by Jennifer Davis

July 1, 2005

When the leaders of the Group of Eight gather for their annual summit this July, they will likely be putting the finishing touches on their plan to grant 100 percent multilateral debt cancellation for 18 poor countries, mostly African. Announced in London on June 11, the deal followed many months of rumors and leaks about complex disagreements on issues like who would get relief, who would pay for the relief and how. Agreement was struck at a meeting of G-8 finance ministers, soon after a visit to President Bush by Prime Minister Tony Blair. Mr. Blair has tried to address Africa's current crisis of poverty and slowed development, as he seeks to win back a "caring" image - destroyed for many British voters by his support of the war on Iraq.

Standing alongside the Prime Minister in early June, President Bush appeared to support strong moves for debt cancellation in his statement, that "highly indebted developing countries that are on the path to reform should not be burdened by mountains of debt."

Forward Progress but Still Far to Go

While acknowledging the significance of the G-8 finance ministers' plan, proponents for debt cancellation have also characterized the proposals as only a first step. The proposal is sadly inadequate when measured against the many countries and billions of dollars of debt left untouched by the plan.

Debt cancellation will initially affect the $40 billion in debt owed by 14 African and 4 Latin American countries (to financial institutions like the IMF, World Bank and African Development Bank). Nine other African countries could qualify for full debt cancellation in the next 12-18 months. Only countries that have reached the "completion point" in the Highly Indebted Poor Countries Initiative (see below) can immediately qualify for the cancellation. Countries like Nigeria and South Africa, saddled with debt from previous military dictatorships or repressive regimes, are not covered by the agreement. More than two- thirds of the $300 billion African debt load will remain untouched.

Debt cancellation and development groups say 62 countries need total debt cancellation if they are to make any progress against poverty; or attempt to meet the Millennium Development Goals adopted by the U.N. in 2000. These goals seek to cut poverty and disease in half by the year 2015.

The estimated cost of writing off the debts of the first 18 countries is $40 billion, plus $11 billion for the soon-to-be eligible nine. Total annual savings for the 18 countries (which will no longer have to make interest or principal payments) is estimated at $1.5 billion. (Countries like Uganda and Zambia have already shown a willingness and ability to use savings they achieved from earlier debt cancellations - for poverty reduction programs.)

As a reality check, activists have pointed out that many countries have been unable to make their annual payments for many years and have been sinking deeper into debt. The agreement will not empower these countries to address poverty issues, because it will not free up a flow of money for anti-poverty projects that was previously going to pay off debt or interest on debt.5 In other words, debt cancellation is important for addressing African poverty, but it must be joined to fair trade, more aid and the end of crippling conditionalities to offer real hope of effectiveness.

Debt How, Why, When

In 1970, as many African states were establishing their newly won independence, Africa's debt to external lenders was only $11 billion; it rose to $120 billion by the early 1980s, a period during which the two oil price shocks of 1973/4 and 1979/80 forced fragile young economies to pay higher prices for oil, at the same time that the international crisis and recession of the early '80s depressed both the demand for, and prices of, many exports from developing countries.

Total external debt then worsened during the period of structural adjust- ment in the 1980s and early 1990s, and reached $340 billion in 1995, the year just before the launch of the original HIPC. (See below.)

Africa's current external debt, estimated at $350 billion, is widely recognized as too high for the continent to afford. Much of it is also widely regarded as "odious" and illegitimate* arising from the willingness of western lenders to make vast credit available to corrupt leaders and brutal dictators whose projects had little to do with addressing their people's urgent needs. As a proportion of gross domestic product and of export earnings, this debt is the highest of any developing region - and its costs stand in the way of public investment in infrastructure like bridges and roads and schools, or of spending on human resources and development, like training, or paying doctors and nurses and teachers.

Translated into human costs the picture is hideous:

In Malawi, where nearly one in five citizens is HIV positive, more money is spent servicing the country's debt each year than on health.

Zambia's debt servicing to the IMF has been costing $25 million a year - more than the entire national budget for education in a country where 40 percent of rural women and children cannot read or write.

Even after receiving HIPC debt relief, African governments still spend, on average, $14 per person on debt payments, compared with $5 per person on health - on a continent where the HIV-AIDS pandemic killed over two-and-a-quarter million men, women and children in 2004.

Last year, African countries paid $13 billion in debt payments. The cost of fighting the pandemic that is killing so many is $10 billion a year. The arithmetic is brutal. Paying old debt is costing millions of lives.

Paying Back Over and Over Again

Between 1970 and 2002, Africa received $540 billion in loans; despite paying back close to $550 billion in principal and interest to wealthy creditors - like the G-7 countries, World Bank and the IMF - interest charges meant it still had a debt of $295 billion at the end of 2002. The figures are even worse for sub-Saharan Africa, which borrowed $294 billion, paid out $268 billion in debt service and remained stuck with a debt of $210 billion.

Citing these figures in a 2004 study, the U.N. Conference on Trade and Development (UNCTAD) argued strongly in favor of an African debt write-off, pointing out that rather than resources going from the rich to the poor, there has been a reverse transfer of resources - out of the world's poorest continent, and into the coffers of wealthy nations and institutions.

UNCTAD disputes the widely held official Washington view that Africa's debt burden is simply the legacy of irresponsible and corrupt African governments. It points to other factors, including the eagerness of public and private western lenders to use easy credit first to woo political allies in the Cold War years, and later to secure African compliance with Western globalizing interests. It recalls the willingness of many lenders to place massive loans with little regard for their purpose.

A First Step toward Full Cancellation, a Victory for Many

In an informal comment celebrating the June announcement as a notable though limited victory, Neil Watkins, National Coordinator for Jubilee USA Network, summed up the mixed feelings of many hundreds of thousands of campaigners and hundreds of millions of Africans who pay the price for the debt load:

"The G-8 Finance Ministers, under pressure from all of us, took a first step toward debt cancellation. The deal they agreed to is clearly insufficient - it is only for 18 countries, and devastating conditionality remains for other countries to qualify*. But we won a valuable precedent - it is the first time the G-8 has agreed to 100 percent debt stock cancellation for any country, and the IMF was included after we had feared it had been taken off the table."

Many commentators agreed that even this imperfect victory would not have been possible without the long years of engaged concern demonstrated by many millions of men and women across the globe. It took two decades for concerned activists to win serious consideration for their call for debt cancellation.

Structural Adjustment Instead of Cancellation - HIPC

By 1996 it had become clear that the debt burden was destroying any possibility that many countries in the so-called developing world could promise more than endless poverty, starvation and disease to their people. Under growing pressure, the World Bank and IMF launched the Heavily Indebted Poor Countries Initiative (HIPC) under which the debt of 42 countries (34 African) was to be reduced to a level the creditors deemed affordable and sustainable, defined as no more than the value of 150 percent of annual exports.

Even such limited relief could come only after the country had met numerous IMF-advised conditions during a six-year probationary period - conditions which curtailed the individual countries' rights to determine the shape of their economy and its functions; included severe cuts in health and education spending; enforced trade liberalization and privatization of government-owned industries and services, such as the supply of water.

Designed by the World Bank and IMF to eliminate only $100 billion of the debt owed to multilateral lenders, HIPC provided too little relief to too few countries and was soon heavily criticized for the ways it imposed "structural adjustments" on countries seeking relief. Amendments were made to meet some of the criticisms (with the institution of HIPC-2 in 1999), but the conditionalities remained, and after 10 years only half of the targeted countries have received some limited debt relief - on average canceling about one-third of individual country debt - far from the 100 percent cancellation now being widely demanded.

Movement Grows Stronger

Campaigners for debt relief in the developing world and their international supporters were labeled dreamers when they first began urging cancellation of the huge debt, which crippled efforts to achieve sustainable economies in the global South. But by the mid-nineties the Jubilee movement was launched, intentionally linking its call for debt cancellation for the world's poor countries to the biblical vision of a Jubilee year, described in Leviticus where those enslaved because of debts are freed, lands lost because of debt are returned, and community torn by inequality is restored.

Using careful analysis and long- term organizing, a growing core of men and women, active in both the industrialized North and the developing South, raised the call for debt cancellation at the birth of the new millennium. They urged that the year 2000 become the year for "Jubilee." The international Jubilee network, born in 1997, was deeply rooted in faith communities. It united a broad spectrum of individuals and organizations, including labor and nongovernmental organizations, into a powerful force, able to bring great pressure on G7 leaders to "cancel the unpayable debts of the poorest countries by the year 2000, under a fair and transparent process."

By the end of the campaign, 24 million signatures had been gathered for the petition, the first-ever global petition. There were Jubilee 2000 campaigns in more than 60 countries around the world, including the very dynamic coalition in the U.S. G-7 leaders had committed to writing off $100 billion of poor country debts, and debt had been pushed onto the global political agenda.

The Struggle Continues

Despite these victories, many countries were left still deeply indebted as the Jubilee year ended. Within months, Jubilee coalitions were reborn and restructured to continue the struggle into the new millennium. In the U.S., the Jubilee USA Network emerged, with the message that "international debt has become a new form of slavery. Debt slavery means poor people working harder and harder in a vain effort to keep up with the interest payments on debts owed to rich countries, including the U.S. and international financial institutions such as the International Monetary Fund (IMF) and the World Bank. Jubilee USA Network brings together people to turn this reality around."

Looking ahead

The campaign to achieve 100% multilateral debt cancellation will be focusing on some immediate tasks in the remaining weeks before the G-8 July 6-8 2005 meeting, all aimed at intensifying pressure on leaders to:

• Expand the list of countries included in the cancellation - 62 nations require debt cancellation to meet development goals supported by the U.S. government. Advocates will continue to push for cancellation for non-HIPC countries in which populations suffer extreme poverty, such as Nigeria and South Africa, neither included in the HIPC process.
• Cancellation of "odious debt" - accumulated by dictators or corrupt leaders; peoples who overthrow undemocratic governments should not be responsible for debts accumulated by the deposed regimes.
• Remove the harmful economic conditions imposed by the World Bank and the IMF as requirements to qualify for cancellation

Stewardship of Public Life-Africa readers can:

Help send the message to President Bush and Secretary Snow that this debt deal is only the first step. The G-8 meeting in Scotland in July should discuss how to move from a timid first step on debt cancellation to a bold new deal on debt for all countries in Africa. We need to continue to raise our voices until all African countries receive 100 percent debt cancellation.

General Assembly - 1996 Statement - PC(USA), pp. 539-540

PRINCIPLE: The repayment of debts and interest at the expense of the basics of life raises serious questions of justice. The burden of debts must be shared equitably in ways that reduce poverty, protect the environment, and avoid perverse incentives in the future.

[For the complete policy Hope for a Global Future: Toward Just and Sustainable Human Development, see PCUSA, 1996, pp. 524-587.]

[The 208th General Assembly (1996) of the Presbyterian Church (USA):]

a. Calls upon all governments, all multilateral lending institutions, and commercial banks . . . to strive to insulate the poor of indebted countries from the costs of debt repayment and to consider seriously debt forgiveness or debt relief for the most heavily indebted and poorest countries.

b. Urges all creditor governments, multilateral institutions, and private lenders, in reaching agreements on debt relief, to condition them on the effects debt relief likely will have on the incidence of poverty in debtor countries . . .

ACSWP Commentary

The 210th General Assembly (1998) reaffirmed the action of the 208th General Assembly (1996) which called for debt relief as found in the policy paper, "Hope for a Global Future." The foundation for this reaffirmation was support for "Jubilee 2000," a movement to cancel the crushing international debt of impoverished countries by the new millennium. ("Jubilee 2000" is based on the Old Testament injunction to grant debt remission on "Jubilee" from Deuteronomy 15:1 and Leviticus 25:10.) The resolution endorses and supports the "definitive cancellation of international debt in situations where countries with high levels of human need and environmental distress are unable to meet the needs of their people. . . in a way that benefits ordinary people and facilitates their participation in the processes of. . . debt relief." (PC(USA), 1998, p. 676) The complete text of this resolution can be found in PC(USA) Minutes, 1998, p. 676.

The 211th General Assembly (1999) of the Presbyterian Church (U.S.A.) then reaffirmed the action of the 210th General Assembly (1998) calling for debt relief, and recommended study materials for congregations include the "Report of the Eighth Assembly of the World Council of Churches."