Debt Relief at Last?

During the last few months,

During the last few months, desperately needed progress has been made on debt relief for the world’s poorest countries. In the lead-up to October’s World Bank and IMF meetings, the U.S. Treasury floated a plan to cancel 100 percent of the debt owed to those institutions by about 30 extremely poor countries.

The need has never been more urgent. Foreign debt is the gift that keeps on taking—many countries, even faced with runaway rates of AIDS and poverty, are forced to spend more each year on interest payments than on education or health care. African countries pay almost $15 billion a year in interest—one and a half times what the AIDS-ravaged continent receives in foreign aid. And debt relief works; the limited debt relief awarded so far has helped countries put millions of children back in school, vaccinate kids against deadly diseases, and fight HIV infection rates.

The Treasury plan isn’t perfect. At least 20 more countries are in great need of debt relief, and the plan is likely to include harmful demands. At press time, it wasn’t clear whether the G7 finance ministers would accept the U.S. plan, or whether activists will have to focus still more pressure on wealthy governments leading up to the G8 meeting in Scotland in July 2005. But when debt relief happens—and, for the survival of millions of the world’s poor, it must happen—there are several lessons we can learn from the past mistakes.

First, don’t make this an obstacle course. It is reasonable to expect that governments spend their reclaimed money on things that help their people, such as health and education. However, the previous, partial effort at debt relief (the Heavily Indebted Poor Countries initiative) required that countries follow the World Bank and IMF’s questionable, one-size-fits-all program of privatization, indiscriminate lowering of tariffs, and focusing economies on one or two export commodities. And HIPC offered partial debt cancellation only after several torturous years of toeing the line.

Second lesson: Use real math. Basic economic sense was cruelly absent from HIPC. Many countries found that their reduced debt did not meet the program’s own modest targets for "sustainability" (in which debt should be no more than 150 percent of a country’s yearly income from exports).

Turns out that HIPC’s number crunchers had expected wildly unrealistic growth rates for the debtor countries—and, incredibly, they had also ignored the fact that world prices for commodities sometimes go down. Such fluctuations are a basic and often disastrous fact of life for economies that are dependent on one or two exports (see above). Now HIPC is trying to tinker yet again with a bad system, by slightly "topping up" the debt relief.

BUT MORE BAD math remains. The whole premise of "sustainable" debt works well at sustaining the interest payments lenders get, but it ignores what countries will need in order to accomplish the Millennium Development Goals, the substantive set of basic antipoverty targets to which every major country and world body committed four years ago. Full debt cancellation is only one part of a much larger effort that the world will need in order to meet our commitments.

The good news is that one oft-mentioned problem with full cancellation - the question of who will pay for it—is surprisingly easy to solve. A Debt and Development Coalition Ireland audit shows that the IMF and World Bank each have enough resources to cancel the debt owed to them by the poorest countries without noticeably harming current lending or grants. For example, the IMF could revalue or slowly sell some of its 103 million-ounce gold reserves, which it currently counts at a bizarrely fictional book value that is less than one-sixth the market price.

As Marie Clarke, national coordinator of Jubilee USA Network, puts it, "We have an opportunity at this point to really free countries around the world from the burden of international debt, to proclaim Jubilee." People of faith should be watching to make sure that our world carries through on that proclamation.

Elizabeth Palmberg is assistant editor of Sojourners. Note: The October 2004 meeting of the G8 finance ministers failed to produce debt relief, but activists are pursuing a good chance of success at the July 2005 G8 meeting in Scotland. For updates, visit www.jubileeusa.org.

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