Debt announcements are starting to remind me of Groundhog day – the corny but amusing film where actor Bill Murray wakes up each day forced to do exactly the same things and unable to escape from a provincial hell.
Well in the last couple of weeks, we have been entreated to lots of grand announcements of an "historic" groundbreaking debt deal that will once and for all tackle the problem of unjust and onerous debts. The figure of 100% debt cancellation has been plastered everywhere.
Funny, but I am sure I have heard such an announcement before.
Perhaps it was in March 1999 when Gordon Brown, the UK Chancellor, announced a great debt deal that would be a "major step towards wiping out unsustainable debt and poverty with it." Or perhaps it was in 2000, when he announced an historic breakthrough of 100% debt cancellation that would be a "crucial step towards the virtuous circle of debt reduction, poverty relief and sustainable development." Or maybe it was in September 2004, when the Chancellor announced a new debt deal of (yes you’ve guessed it), 100%, that would free countries from "the shackles of debt", I could go on….
Maybe I don’t fully understand statistics, but I normally equate 100% debt relief with complete removal of a country’s debts. Especially when that country happens to be one of the poorest and most highly indebted countries in the world. Yet a look at Bolivia’s debt payments in the last few years show that the amount it pays in servicing its debts actually went up in the last few years.
In 2004, Bolivia paid $276 million in debt service, only a slight drop from what it was paying before the much hyped HIPC debt relief initiative was launched in 1996. According to the UN, in recent years Bolivia has been spending double on paying debts to rich countries as it spends on health. This is in a country, where 60% of population in poverty and where the average life expectancy in rural areas is 46.
So, I am afraid it wasn’t a great surprise when I looked into what 100% debt relief meant for Bolivia to find out that 100% actually means 41%. That’s because the new deal doesn’t cover debts owed to other international banks such as the Inter-American Development Bank or Government creditors such as Spain. Bolivia’s debt after the deal is implemented will still equal $2896 million dollars, or $333 owed by every Bolivian.
Worst of all, it looks like the deal will release little or no new money for vital investment in tackling poverty. It is likely to only reduce the amount it pays in servicing its debts to $232 million, a mere drop of 16% which will still leave a huge burden on the Bolivian economy.
Moreover, the end of debt payments to the IMF and World Bank is being paid for by reducing the exact same amount of aid flows from the World Bank, which leaves Bolivia in pretty much the same place. Bolivia is eligible to apply for new aid flows from the World Bank, but these are likely to be under strict conditions which could include the rejection of nationalization of Bolivia’s gas even if this is supported by the majority of Bolivia’s population.
In fact, it is noticeable that the whole debt deal is being accompanied by an increase in conditions imposed by rich countries. Clearly concerned about a loss of influence without the tool of debt to impose its wishes, Rodrigo Rato of the IMF, last week talked of the need to tie debt relief to opening of markets of developing countries.
In the announcement of the new debt deal, G7 finance ministers talked a great deal about "governance, accountability and transparency" which sounds vital if the deal is to benefit the poor. However in practice these conditions have often meant tying countries to controversial policies such as the privatization of water, or cutback in public deficits that have often had an especially detrimental effect on the poor and encountered strong public resistance, especially in Bolivia.
Unfortunately it shouldn’t surprise us that the debt deal doesn’t either cancel 100% of Bolivia’s debts or remove the conditions that are imposed on indebted countries by International Institutions such as the IMF. The fact is that the debt deal leaves those who were chiefly responsible for the crisis in charge of deciding who gets debt relief and how much. There has been no admission of culpability by the Governments and International lenders who made poor, ill-judged or corrupt loans.
A truly just deal would have taken the power of deciding how much debt relief a country deserves, and the conditions under which it is cancelled out of the hands of the creditor and into the hands of an independent arbitrator. In an open transparent process involving civil society groups, the arbitrator would look at how the debts were acquired, the culpability of both debtors and creditors, the lessons to ensure future debt crises are prevented, and the ways of ensuring released resources are used to tackle poverty.
Without this kind of process, the new debt deal remains an act of charity, and a stingy one at that. It is certainly not an act of justice.
That doesn’t mean there is no hope or benefits from the deal. In the film, Groundhog Day, Bill Murray eventually starts to take advantage of his endlessly repeating days to seduce a woman. At first he fails, but gradually learns his lessons and starts to have some success. In a similar way, debt campaigners need to learn our lessons and continue to apply pressure for a just deal.
There is of course a reason why Gordon Brown continues to make overblown announcements and that is because he has been forced to respond to a global movement for debt cancellation. Each announcement is incremental but still a step in the right direction.
In the short-term, we can immediately take advantage of the principle of 100% debt cancellation to put pressure on the Inter American Development Bank to follow up by cancelling all the debts owed by countries like Bolivia. In the longer term, we need to keep pushing for a new framework for lending and debt cancellation, one that removes for ever the power from those who caused a crisis that has led to the deaths of millions across the world.
Write to President Enrique Iglesias of the Inter American Development Bank to follow the lead of the IMF and World Bank and cancel 100% of the debts owed to it by Bolivia as well as Nicaragua, Guyana, Honduras, Haiti, Ecuador and Peru.
Main sources for this were: UNDP Human Development Report (www.undp.org), Central Bank of Bolivia (www.bcb.gov.bo), Eurodad (www.eurodad.org), CAFOD (www.cafod.org.uk) and P Gregorio Iriarte, Analisis critico de la realidad (2004)
- 31 December 2004 – Bolivia owed in total $4,950 million owed of which $2054 million (41%) will be cancelled. Large debts are still owed to IADB ($1658 million) and CAF ($742 million) followed by bilateral creditors: Spain ($142 million) and Brazil($87 million) and Japan $72 million.
- According to Iriarte, 33% of Bolivia’s debts were contracted under dictatorship. Much of the debt was also contracted with little public benefit from privatization deals under Lozada to paying back other debts and failed projects such as the Banco Agricola.
- According to Iriarte, between 1971 and 2000, Bolivia paid more including interest all of legitimate debt (according to Iriarte) than it received in aid flows.
- Many groups in the South also point out the huge ecological debt that the West owes countries like Bolivia from the huge overconsumption that has a devastating impact on the poor worldwide and the dependence we have on countries like Bolivia which still contain the largest forest reserves and biodiversity in the world.
- A recent report by Christian Aid, Actionaid and Jubilee Debt Campaign said that 62 countries would need 100% debt cancellation as well as increased aid. The current deal is only designed for 18 countries.
"We welcome any progress towards debt cancellation but will continue to point to the need for much bolder steps to end debt domination. This is a matter of fundamental justice" (South/North Civil Society Debt Group)
UPDATE: Financial Times reported on 7 July that the promised debt cancellation would have little benefit for the poorest countries. According to research by Standard & Poor’s, the credit rating agency, “Even if all debt were forgiven, most of these governments would still require significant levels of external donor assistance in the medium term.”
The agency also said that only the countries that had a good track record on structural reform would be able to use the debt relief to accelerate programmes aimed at reducing poverty and aiding development. That is not the case in many of the 18 countries that qualified for debt relief, and the write-offs alone were unlikely to change their long-term prospects.