BY DENISE COMANNE
& ERIC TOUSSAINT
The G7's Cologne summit in June 1999 announced debt relief of up to 90% for some of the poorest countries. One year later, on occasion of the G7 plus Russia's July meeting in Okinawa, the Committee for the Abolition of Third World Debt has calculated that "debt relief" commitments since June 1999 represent US$2.5 billion, 1.2% of the poorest countries' external debt and 0.12% of the Third World debt.
We have nevertheless had a media campaign orchestrated in a masterly fashion by the international financial institutions: "don't worry, folks: the debt of the poor countries has been cancelled". The IMF and the WB were bold enough to replace structural adjustment programs with a new revolutionary terminology: the strategic framework of the fight against poverty. This time, there would be simultaneously debt cancellation and poverty reduction.
Between June 1999 and March there was an accumulation of announcements. In June 1999, in Cologne, the G7 announced US$100 billion in cancellation of debts. In July 1999, Canada (a member of G7) said that it would cancel 100%. In September, in Washington, what had been decided in June was announced once again. A few days later Bill Clinton did better: he announced a 100% cancellation of debt for 36 poor countries.
At the end of December, Gordon Brown, Britain's Chancellor of the Exchequer also announced 100%. His French colleague did not want to be left behind and also announced 100% cancellation. At the end of February, the Italian government joined Canada, the USA, the UK and France in announcing 100% cancellation.
Can one's reaction be anything other than delight? Hasn't the campaign for the cancellation of the Third World debt largely achieved its goal? No. Because the facts are obstinate: as of July, that is 13 months after the meeting of June 1999, only three out of 41 heavily indebted poor countries (HIPCs) had benefited from debt relief in some way: Bolivia, Uganda, and Mauritania.
The average reduction of the amounts they will have to repay will be about 35%, a long way from the 90% announced in June 1999. After cancellation, Mauritania, where 62% of the population is illiterate, will still have to devote a larger sum to repaying its debt than it will spend on education. Mozambique and Guyana, two countries which in June 1999 were also supposed to profit from an immediate debt reduction, saw their cases deferred indefinitely.
According to calculations carried out by Jubilee 2000 (Great Britain), among the heavily indebted poor countries likely to profit from debt cancellation in the years to come, 15 will have to repay, in each year after cancellation, more than they did before cancellation.
How can we speak of improvement then? Only if we are thinking from the point of view of the creditors of the North, rather than the peoples of the South. We must, then, relaunch the movement for the cancellation of the Third World debt.
Nine questions and answers on the debt relief granted by the G7, the Club of Paris, the IMF and the World Bank.
1. Why will the debt reductions announced not allow an improvement in the situation of the poor of the Third World?
The creditors who plan to grant debt relief condition this on the continuation of structural adjustment programs, renamed the "Poverty Reduction Strategy Paper" (PRSP). Many studies carried out by independent economic experts, UN institutions and social movements show that the effects of these policies are disastrous because they increase the fragility of the economies in the countries to which they are applied.
2. Didn't the World Bank and the IMF take account of these criticisms when announcing the installation of a strategy for the reduction of poverty in 1999?
To avoid the increasing criticism they have had to endure from all corners, these institutions announced a rethink which is in fact a fake. The hard core of the adjustment policies will remain entirely in application; the only "improvement" consists in announcing an increase in expenditure on health and education and the taking into account of "civil society" in the drawing up of the PRSP.
We have been able to analyse closely, on the ground and in the texts, the policies which African governments are committed to carrying out, as from the year 2000. The increases in expenditure on health and education are microscopic. They essentially consist in increasing expenditure by 2% after having reduced it continuously for fifteen years (which is equivalent to a reduction of about 20%). At this rate it will be 2010 before the level of expenditure of 1985 is reached.
3. What has been the attitude of the specialised economic press?
Shortly after the G7 summit in Cologne in June 1999, the Wall Street Journal said that the debt relief measures were a technique used by the World Bank and the IMF to balance some bad loans by replacing them with new ones, allowing these two institutions to finance their recent errors at the expense of the treasuries of the big industrialised countries.
The extremely pro-market English weekly the Economist stated in its Christmas edition that the content of the "presents" recently announced by Britain, the United States and France in the area of debt relief amount to "packaging".
The figures announced by the governments of the North in the area of debt relief, in spite of their impressive amount, refer to credits. Thus, the Economist reveals that two-thirds of the debt incurred by sub-Saharan Africa since 1988 was generated by interest stemming from former loans. For the rich countries to give up hope of recovering similar credits is not to offer millions of dollars to the poor countries. It is simply to stop claiming interest.
4. Which countries could benefit from a reduction of debt?
The criteria are so strict and arbitrary that many very poor indebted countries do not qualify. Not included in the category of HIPC for possible reductions are countries like Haiti, Bangladesh, Pakistan, Nigeria, Peru, and Ecuador, not to mention India or Indonesia. Eighty percent of the poorest people on the planet live in countries which are not regarded as HIPCs.
The country must be considered as offering political guarantees. Thus HIPCs like the Sudan, Liberia, the Democratic Republic of Congo and Somalia cannot imagine for one moment that they will enter the process of selection as long as they do not radically change their orientation.
The countries must have successfully applied a structural adjustment policy laid down by the IMF and World Bank over three to six years and the level of debt must be still regarded as insupportable by the IMF and World Bank.
The country must turn up alone before the creditor nations' Club of Paris. If the club gives the green light the country must again visit the IMF and the World Bank to obtain relief on its repayments to these two institutions.
Since September, a new stage has been added: the authorities of the country must draw up a PRSP.
5. Does the debt relief come all at once?
The relief does not come all at once, the process takes years. Further, contrary to the declarations of the governments, it is impossible to cancel 90% or 100% of the debt owed to public creditors. Why? Because debt reduction relates only to the amount of bilateral debt at the "cut-off date".
For the following countries, this is equivalent to the amount of the bilateral debt held prior to the year 1983: the Central African Republic, Senegal, Togo, Ivory Coast, Madagascar and Niger. The bulk of the bilateral debt in the year 2000 has been accumulated after the cut-off date and is largely made up of arrears.
6. What does the relief granted by the World Bank and the IMF amount to?
Theoretical example: a country must repay US$52 million to the World Bank and the IMF over ten years. The World Bank and the IMF decide to reduce this amount by US$20 million. The country will thus repay US$32 million instead of US$52 million.
Have the IMF and World Bank forgotten about the US$20 million? No, not at all. In order to ensure that they are repaid, the IMF and World Bank create a trust fund on which they will draw for ten years until the recovery of the US$20 million.
How is this fund paid for? By contributions from the member states of the IMF and World Bank, mainly but not solely the most industrialised countries. These contributions are invested by the World Bank and the IMF on the international financial markets. It is the return from these investments (interest or appreciation) which is used to repay the World Bank and the IMF.
The World Bank and the IMF thus succeed in making the treasuries of the member states finance what should be their contribution to the relief.
7. What is the PRSP?
The contents of such programs and the procedure to be followed are fairly ill-defined. Indeed, on the level of content, how can one maintain the coherence of the macro-economic framework of structural adjustment by integrating into it a genuine fight against poverty, which requires a redistribution of wealth? It amounts to squaring the circle.
Another ill-defined zone: what is meant exactly by "the participation of civil society" in the development of the program?
The case of Mozambique is eloquent. It was to benefit from relief of the debt in January. In October, the IMF and World Bank demanded that Mozambique draw up a program. The government correctly responded that it was unable to draw up such a document within the framework of a dialogue with civil society in two or three months. Consequence : the relief was put off indefinitely.
What to conclude? Democratic governments which do not have the capacity to really carry out the exercise in the given time are penalised, whereas authoritarian governments, with the help of some civic associations under their heel, could receive merit points, allowing them to gain relief? We will see.
8. What does the Third World debt represent compared to other debts?
According to the World Bank, in 1999 the debt of the Third World countries was equal to US$2,060 billion (6% of the world debt) without counting the former Eastern bloc ($465 billion).
These should be placed against the population figures. The debt of the 41 HIPC countries is US$200 billion. The debt of sub-Saharan Africa is US$235 billion. The public debt of Belgium — with just 10 million inhabitants compared to 600 million in sub-Saharan Africa — is US$250 billion.
The total debt on a world level is US$37,000 billion. The national debt of the United States is US$5,000 billion, the debt of households in the United States is US$6,000 billion. The national debt of Japan is US$2,000 billion.
9. What do the measurements of relief already carried out since 1996 represent?
The reductions obtained by the HIPCs to date represent at maximum a quarter of one hundredth of the Third World debt (0.25%) or, in terms of the debt of the HIPCs, 5% of their 1996 debt. The reductions granted certain HIPCs hardly compensate for the increase in the debt of some others.
[Denise Comanne and Eric Toussaint are leaders of COCAD, the Committee for the Abolition of Third World Debt. For more information, visit COCAD's web site at <http://www.users.skynet.be/cadtm>.]