania 7603 3000 162 150 7 154 87

Mozambique 8280 4300 112 45 60 96 57

TOTAL 30411 12510 874 565 35 917 612

Source: Jubilee 2000 Coalition

With thanks to the Jubilee 2000 UK Coalition for research.