NGOs warn rich nations to accelerate debt cancellation or face repudiation
31 January 2000
by Munetsi Madakufamba
The search for solutions to end the debt problem in developing countries has reached a new pitch as NGOs in the South embark on a campaign to lobby governments to form "debt cartels" as a way of strengthening their negotiating power with their northern creditors.
Southern NGOs, fed up with the evasive tendencies of rich countries in their handling of the debt crisis, say their past efforts to persuade creditor countries and institutions to extend debt relief have at best been manipulated, and at worst completely ignored. Instead of complete write-offs, which are crucial to releasing vital resources towards essential services such as health and education, developed countries have often only managed to reschedule (defer) the debt.
"Arrogant!" is how activists have described the behaviour of northern governments and the international financial institutions - led by the World Bank and the International Monetary Fund - in which they are majority shareholders.
Activists have for the past decade advocated for debt cancellation, a solution that creditors have some control over. Now the creditors risk outright repudiation, that is, a unilateral termination of debt repayments by the South.
In 1997, South Africa cancelled the debt that it was owed by Namibia. Many rich countries have taken similar action but usually on a piece-meal basis.
Evidence suggests efforts to solve third world debt problems have so far not been sufficient, prompting civil society groups to call on affected countries to "stop paying now".
Debt-related figures in poor countries are shocking. The UN estimates that 19,000 children die each day as a result of the social impact of debt. Millions of women and men are dying every year of preventable diseases, lack of clean water and sanitation - and millions of children are not in school, two-thirds of them girls.
And yet the G8 industrialised countries, which are due to hold their annual summit in Italy in July, hope to cut by half the number of people living in absolute poverty only by 2015.
"For every $1 that rich countries lend to developing countries $8 comes straight back in the form of repayment on debts owed to the rich countries," says Archbishop Njongokulu Ndungane of Cape Town, successor to the world-revered and now retired Desmond Tutu, who is championing the fight against apartheid-caused debt in South Africa.
"So wealth is not trickling down from the rich to the poor, as people like to think. Wealth is actually pouring from the South to the North," he says in a paper published by Debtchannel.org.
Countries of the South find themselves giving away, virtually for nothing, earnings from their precious commodities like coffee, copper, tea and sugar. This is a form of economics that denies the world humanity, rich and poor alike, says Ndungane, who is also one of South Africa's great Robben Island legends. (He served three years of hard labour on the notorious island as a political prisoner.)
The Bank and the Fund's much publicised Highly Indebted Poor Countries (HIPC) initiative, which the two institutions claim is helping to spring poor countries out of the debt trap, has been criticised for a number of inadequacies. To qualify for this scheme, countries have to fulfil strict conditions designed to restructure the economy, many of which have a negative impact on the poorest people.
In Mozambique, one of the first beneficiaries of the 1996 HIPC scheme, the government was forced to open up its cashew nut industry and begins sending raw nuts abroad for processing instead of processing locally, as part of the conditions the country had to adhere to in order to qualify for debt relief. Today, the cashew nuts are fetching a lower price on the international market, while more and more Mozambicans are losing their jobs as the industry shrinks.
And to make matters worse, the debt relief plan will save Mozambique precisely US$10 million-a-year out of a debt burden estimated at US$5.5 billion - and this after the intervention of the civil society which exposed a lot of irregularities in the original plan. It could have been worse. To service the remainder will still cost Mozambique twice what it is able to spend on health care.
So far 22 of the 41 HIPC countries have "benefited" from the scheme, four of them from the SADC region - Malawi, Mozambique, Tanzania and Zambia. But the 22 countries will still have to pay $2 billion-a-year to rich creditors, leaving the majority still spending more on debt than education and health.
Zambia, which was granted debt relief in December 2000, will still be paying US$170 million out of its annual budget of US$800 million.
JubileePlus - one of the official successor organisations to Jubilee 2000 - says that in 2001-2005 Zambia will be paying substantially more to the IMF and World Bank than other creditors under the 'enhanced' HIPC debt deal. Jubilee, a coalition of churches and NGOs did sterling work in raising awareness around the world of the debt crisis.
The organisation says the "IMF and WB will jointly collect US$89 million in 2001, more than 50 percent of the total debt payments that Zambia will make this year. The IMF alone will collect $74 million of the $172 million Zambia will pay in 2001."
On many occasions the Bank and the Fund have been accused of using cosmetic devices to obscure the reality that the HIPC scheme benefits creditors rather than debtors.
JubileePlus says the IMF was set to collect even greater sums from Zambia before protests from OXFAM and Jubilee 2000 forced changes to the rules of HIPC.
"As a result the IMF is providing 'interim assistance' to Zambia in the form of grants to help with debt repayments - to the IMF. This assistance was agreed after public uproar at a 'debt relief' scheme that would have resulted in Zambia paying more in debt service after relief, than before."
Ann Pettifor, programme director of JubileePlus says: "The IMF's 'interim assistance' only postpones the day of reckoning for Zambia, by three years. After that, Zambia's debt service payments to the IMF rise dramatically - and will once again become unsustainable."
Zambia was granted US$3.8 billion as total debt relief from all its creditors, but analysts say its debt payments obligations rise steeply from US$65 million in 2003 to US$119 million in 2004 when interim assistance from the IMF will end. "These disbursements will make it even more difficult for Zambia to release resources from her budget for poverty reduction initiatives," argues JubileePlus.
Adrian Lovett of Drop the Debt - another successor to Jubilee 2000 - says: "This is clear evidence that the IMF and World Bank are simply not cancelling enough debt. Zambia is facing a devastating HIV crisis. Rich creditors who have huge gold reserves and untapped loan-loss accounts do not need Zambia's money."
The criticism levelled against inadequate debt relief plans for Mozambique and Zambia under the HIPC initiative is much the same for Malawi and Tanzania, the other beneficiaries.
Tanzania, which owes foreign donors a staggering US$7 billion, will be paying US$150 million a year, compared to US$87 million spent on health in the 1999 budget.
Like many African countries, Tanzania needed money at independence in 1961, to improve its infrastructure as well as to educate its illiterate society. At this time of need, the North moved in quickly to offer loans at extremely low interest rates and without many options, Tanzania could not turn down the offers.
But interest rates started rising sharply in the 1970s, the same time that exports from developing countries (which were essentially primary products) slumped on the world market. Thus Tanzania was forced to borrow more to pay existing loans as well as spiralling interest, plunging itself into a debt crisis. Today the country owes US$7 billion, an amount which, like many other countries, it is unable to repay.
"This is a human rights emergency!" declares Archbishop Ndungane.
The situation of Tanzania, and indeed, many more indebted poor countries, is what has prompted the civil society to opt for debt repudiation.
Russia set the precedent in 1919, just after the Bolshevik Revolution. Without consulting any of its creditors, it unequivocally declared: "All foreign loans are hereby annulled without reserve or exception of any kind whatsoever."
And history is awash with examples of debts cancelled for purely political reasons. For instance, the US cancelled:
If such large debts can be cancelled for political reasons why can't more be written off for social or at least moral reasons - to save the 19,000 children who are dying each day due to debt? (SARDC)
- large debts owed by Britain after the two world wars;
- (together with other Western countries) Germany's debt after the Second World War while providing exceedingly generous terms for the repayment of the remainder;
- one-third of Egypt's debt (amounting to US$14 billion) as reward for the north African country's support during the 1991 Gulf War; and
- half of Poland's debt as a contribution towards the country's efforts towards the restoration of capitalism.