Author and Page information by Anup Shah This page last updated Sunday, July 10, 2005 This page: https://www.globalissues.org/article/544/40-billion-debt-write-off-is-not-a-historic-breakthrough. To print all information (e.g. expanded side notes, shows alternative links), use the print version:
Recently, G7 countries (G8 minus Russia) offered a deal of $40 billion cancellation of third world debt, praised as a
historic breakthrough by some mainstream media outlets. Bob Geldof said it was a victory for the millions of people in the campaigns around the world and Bono called it a little piece of history.
While this is very encouraging, there are some concerns because
in the past, announcements of debt relief have not really been followed up. With what sounds to be a huge debt write-of of $40 billion and more, the media are praising this. But delving into the details reveals a less rosy picture. 100% Debt Write Off is Not for ALL the Poorest Countries;
Short, attention-grabbing headlines have said that 100% debt relief write-off is proposed for the world’s poorest countries. But what is lost in this sound-byte is that it is not all the world’s poorest countries; only those that have jumped through all the hoops and barriers demanded of them.
Consider the following (with sources on this site's
Scale of the Debt Crisis section): In 1970, the world’s poorest countries (roughly 60 countries classified as low-income by the World Bank), owed $25 billion in debt. By 2002, this was $523 billion For Africa,
In 1970, it was just under $11 billion By 2002, that was over half, to $295 billion Debts owed to the multilateral institutions such as the IMF and World Bank is currently around $153 billion For the poorest countries debts to multilateral institutions is around $70 billion.
$550 billion has been paid in both principal and interest over the last three decades, on $540bn of loans, and yet there is still a $523 billion dollar debt burden.
How does $40 billion imply 100% debt relief to multilateral institutions when debt for the poorest countries to these institutions is $70 billion? The answer is that not all the poorest countries actually receive the proposed debt relief:
The poorest countries usually referred to are the lowest income countries that are part of the HIPC initiative; It is these countries that account for the $70 billion debt to multilateral institutions; The $40 is because the proposal is debt relief only to those countries that have reached ; completion point in the HIPC process The total for the 18 countries at that point is around $40 billion.
This debt write-off proposal is therefore reinforcing the condition that
poor countries must first go through the HIPC initiative that has been heavily criticized for failing the poor, if they wish to see debt relief.
One positive point that should also be mentioned is that the G8 proposal at least talks about multilateral debt, and not just bilateral and private debts. As
Multilateral debt is almost always serviced because the international financial institutions enjoy
preferred creditor status. This is because a default on a multilateral debt obligation is likely to result in a country being cut off completely from international credit from any official or private source. This is different from the debt owed to bilateral and private sector creditors, significant proportions of which are in arrears, i.e. not serviced regularly. Cancellation of bilateral and private sector debt may therefore represent simply a paper transaction involving the cancellation of debt that was not being repaid in the first place. Such a transaction, while effective in reducing the overall debt overhang, may not actually free up any resources for investments in poverty reduction and infrastructure in a country.
... most HIPC debt stock reduction [over 80%] to date has come in the form of writing off debt already in arrears.
The cancellation of multilateral debt on the other hand, almost always means that money that would otherwise have gone into servicing debt becomes available to spend instead on development. It also reduces debt overhang at the same time. Research has shown that it is also the most efficient form of resource delivery to countries in need.
Sony Kappor, Paying for 100% Multilateral Debt Cancellation; Current proposals explained, European Network on Debt and Development, January, 2005, p.5 (link is to a PDF formatted document)
For those wondering why so much of the promised debt relief (when it has actually been delivered) in the past has not improved anything, the above provides the answer.
So, a reasonable sounding debt write-off is on the table, but what strings are attached?
Back to top G8: Meet our demands or else
If it has already taken decades to get to this point of debt relief proposals — despite years of public outcry and protests on issues such as third world debt — is it possible that rich countries will commit to a positive step in a substantial way now? Many will understanably be skeptical. Yet, on the other hand, the highly publicized
Make Poverty History campaign and the related Live 8 concerts may help make a difference. Political arousal resulting from the unpopular war on Iraq may yet still help pressure governments this time to act on their pledges.
When asked by the media if money is just going to be given away, to potentially corrupt leaders, the basic response is that there will be important conditions related to better governance, and sometimes there is mention of economic
reform. But the media doesn’t usually have time (or sometimes, it seems, inclination) to explore this in much more depth. Economic Conditions are the Controversial Ones
Conditions mean different things to different people. By and large most will think of these conditions being things like improving democracy, strengthening various institutions, reducing or cracking down on corruption, and so forth. And governance issues need to be continually addressed. Even though many African countries are making progress and are not as corrupt as stereotypicical media reporting and political soundbites would like us to believe, it is not close to being fully addressed (within Africa and outside Africa, too.)
But, what is usually regarded as conditions by the G7 are economic ones: trade liberalization, privatization, and lowering barriers to trade through pursuit of
neoliberal ideology. These have been enforced upon poorer countries in the past, through structural adjustment programs that have been devastating for the poor.
And indeed for this debt cancellation, this is what is included. The World Bank notes that
to meet the good governance standard, the G8 want recipient nations to These four things sound fair, end even. Yet, the last two, freeing up economies and liberalize trade — in the way that neoliberal ideology requires, and the way rich, powerful country manipulate the terms of trade — are the same policies that have created such poverty for Africa and elsewhere in the first place. cut corruption, tackle fraud, free up their economies and liberalize trade.
In addition, the UK is attempting to get the rest of Europe (rather unsuccessfully) to stop subsidizing its Common Agricultural Policy which itself is hypocritical and denies market access for many African producers. At the same time though, poorer countries that open up their own markets will find it difficult to survive the competition of much larger and wealthier companies typcially from these G7 countries (which could hint as to why there is so much emphasis on debt reduction at this G8 Summit.)
A blanket or vague approach of simply opening market access may also mean that poorer African countries may suffer even more, while it is not clear if the wealthier African countries will be able to compete in all areas against others, such as from Europe. For example, some countries that currently benefit from much-needed preferential access would likely lose out. (It could be argued that preferential access distorts trade just as subsidies do, so to address this more care needs to be taken, and trade liberalization, if desired, cannot be rushed.)
The G8 hints that it recognizes some of these issues. However, the G8 is still urging steps be taken to ensure that they eventually are ready to implement neoliberalism. This implies that those countries considering a slightly different economic policy deemed as best for their own country, will likely not get any assistance.
Such conditionalities are undemocratically imposed Jubilee Research, the successor to the famous Jubilee 2000 debt cancellation campaign organization, notes that
All the countries currently under consideration [for this debt write-off] are already within the HIPC initiative [to help write off debts], and the acceptance of IMF economic policy programmes, typically carrying harmful and undemocratic policy conditions, is a requirement for entry into this scheme.... the new
deal will do nothing to restore economic autonomy to these developing country governments. G8 Debt Relief Proposals; A first step in the right direction — and a long way to go, Jubilee Research, June 14, 2005 (Emphasis Added)
Award-winning journalist, John Pilger, holds little back and describes the
victory as a fraud:
In summit after summit, not a single significant
promise of the G8 has been kept, and the victory for millions is no different. It is a fraud — actually a setback to reducing poverty in Africa. Entirely conditional on vicious, discredited economic programmes imposed by the World Bank and the IMF, the package will ensure that the chosen countries slip deeper into poverty. John Pilger, The G8 Summit: A Fraud and a Circus, New Statesman, June 22, 2005 Conditions That Are Less Discussed
One condition that is hardly ever heard from the G8 is that poor countries reduce their military spending and stop purchasing weapons, especially small arms. One possible reason why we might not hear this is that the
G8 are the world’s leading suppliers of arms and that the arms trade is the world’s biggest business.
Neither is corruption from the G8 countries:
British companies are among the worst [bribery] offenders. Some 37 of the 55 companies which the World Bank publicly blacklists and has disbarred from participating in its contracts because of evidence of corruption are domiciled in Britain. Transparency International, which publishes a
bribe-payers’ survey, based on perceptions by business executives and professionals in the third world of how foreign companies behave, confirms that bribes are most common in the arms trade, public works and big infrastructure projects. British companies are among the strongest players in all these sectors. Jonathan Steele, Corruption in the third world is our problem, The Guardian, December 13, 2000
The above article is no doubt a bit old, but the problem still continues. See for example, the
Transparency International Bribe Payers Index 2002, which is their latest report on this.
For a previous G8 Summit in June 2002, a briefing had been prepared by
Action for Southern Africa and the World Development Movement, looking at the wider issue of economic and political problems:
It is undeniable that there has been poor governance, corruption and mismanagement in Africa. However, the briefing reveals the context — the legacy of colonialism, the support of the G8 for repressive regimes in the Cold War, the creation of the debt trap, the massive failure of Structural Adjustment Programmes imposed by the IMF and World Bank and the deeply unfair rules on international trade. The role of the G8 in creating the conditions for Africa’s crisis cannot be denied. Its overriding responsibility must be to put its own house in order, and to end the unjust policies that are inhibiting Africa’s development.
It’s the , Action for Southern Africa, June 25, 2002. Also see the Blame the Victim Summit full briefing (PDF format).
As the above briefing is titled, a common theme on these issues (around the world) has been to
blame the victim. The above briefing also highlights some common myths often used to highlight such aspects, including (and quoting): Africa has received increasing amounts of aid over the years — in fact, aid to Sub-Saharan Africa fell by 48% over the 1990s Africa needs to integrate more into the global economy — in fact, trade accounts for larger proportion of Africa’s income than of the G8 Economic reform will generate new foreign investment — in fact, investment to Africa has fallen since they opened up their economies Bad governance has caused Africa’s poverty — in fact, according to the UN Conference on Trade and Development (UNCTAD), economic conditions imposed by the IMF and the World Bank were the dominant influence on economic policy in the two decades to 2000, a period in which Africa’s income per head fell by 10% and income of the poorest 20% of people fell by 2% per year Christian Aid weighs in on this with a more recent report noting that sub-Saharan Africa is a massive $272 billion worse off because of They also note that: free trade policies forced on them as a condition of receiving aid and debt relief.
The reforms that rich countries forced on Africa were supposed to boost economic growth. However, the reality is that imports increased massively while exports went up only slightly. The growth in exports only partially compensated African producers for the loss of local markets and they were left worse off.
The economics of failure: The real cost of ‘free’ trade', Christian Aid, June 20, 2005
type of trade is important. As detailed on this site’s Structural Adjustment section, poor countries have often been forced to concentrate on a few exports, rather than diversifying their economies. Just as biodiversity is important to ensure resilience to whatever nature can throw at a given ecosystem, diverse economies can help countries weather economic storms. Matthew Lockwood is worth quoting:
What Africa needs is to shake off its dependence on primary commodity exports, a problem underlying not only its marginalisation from world trade but also its chronic debt problems. Many countries rely today on as narrow a range of agricultural and mineral products as they did 30 years ago, and suffer the consequences of inexorably declining export earnings. Again, the campaigners’ remedy — to improve market access for African exports to Europe and America — is wide of the mark.
Matthew Lockwood, We must breed tigers in Africa, The Guardian, June 24, 2005
Asia too has seen development where policies counter to neoliberalism have been followed, as Lockwood also notes:
A large number of studies have shown that strong states with a long-term economic growth strategy were at the centre of the Asian miracle. Counter to donor orthodoxy, these so-called
developmental states were thoroughly dirigiste, intervening widely in their economies. They committed practically every sin in the neoliberal book, including state-owned industries and trade protection. Matthew Lockwood, We must breed tigers in Africa, The Guardian, June 24, 2005
What Lockwood did not mention was that today’s wealthy countries also developed by not following neoliberal policies:
That current free trade is just as unequal as the mercantilist trade it replaced is easily demonstrated. The structural adjustments imposed upon weak nations as necessary for free trade are the opposite policies under which every successful nation developed. Virtually every nation successfully developing did so under Friedrich List’s philosophy of protection of tender new industries and markets. That they developed under the philosophies of Adam Smith is a myth designed to hide a continuation of plunder through unequal trades.
J.W. Smith, Economic Democracy; The Political Struggle for the 21st Century, (4th Edition, 2005), pp.7-8 If these conditions are unfair, why are they still pursued?
And yet, the conditions imposed on the poorer countries are still demanded. Why if there is a chance that so much poverty, misery, corruption, and even death, may result? George Monbiot offers an answer:
... that the conditions our governments impose help to prevent corruption is laughable. To qualify for World Bank funding, our model client Uganda was forced to privatise most of its state-owned companies before it had any means of regulating their sale. A sell-off that should have raised $500m for the Ugandan exchequer instead raised $2m. The rest was nicked by government officials. Unchastened, the World Bank insisted that — to qualify for the debt-relief programme the G8 has now extended — the Ugandan government sell off its water supplies, agricultural services and commercial bank, again with minimal regulation.
And here we meet the real problem with the G8’s conditionalities. They do not stop at pretending to prevent corruption, but intrude into every aspect of sovereign government. When the finance ministers say
good governance and eliminating impediments to private investment, what they mean is commercialisation, privatisation and the liberalisation of trade and capital flows. And what this means is new opportunities for . western money
...To stave off a possible revolution [after the IMF and World Bank forced Uganda to impose
user fees for health and education], [President] Museveni reinstated free primary education in 1997 and free basic healthcare in 2001. Enrolment in primary school leapt ... and ... outpatients almost doubled. The World Bank and the IMF — which the G8 nations control — were furious.... the head of the [World] bank’s delegation made it clear [in 2001] that ... he now saw the health ministry as a bad investment.
There is an obvious conflict of interest in this relationship. The G8 governments ... have a powerful commercial incentive to ensure that [poor countries] compete unsuccessfully, and that our companies can grab their public services and obtain their commodities at rock-bottom prices. The conditionalities we impose on the poor nations keep them on a short leash.
Attaching conditions like these to aid is bad enough. It amounts to saying:
We will give you a trickle of money if you give us the crown jewels. Attaching them to debt relief is in a different moral league: We will stop punching you in the face if you give us the crown jewels. The G8’s plan for saving Africa is little better than an extortion racket. George Monbiot, A Truckload Of Nonsense; The G8 Plan To Save Africa Comes With Conditions That Make It Little More Than An Extortion Racket, The Guardian, June 14, 2005 (Emphasis Added)
Given some of these issues and accompanying
myths are, in effect, being regurgitated for 2005, this casts further doubt on whether the write off is historic or not. Back to top $40 billion write off is not a historic breakthrough
This debt cancellation guesture can only been seen as one small positive step to help rectify past mistakes (rather than praise it as some historic breakthrough). In fact, some may regard the phrase
historic quite offensive here, given that historically these same rich countries have helped exacerbate and even create these conditions in the first place.
Note that the $40 billion is very small compared to the military expenditure of G8 countries (totalling almost $646 billion in 2003 alone, or $581 if Russia is not included). Furthermore, as
Jubilee South notes, while the military spending figures are per year, the debt cancellation will be spread over the duration of repayment of the cancelled loans, such that per year, annual contributions from rich countries are expected to be about $1 billion. Jubilee Research is equally guarded in its optimisim from these latest promises. They note that the $40 billion debt cancellation proposal remains a (Emphasis added). In addition: wholly inadequate response to the demands made by NGOs and civil society debt campaigners for a total cancellation of unsustainable debt.
Until a fundamental reform of international finance and trade is undertaken, debt cancellation — though necessary in the short term — can only address the symptoms and not the cause of chronic poverty in the developing world. In the absence of such comprehensive changes, the high hopes of debt campaigners will ultimately be disappointed.
... The write off for the initial 18 countries will cover $40bn (£22bn) of debts owed to the World Bank, the African Development Bank and the IMF.... This will cost rich countries ... only 1.5 pence [about 2.8 cents] per person per week in developed countries, and represents around 5 pence [about 9 cents] per head to the populations of the 18 developing countries concerned. Since the per capital GDP for the G7 countries for 2002 stood at $29,872 and that for low income countries at $430, this does not seem a very significant contribution; indeed, it represents
less than 1% of the annual to the developing world. shortfall from the 0.7% of GNI for development aid promised by rich countries G8 Debt Relief Proposals; A first step in the right direction — and a long way to go, Jubilee Research, June 14, 2005 (Emphasis Added) It is not really $40 billion but $17 in net present value
A number of
NGOs and other organizations such as Jubilee Research, mentioned above, point to a number of other serious concerns. provides a useful summary of a number of those issues, reproduced in this table (all emphasis is original): Eurodad
Source: (follow link to see full PDF formatted brief which contains the above table.)
Devilish details: Implications of the G7 debt deal, Eurodad, June 16, 2005 Number of Southern countries covered Only 18 countries are covered, potentially rising to 27 over the next two years. There are many more low-income and middle-income countries who need partial or 100% debt cancellation. On average the 18 eligible countries will save US$1 billion each year over the next ten years in debt service This deal therefore cancels only 10% of the debts that need to be cancelled. The 62 countries that need 100% debt cancellation to achieve the MDGs by 2015 pay over US$10 billion in debt service to the multilaterals per year. Claim of US$40 billion cancellation deal The deal is worth US$40 billion in nominal terms, but will be delivered over a 40 year time-period. The Net Present Value of the deal is US$17 billion. Net gain for poor countries Countries will receive a dollar for dollar reduction in . They will then receive new money on the basis of policy performance. This reinforces harmful WB/IMF conditionality and for poor performers will result in no net gain from this deal. IDA flows equivalent to the amount cancelled Rich countries cancelled US$30 billion in debt owed by Iraq in 2004 This was more in one day than has been delivered to the whole of the African Continent over the last 10 years. Debt Write-off But Not Debt Forgiveness
Consider the following from political commentator and professor of economics, Michael Chossudovsky:
Where is the hitch behind this seemingly reasonable
debt forgiveness proposal?
The IMF, the World Bank and the African Development Bank, never cancel or forgive outstanding debts.
Because they do not forgive debts, the G8 has committed itself to reimbursing the multilateral creditors acting on behalf of the World's poorest countries.
Where will they get the money?
For each dollar of
debt cancellation to the international financial institutions, the G8 will reduce the flow of foreign aid to these countries. In other words, the foreign aid earmarked to finance much needed social programs will now go directly into the coffers of the IMF and the World Bank.
There is nothing new in this financial mechanism. It has been used time and again since the onslaught of the debt crisis.
Michael Chossudovsky, Live 8: Corporate Media Bonanza, Global Research, July 5, 2005
Chossudovsky also makes an interesting suggestion to African leaders; to default on the debt. That is, just as we in the first world can typically default our debts, declare bankruptcy and start all over without those debts, perhaps, rather than continue the poverty and miserty imposed by the debt burdern, just default on those debts. Of course, that is unlikely to happen as rich countries will ensure debt repayments continue. But it shows one way how
unjust debts could be dealt with! Is the debt write-off even a write-off?
With the provision that the foreign aid to countries will be reduced equivalent to the amount written off, this looks like a bad deal for those poor countries, at least in the long term: they agree to go through more painful and harmful conditions in return for a debt write-off that, in effect, the poor themselves ultimately pay for in the long run.
With clever accounting, the rich once again appear to give with one hand, while taking with the other.
Other costs associated with this proposal
In addition to the above,
John Pilger, mentioned above, also adds a few points
unmentionable by the establishment and mainstream media:
... Blair and Brown want the IMF to pay its share of the
relief by revaluing its vast stock of gold, and passionate and sincere Bush has said no. The first unmentionable is that the gold was plundered originally from Africa. The second unmentionable is that debt payments are due to rise sharply from next year, more than doubling by 2015. This will mean not victory for millions, but death for millions.
At present, for every 1 dollar of
aid to Africa, 3 dollars are taken out by western banks, institutions and governments, and that does not account for the repatriated profit of transnational corporations. John Pilger, The G8 Summit: A Fraud and a Circus, New Statesman, June 22, 2005
It is suggested that another 20 countries may be eligible for debt write off for debts owed to the same insitutions (but not individual countries) if they meet strick targets for
good governance and tackling corruption. This would increase the total write off to $55 billion. This implies that for the first 18 countries, on average, from the $44 billion they get about $1.44 billion each. For the additional 20 countries sharing the extra $15 billion, that is $0.75 billion each on average, presumably also spread over a number of years. Most countries pay more on debt repayments each year. This write off is only to a small number of institutions, so it is not historic. Jubilee South, mentioned earlier, is an internationl coalition of NGOs, movements, and communities from all over the South (or Third World). Jubilee South is extremely critical of the latest G8 proposals for a number of reasons and expands on some of the reasons mentioned above: The multilateral debt cancellation being proposed is still clearly tied to compliance with conditionalities which exacerbate poverty, open our countries further for exploitation and plunder, and perpetuate the domination of the South. Even if the debt cancellation were without conditionalities, the proposal falls far too short in terms of coverage and amounts to demonstrate a bold step towards justice by any standard because
It does not cover the debts claimed by the Inter-American Bank and the Asian Development Bank By being silent on the rest of the South (which totals about 160 nations), the G8 continues to perpetuate their self-serving myth that debt is a problem only for the most impoverished countries Other critical areas, such as the 2004 tsunami-hit regions, are not included The total amounts of debt cancellation are actually very small, per year (as also mentioned further above, when compared to military spending, for example) The proposal does not address the issue of odious and onerous debts as most if not all debts claimed from the South are patently illegitimate many shown to be outrightly illegal. The G8 statement does not express any measure of acknowledgment of the historical and structural causes of debt and poverty and their own culpability. Without this recognition, the G8 governments cannot make poverty history. Instead, the G8 statement is a re-affirmation of their collective commitment to push poverty-inducing and debt-creating policies in the South. Jubilee South concludes:
It is also notable that debts claimed by the IMF are included, an official recognition that IMF debts can be cancelled after years of rejecting this notion. The fact that the G8 governments have been forced to address the sham and inadequacy of their various debt relief schemes would not have been possible if it were not for the unceasing and tireless efforts of debt campaigns and social movements across the world.
But we must not lose sight of the over-all nature and impact of these agreements. The G8 debt agreement is a clever effort to use positive elements to project an image of generosity, but embeds these elements in a package that is firmly consistent with and in furtherance of their economic agenda and control over the South.
Justice Demands Unconditional and Total Debt Cancellation for All South Countries!, Jubilee South, June 21, 2005
Noted above by
Jubilee Research is how this debt relief amounts to less that 1% of the annual shortfall from the 0.7% of GNI for development aid promised by rich countries. As has been written on this site at some length, if this promised amount of aid was delivered in full many years ago and sustained, some of the problems of today may not have been as severe. It further highlights how disgraceful it is to say that the $40 billion write off is a historic breakthrough. Back to top Where next?
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$40 Billion Debt Write-off is Not a Historic Breakthrough, Global Issues, Updated: July 10, 2005 Author and Page Information by Anup Shah Created: Sunday, June 19, 2005 Last updated: Sunday, July 10, 2005