Debt Relief Is Key to Hope for Impoverished Countries

March 19, 1999

The following action bulletin was sent out to members of the Stewardship of Public Life "Hunger and Human Needs" network. It contains a background article, action alert, biblical/theological note on debt, and instructions for using the Jubilee 2000 USA petition. Copies of the petition are available from:

Jubilee 2000
222 East Capitol Street, NE
Washington, DC 20003-1036
Tel. (202) 783-3566
E-mail: coord@j2000usa.org
Web: www.j2000usa.org

The following action bulletin with the Jubilee petition enclosed is also available through Presbyterian Distribution Service at 1-800-524-2612 (ask for item # 74360-99-321). A Jubilee 2000/USA education packet is available as item # 74360-99-322.

For more information on Presbyterian efforts around poor-country debt relief, please contact Walter Owensby at (202) 543-1126 or by e-mail at wowensby@pcusa.org.

DEBT RELIEF IS KEY TO HOPE FOR IMPOVERISHED COUNTRIES

The U.S. economy continues to confound naysayers. Europe follows suit as it puts the final touches on its economic union. Even some Asian countries show signs of recovering from their economic swoon. But the poorest countries of the world are not sharing in all this good news. One major reason is that debts accumulated from unwise, unproductive or corrupt uses over decades continue to strangle economic progress. The ordinary people of these impoverished countries suffer great deprivation as their governments slash education, health, sanitation and subsistence programs while orienting their economies ever more toward exports to generate funds for debt repayment. Only major shifts in national economies will alter those realities, and only ending the burden of crushing debt will make such changes possible.

How We Got Here

The less developed countries owe some $2.3 trillion to other governments, international financial institutions, and private banks. The vast majority of that amount, however, is owed by middle-income countries such as Mexico, Brazil and Argentina. The 40 heavily indebted poor countries, as identified by the World Bank and the International Monetary Fund (IMF), owe less than one-tenth of the total-about $220 billion. That is not an insignificant sum, but in the global financial scheme of things it is not tremendous. Lifting the burden would certainly be manageable.

The present situation results from a mix of good intentions, bad luck and bad policies over many years. These include:

1. Global economic factors. Most of the debts were originally incurred in the 1970s. Developing countries were encouraged to build their economies quickly, using borrowed money, on the assumption that they could pay off the loans with earnings from rising commodity prices. While petroleum prices remained high, other commodities tumbled in the 1980s. With export earnings falling, poor countries were unable to meet debt payments, so they borrowed still more to keep their economies afloat and their international creditors at bay.
   
   Borrowers and lenders alike lived in denial. Creditor governments and financial institutions rolled over loans rather than writing them off as the bad debts they really were. Leaders of debtor governments seized on the opportunity to avoid hard decisions and in many cases used funds to build private fortunes.
   
   
2. The Cold War. For decades, both Washington and Moscow sought to increase their international influence by extending generous loans, often with indifference to the corruption of the regimes receiving them or the validity of projects proposed. Making loans to fund proxy wars or support favored dictators, the two superpowers often paid little heed to development results.
   
   
3. Unwise loans. Money was frequently extended without the investigation and oversight that prudent banking policies normally require. Shoddy projects often resulted, and funds were diverted to the private accounts of dictators and their cronies as the cases of Marcos in the Philippines, Suharto in Indonesia and Somoza in Nicaragua clearly document. Nevertheless, all such loans have been regarded as the responsibility of governments that have followed and ultimately of the masses of ordinary people, who had no part in deciding about the loans and no opportunity to control or even influence their corrupt leaders.
   
   
4. Structural adjustment policies. When governments and banks were faced with the inability of countries to make loan payments, the IMF assumed the new role of economic disciplinarian. As the price of rolling over old loans and keeping alive the fiction of financial viability, the IMF exacted commitments from poor countries to adjust their economies to generate more funds to repay international loans. Although each such program is supposedly designed independently, the requirements are generally the same: cut government employment and subsidies; reduce government spending on social services such as health, education and transportation; slash imports; increase exports. Exporting more generally means reducing wages and shifting agricultural resources from local food production to growing products for foreign markets. Whatever the intent of such policies, their result has been to make life harder for the poor majorities in these societies in order to transfer money to wealthy nations and the international financial institutions that represent their interests.
   
   
5. Creating a cycle of debt. When countries fall behind in debt payments, it has become common practice to add the unpaid portion of interest into the original loan. New loans are extended for debt service, that is to cover payments on interest without making any progress on repaying the original loan. Indebtedness thus increases without providing new resources or making the future more hopeful.

The pressure on the poorest countries to continue paying the accumulated debt of decades is requiring a level of human sacrifice that is morally unacceptable. Consider Mozambique. Its per capita annual income is just $90; its per capita debt is $333. Life expectancy is 47 years; 15 of every 100 children die before they reach their first birthday; 60 percent of adults are illiterate; over a third of the people have no access to safe drinking water.

Mozambique's debt amounts to half of the national government's annual budget. In an attempt to meet its international obligations, according to Oxfam International, the government spends roughly twice as much on debt payments as on education, and four times as much as on health care. That is a recipe for extending human and economic disaster through the next century.

Getting History Straight

For the past two decades, as the debt burden of poor countries grew, international creditors did little more than insist that "a debt is a debt and must be paid in full." That, of course, is not always true.

In 1997, 1.3 million Americans declared personal bankruptcy, erasing more than $40 billion in debt. Each year thousands of companies in the United States also declare insolvency and receive protection from unreasonable demands by their creditors.

States, counties and municipalities in this country have a long history of defaulting. In the 19th century, Mississippi refused to honor its debts. In the 1940s nine states suspended interest payments on loans used to build railways and canals when commodity prices collapsed. Early in this decade, Orange County, California declared bankruptcy due to financial mismanagement and received relief from creditors.

The same logic has often applied to international debts. After World War II, Britain was granted the right to waive or cancel payments under certain circumstances. Germany in 1953 negotiated an accord that required the government to set aside only 5 percent of export earnings for debt repayment. (Contrast that with the IMF's current expectation of 20 percent for today's less developed countries.) In the 1960s both Poland and Indonesia were exempted from the normal payment of international debts. More recently, after the 1991 Gulf War, the United States canceled outright $7 billion owed by Egypt for military purchases.

It is important to note that all these concessions occurred without doing damage to the economic system or to the underlying concept of debtor responsibility. They simply recognize that, under certain circumstances, it makes no sense to continue talking about normal debt repayment. Instead a line is drawn and relations begin again.

What Can and Should Be Done?

After years of avoidance, the IMF and World Bank have for the first time set in motion a coordinated debt relief program. Forty "highly indebted poor countries" (HIPC) have been identified, 32 of them in Africa. Twenty were judged to have unsustainable debt loads. Seven countries have been declared eligible for relief, but only one so far has actually received help. The World Bank and the IMF have said they will decide about 15 other countries by the year 2000.

Under the HIPC plan, if an eligible country demonstrates three years of positive economic reform, it may receive up to a 67 percent reduction of the debt owed to individual countries. After another three years of good performance, that could rise to 80 percent. Following those six years, if the country has exhausted all bilateral and commercial debt reduction and still cannot manage its debt load, it could be eligible for relief from the IMF and the World Bank.

While the HIPC program is a step in the right direction, it takes too long to deliver too little help to too few countries. In the meantime, countries are shifting resources from health, education and development programs under the pressure to meet debt payments. More can be done. It is not dollars but political will that is lacking. About 90 percent of the debt of the poorest countries is owed to governments and to the international financial institutions funded by them and acting on their behalf. Changed government policies can make all the difference.

The Presbyterian Church (U.S.A.) is among the more than 40 U.S. religious and secular groups that have launched Jubilee 2000/USA. It is part of an international campaign that embraces the vision of total debt cancellation for impoverished countries by the beginning of the new millennium. Toward that end, legislation will be introduced in the new Congress to direct the U.S. government to write off the debt it is owed directly by the poorest countries. It is estimated that the HIPC countries owe only about $2.9 billion to the U.S. government in bilateral debt. That is less than this country has donated in aid to Israel each year for decades.

The legislation will also direct the Administration to urge other creditor governments to adopt a similar debt-reduction policy. Some have already declared a willingness to do this. Others can be influenced by the U.S. example.

Finally, the legislation will direct the Administration to use its weight and influence in the IMF, the World Bank and other international institutions to reduce dramatically the multilateral debt of the poorest countries. They owe about $100 billion to such institutions, of which the U.S. share is estimated to be between $16 billion and $35 billion. Those figures correspond to approximately 1 percent to 2 percent of the federal budget for one year. If the relief were spread over a few years it would hardly be noticeable, particularly in this time of budget surpluses.

The purpose of debt relief is not to make life easier for debtor governments, but to make life better for people who are suffering. Few would argue with that goal, but many worry that funds will simply be misused again. Clearly the past problems of both creditors and debtors must be corrected. In making loans, governments and international institutions must take greater care to evaluate projects and programs as well as the intentions of the receiving governments.

Desmond Tutu, the Anglican Archbishop of Capetown, South Africa, has called for countries to meet four conditions in receiving debt relief: democratization, respect for human rights, military reduction, and a commitment to use the money realized from debt relief for the needs of ordinary people. These are good guidelines for canceling past debt in order to create a more hopeful future for vulnerable people in the most impoverished indebted countries.

ACTION ALERT

Jubilee 2000/USA is part of a worldwide movement to generate the political will to lift the international debt burden of the poorest countries. In support of that goal, you are urged to:

1. Plan a Jubilee 2000 initiative within your presbytery.

The Jubilee 2000 movement focuses on both education and action. The PC(USA) will provide special staff resourcing to help presbyteries be a part of that effort. The Rev. Gary Campbell, who is completing a long career as a mission co-worker in Latin America, will be available through September 1999 to assist in planning local campaigns. He will also be available on a limited basis to teach, speak and preach. Gary has worked for the last twelve years in Nicaragua, the country which has had the highest per capita foreign debt. Having worked closely for so long with those who experience the effect of that debt, he can be an invaluable resource for your presbytery and congregational efforts. A Jubilee 2000/USA education packet is available from Presbyterian Distribution Service as item #74360-98-322. It contains petition forms, background analysis, religious reflections and organizing strategies, and is free of charge courtesy of the Presbyterian Hunger Program.

2. Circulate the Jubilee 2000 petition in your congregation and community.

This is a worldwide campaign to obtain 21 million signatures. Duplicate the petition and work with others to collect as many signatures as possible. Information about what to do with completed forms follows this action alert.

3. Ask your Representative to support debt-relief legislation to be introduced in the new Congress.

The legislation will seek to cancel the bilateral debt owed to the U.S. by the poorest countries and direct the Administration to seek a similar policy by other creditor governments, as well as to use its influence to dramatically reduce the debt that the poorest countries owe the World Bank and IMF.

Make the following points in your letter:

• Continued payments by impoverished countries on the accumulated debt require a level of human sacrifice that is morally unacceptable. (Use the data on Mozambique as an example.)
• We need to face up to the reality that most of the debt of the poorest countries will not and cannot be repaid. The countries of sub-Saharan Africa, where three-fourths of the heavily indebted poor countries are located, in 1995 were able to pay only 57 percent of debt payments due, and that was achieved only at great human cost.
• It would be to the benefit of the United States to relieve debt. U.S. policy increasingly seeks a global economy based on open markets and free trade. Lifting the burden of debt is essential to enabling heavily indebted poor countries to participate in the global economy. Markets for U.S. exports and the long-term stability of trade are at stake.
  

Honorable ________
U.S. House of Representatives
Washington, DC 20515

4. Encourage your congregation to participate in Bread for the World's 1999 Offering of Letters.

This is another important opportunity to encourage Congress to pass legislation that will bring debt relief to impoverished countries. For materials to participate in the Offering of Letters, call Bread for the World at 1-800-822-7323.

General Assembly guidance:

The 1998 General Assembly endorsed the Jubilee 2000 campaign.

A BIBLICAL-THEOLOGICAL NOTE ON DEBT

When the Presbyterian General Assembly addressed the issue of international debt in 1989, it included these comments:

"There are ... biblical principles that speak especially powerfully to the present Third World debt situation.

"First is the message of salvation, redemption, deliverance, and liberation ... The fleeing from bondage in Egypt and from captivity in Babylonia are the prototypical expressions of God's commitment that God's people shall be free-out of the clutches of the life-holder ... If debt holds nations captive and oppresses people, it ceases to be merely a financial concern and becomes a spiritual condition calling for deliverance.

"Second, there are the themes of forgiveness and jubilee ... "...[T]he Old Testament concept of jubilee [is] an institutionalized form of forgiveness which called for all slaves to be set free, land returned to the original owners, and debts canceled ... In God's envisioned world, no person, no family, and by extension no nation is to be permanently impoverished. Peonage is never an acceptable result of debt ... Economic relationships are never to be allowed to make life hopeless ..."

HOW TO USE THE JUBILEE 2000/USA PETITION

Be sure to obtain complete information from signers. The printed name and address are important in showing representatives that people in their district and state are concerned about the debt of poor countries. An e-mail address will be useful for those who wish to receive further information from Jubilee 2000.

1) Plan a signature campaign for your congregation.

Seek the approval of your church's session and the cooperation of your pastor. Some ideas:

• Set up a signing table outside the sanctuary after one or more Sunday services. (It would be ideal as follow-up to a sermon on the biblical jubilee concept.) Have available materials you can duplicate from the Jubilee 2000/USA education packet.
• Hold a family night dinner with a program on the human tragedy caused by the indebtedness of impoverished countries. (A 20-minute film will be ready in the spring of 1999 through Jubilee 2000/USA.) Have petition forms available for signing.
• Hold an adult forum on Jubilee 2000 as part of the Sunday church school program. Seek signatures.

2) Work with others and together take the issue to your community:

• Have a signing table outside a local supermarket on Saturday or at some community event.
• Organize a door-to-door signing campaign in your neighborhood and encourage other people you know to do the same in theirs, preferably following a community or church forum on the debt issue.
• Write a letter to the editor of your local paper on the debt issue.
• Ask your local newspaper do a story on the need to cancel the foreign debt of the poorest countries. You might speak with someone you know at the newspaper, or meet with the editors to request a story. Church and community actions to circulate the Jubilee 2000 petition would be natural photo-ops for such a story.

3) What to do with completed petition forms:

• Send a photocopy of each sheet of signatures to Jubilee 2000/USA, 222 E. Capitol Street NE, Washington, DC 20003. These will be delivered to national and international policy-makers at various times during the Jubilee 2000 campaign.
• Deliver the original copies of the signed petition forms to your U.S. Representative and two Senators. Make an appointment and lead a small delegation to meet with them when they are in their home districts.
• Before you present the petitions, provide photocopies of the signed sheets to your local newspaper and other media. Include some material from the Jubilee 2000/USA education packet. Let them know when and where you will present the petitions to local legislators, and request coverage. Make reminder phone calls to the media the day before the event.