Not a single country has benefited financially from the new deal on debt relief, writes Andrew Simms
`HE that dies pays all debts,” wrote Shakespeare. For too many people in the world’s poorest countries, death will indeed be the only way out: one person is born every second into bad, unpayable debt.
Yet it need not be ever thus, say United Nations agencies. Unicef calculates that a few million pounds of debt reduction in sub-Saharan Africa would save the lives of hundreds of thousands of children and thousands of women in childbirth.
Highly indebted countries such as Tanzania, where less than half the population has access to safe water, are crying out for relief. Over the next four years, Ethiopia, where the average person only expects to live to the age of 47, will pay more than $1-billion in debt service. The country spends four times as much on debt servicing as on health.
Tony Blair, who attended his first Group of Seven (G7) plus Russia meeting of the world’s richest countries this week, said before the election: “International debt reduction will be a top priority. We want the benefits of debt reduction to be invested directly in reducing poverty.” Now is his chance.
The efforts of the former chancellor, Kenneth Clarke, led to last year’s G7 meeting being dubbed by the host, Jacques Chirac, “a landmark in the history of international finance, symbolised by efforts made by industrial countries to resolve the problems of their poorer counterparts”. But one year on, not a single country has benefited financially from the new deal on debt relief agreed later in Washington.
The process was tainted by political power play and held up by the delaying tactics of creditors, including Germany, Japan and the International Monetary Fund (IMF).
To stop the human suffering caused by debt, two things are essential: a one-off cancellation of the backlog of unpayable debt by 2000; and a proper plan to avoid the further build-up of unpayable debt. Debt relief is a cheap and practical way to help poor countries. History gives us ample evidence of double standards being operated by those holding up the process.
After World War II, Germany, which objects to generous treatment for indebted poor countries, enjoyed debt relief it would be unlikely to qualify for today. Japan, another objector, also benefited from generous treatment.
Two hundred years ago Adam Smith called for “fair, open and avowed proceedings” to tackle the debts of states. Like dealing with debts of individuals, these were “least dishonourable to the debtor, and least hurtful to the creditor”. John Maynard Keynes wrote in The German Transfer Problem in 1929: “The majority of the countries which were heavy borrowers abroad during the 19th century frequently escaped from it by defaulting more or less.”
Today, no such escape is to be had. To qualify for relief, countries undergo years of imposed policies leading to austerity and hardship.
Double standards do not stop there. Banks treat companies that run up huge debts with kid gloves for fear of losing investments. Eurotunnel froze payments on a debt of $13- billion in 1995. This dwarfs the cost of current proposals for the poorest countries. Eurodisney, now Disneyland Paris, incurred losses of $1,4-billion in two years. Its understanding treatment by the banks makes the likely relief for poor countries before 2000 seem paltry.
Even if the current proposal, the Highly Indebted Poor Country initiative (HIPC), were fully implemented now, it would be cheap. The HIPC, applied today without the extra years of financial pain it demands of weak economies, would cost: about a sixth of Britain’s annual military expenditure; what the United States spent on going to the cinema in 1995; or what British people spent on chocolate last year. So where’s the problem?
Critics say debt relief will create a “moral hazard”, the favoured excuse of the IMF. Poor countries, they claim, will be tempted to borrow recklessly. But the real immorality comes when countries have to ask: “Must we starve our children to pay our debts?”, in the words of the former Tanzanian president Julius Nyerere. The creditors have escaped responsibility for too long.
As was recently exposed, the IMF, despite warnings from its own staff in the early Eighties, kept lending money to Mobutu’s regime in Zaire. Now the population will pay for the “sins of the fathers”.
No government is perfect, and fair ways must be found to ensure the benefits of debt relief are invested in poverty reduction. But other arguments are easily shot down. Some say it undermines a country’s credit worthiness. This is a classic Catch-22 because we know that while countries remain heavily indebted, they find it hard to attract investment. Both cannot be true.
The poorest countries, mostly in Africa, are losing out in world trade and in attracting investment. Economies burdened by unpayable debts are not reliable investments, yet with declining aid, the need for long-term investment is vital. Debt relief is the way forward.
Why is it so slow? Could it be a desire to maintain leverage over poor countries, or just a desire for a steady stream of service payments? Apart from the reservations of Germany and Japan, one reason can be found in the words of an official of the US’s CitiBank, involved in lending in the Eighties: “Let’s be clear. Nobody’s debts are going to be repaid . Paying back isn’t really the issue. The issue is the borrower remaining creditworthy and able to carry the debt, but not to repay it.”
Most people thought the Third World debt crisis had disappeared. But it has been growing quietly to record highs. This led to last September’s HIPC deal.
So what is wrong with HIPC? It is too slow. Tanzania, very poor and with massive debts, will not get help until 2003 at the earliest. The qualifying criteria are harsh and arbitrary and not based on meeting human needs, merely on a country’s estimated success in world trade.
The IMF’s research department admits that the forecasts on which judgments are made “are not particularly accurate”. The process is also secretive and unaccountable. Unlike in commercial and municipal debt proceedings, poor countries are not properly represented when their debts and need for relief are assessed.
Andrew Simms is co-author of One Every Second, published by Christian Aid and the World Development Movement
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