KAIROS, its predecessor coalitions, and its member churches have been involved in the struggle for the cancellation of unjust debt "owed" by poor countries since the 1980s. We also believe that our government must cease its support for structural adjustment programs (SAPS-- feel free to appreciate the irony) and that these imposed programs must end. With partners in the global South, we also call for the cancellation of "odious debt" accumulated by dictators or undemocratic governments.
Since a number of heavily indebted, poor countries are also facing the horrific impact of the AIDS pandemic, we believe debt cancellation and the fight against AIDS are closely linked. See our page on HIV-AIDS for more information.
Excerpted from KAIROS' 2004 submission to Canada's Foreign Policy Review:
3) International Debt
As KAIROS stated in its 2003 FPR submission the burden of debt continues to thwart the development aspirations of many countries. In 1980, the South owed the North over 500 billion dollars. Since then, debtor countries have paid over three trillion dollars and their debt today is still triple the amount initially ‘owed’.
The Heavily Indebted Poor Countries Initiative (HIPC) was announced by the World Bank and International Monetary Fund in 1996 as a major step in finally resolving the debt crisis of the poorest countries. We commend Canada for moving ahead of its G7 partners by announcing that it would cancel 100% of the bilateral (i.e. country to country) debts owed by countries qualifying under HIPC. Unfortunately, the effect of these unilateral Canadian gestures has been minimal as Canada holds less than one half of one percent of all low-income countries’ debts.
As of March 2004, Canada has written off C$569 million in low-income country debts, equivalent to just 0.1percent of their total debts. In other words, Canada on its own has only cancelled one dollar out of every thousand owed by the poorest countries.
Dozens of studies have been released which have examined closely both HIPC and the Poverty Reduction Strategy Paper (PRSP) process. HIPC is failing to deliver debt relief on its own terms.
According to the World Bank and IMF’s own assessment (April 2004):
• 27 out of an original list of 42 countries have qualified for the enhanced HIPC
initiative
• Only 10 countries have reached their “completion point”
• 5 countries – Chad, DRC, Niger, Uganda and Zambia are scheduled to pay more in debt
service now than before reaching their decision point
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• If all eligible countries complete the HIPC process, about US$51billion of nominal debt
relief to be provided through the HIPC initiative
• 11 out of the other 17 countries have had their HIPC debt relief delayed because they were “off track” on their adjustment conditionalities
• A World Bank study concludes that 9 out of 14 HIPC countries studied will have
unsustainable debt burdens after reaching their completion point. (IMF and IDA,
2004)
The total amount of debt relief promised so far to all of sub-Saharan Africa under the HIPC Initiative (US$44 billion) is less than half as large as the debt reduction the US wants for Iraq (about US$90billion) once its new administration agrees to accept IMF conditionality. Jubilee USA estimates that after receiving HIPC debt reduction African governments will still spend an average of US$14 per person a year on debt payments and just US$5 per capita on health care.
Nine years after the HIPC initiative began the sad reality is that many of the poorest countries in the world remain caught in the debt trap despite the International Financial Institutions’ promises. The fiscal restraints inherent in IMF-imposed Structural Adjustment Programs (SAPs) demanded by the HIPC process prevent countries from addressing pressing social needs like combating the spread of HIV/AIDS.
The biggest obstacle to debt remission for the poorest countries is the refusal of the multilateral financial institutions – the World Bank, the IMF and regional development banks – to cancel debts.
IFI debts remain the largest obstacle to meeting Millennium Development Goals (MDGs). They have committed very little of their own resources toward debt relief and instead have relied on donor aid budgets to fund their share of debt relief. This has resulted in a continued diversion of aid resources into the HIPC Trust Fund to maintain the fiction of clean IFI balance sheets. Under these circumstances the Canadian government should not be funding the HIPC Trust Fund because it is merely recycling loan money back into the IFIs.
The IFIs’ argument is that they cannot cancel HIPC debt from their own resources without harming their AAA credit rating. A recent study by the Debt and Development Coalition in Ireland does a very thorough analysis of this question and refutes all of the arguments put forward by the IFIs.
In 1999-2000 the IMF sold 12.9 million ounces of its gold reserves earning US$2.9 billion to finance its share of the HIPC Initiative. The Fund still has another 103.4 million ounces of gold at its disposal with a market value of about US$39 billion in mid-2004. As of June 30, 2003 the World Bank had loan loss provisions of US$4 billion as well as US$27 billion worth of “retained earnings” on its books. In the private sector lenders would be compelled to use their loan loss reserves and their retained earnings to write off bad debts. (Debt and Development Coalition, 2004)
In a context like Zambia where life expectancy has dropped to below 37 years of age, largely as a result of the HIV/AIDS pandemic and increased poverty, it is simply unconscionable that even one dollar of debt is serviced by Zambia as the Zambian government attempts to combat the disease.
The Canadian government must take leadership on debt cancellation for low income
countries as the most critical ingredient to achieving Millennium Development Goals and call for IFIs to cancel 100% of HIPC debt from their own resources.
In addition, Canada needs to heed the calls from many Southern countries to examine the legitimacy of many foreign debts. This involves supporting the call for the cancellation of the following types of illegitimate debts:
• Debts which cannot be serviced without causing harm to peoples or communities
• Odious debts contracted not for the needs of the people but to strengthen despotic
regimes
• Debts contracted for fraudulent purposes
• Debts whose proceeds were stolen through corruption
• Debts which became unpayable as a result of creditors unilaterally raising interest rates
• Private loans converted to public debts under duress in order to bail out lenders.
An international insolvency court, modelled on Chapter Nine of US bankruptcy law, may be the best instrument for dealing with some kinds of illegitimate debts, such as those whose repayment constitutes a violation of human rights to adequate nutrition, health care and education. Other instruments may be needed that are specifically designed to deal with particular kinds of illegitimate debts.
An international auditing body that is independent of the Multilateral Development Banks (MDBs) should be established with the power to audit International Financial Institutions' projects, operations and loans with a view to cancelling the estimated US$200 billion worth of debt misappropriated from loans from the MDBs.
Canada should support the creation of multilateral mechanisms to assess and cancel the illegitimate debts of all developing countries.
Putting Communities in the Driver's Seat of Development
Despite the promise of the Kıln Debt Initiative, no real change to the essence of Structural Adjustment Programs (SAPs) has occurred. The renaming of the IMF’s “Enhanced Structural Adjustment Facility” as the “Poverty Reduction and Growth Facility” was only a cosmetic gesture.
A recent report from ActionAid concluded that civil society groups participating in Poverty Reduction Strategy Papers (PRSPs) are largely prohibited from having input on macroeconomic policies. Key documents on macroeconomic policy conditions developed by the IFIs are not made available to civil society or to parliamentarians. Poverty reduction measures are debated within the budgetary limits predetermined by the World Bank and the IMF in consultation with donor governments.
Similarly a joint five-year, ten-country review of SAPs involving the World Bank, civil society and governments conducted by the Structural Adjustment Participatory Review International Network provides concrete evidence regarding their failure on a number of fronts including:
• the generation of increased current-account and trade deficits and debt;
• disappointing levels of economic growth, efficiency and competitiveness;
• the misallocation of financial and other productive resources;
• the “disarticulation” of national economies;
• the destruction of national productive capacity and
• extensive environmental damage. (SAPRIN, 2004)
Poverty and inequality are now far more intense and pervasive than they were 20 years ago, wealth is more highly concentrated, and opportunities are far fewer for the many who have been left behind by adjustment. Yet, in spite of the overwhelming evidence, the World Bank and IMF continue to force countries to implement SAP measures as a condition for debt relief.
The Canadian government must end its support for structural adjustment conditionality in all its forms and remove it as one of its conditions for Overseas Development Assistance.
