Less debt, more aid

With the G8 Summit meeting in Germany this June, world leaders are again being called to deliver justice to the poor

By Karen Van Loon
March/April 2007

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One of the perpetuating roots of poverty has been debt and the slow pace of reaching a real Jubilee response to canceling it. In 1999, the largest petition in the world's history was presented to the leaders of the Group of Seven (G7) industrial countries in Koln, Germany. The Jubilee debt campaign called for complete cancellation of the debts of the world's poorest countries.

The Jubilee contributed to a growing global awareness and mobilization around the world that continues today, calling for justice in our economic relationships. How did the Jubilee debt campaign begin and what has happened with debt cancellation in these last eight years?

As the new millennium approached, people around the world realized the injustice of debt. High interest rates had resulted in ever-increasing debts. New loans often went to pay interest on old debt. Loans were frequently conditioned on structural adjustment programs that cut into government spending on health and education. Loans provided to dictators and debts incurred for destructive projects lacked legitimacy.

The Canadian churches called for a Jubilee, "a time to give new hope to the impoverished people of the world." They echoed a call being made in Europe and the Global South. More than 24 million people around the world, including 640,000 Canadians, participated in the international Jubilee debt campaign.

Canada responded to the Jubilee campaign by canceling much of its bilateral (country to country) debt owed by low-income countries. However, most low-income countries' debts are owed to multilateral financial institutions such as the World Bank and the International Monetary Fund (IMF).

In June 1999 leaders of the G7 nations responded to the Jubilee campaign by agreeing to cancel up to US$100 billion of low-income countries' debts. While this may sound significant, it represented less than half of the debt owed by the Highly Indebted Poor Countries. In addition, so many conditions were attached to qualify for this debt cancellation that by 2005 KAIROS estimated that only about one third of this promised debt relief had actually been delivered. KAIROS is the coalition of Canadian churches and religious organizations working together for justice.

The fight for debt cancellation pressed on.

Make Poverty History

In September 2000, all United Nations member states committed to the Millennium Development Goals (MDGs) to meet minimum targets by 2015 for reducing poverty, hunger, illiteracy, discrimination against women, child mortality, disease, and environmental degradation, all through a global partnership for development. The goals were not perfect, not ambitious enough, but generally considered possible to meet.

By 2005 it was obvious that the pace of action was too slow, that even these minimal targets would not be met for more than 100 years. In the words of Stephen Lewis, then United Nations Special Envoy for HIV/AIDS in Africa, "it is the poor who will pay the price." A Global Call to Action against Poverty was launched and campaigns set up in 80 countries, including Make Poverty History Canada. This massive mobilization, calling for more and better aid, trade justice and debt cancellation, put pressure on the G8 to take action at their 2005 meeting in Gleneagles, Scotland.

G8 leaders responded by pledging to write off 100 percent (US$40 billion worth) of debts owed to the IMF, World Bank and African Development Fund by 18 Heavily Indebted Poor Countries (HIPCs). These 18 countries had already completed several years of onerous World Bank and IMF structural adjustment programs required to qualify for debt relief. Another nine HIPCs might possibly qualify for the same debt cancellation (US$11 billion more) within 18 months if they complete the required IMF and World Bank conditions.

This agreement for 100 percent cancellation is an important step. However, KAIROS analyzed that 62 countries needed 100 percent cancellation in order to meet the Millennium Development Goals. The 2005 G8 pledge of $40 billion for 18 countries represented less than one tenth of the full amount needed for all.

Cut the Strings

The continued insistence on harmful conditions attached to debt cancellation was one of the biggest disappointments of the 2005 G8 initiative. In its 2006 report, "Cut the Strings", the UK Jubilee Debt Campaign describes how, in order to qualify for debt relief, countries must fulfill 10 to 20 conditions, including compliance with other programs also containing numerous conditions. Conditions generally concern public spending management, meeting specific health and education targets, and structural reforms such as trade liberalization or privatization of industries or utilities. The IMF can declare a country "off track" in meeting some of the conditions and delay its debt relief. When this happens other donors often withhold their aid as well.

After the 2005 G8 meeting, the World Bank planned to require impoverished countries to keep making non-refundable debt payments for up to 15 months after they met all the IMF and World Bank conditions and qualified for debt relief. However, as a result of letter writing, emails and other advocacy by debt campaigners around the world, the Bank reduced that time to a maximum of three months.

This decision meant that shortly after qualifying, Malawi's debts to the World Bank, IMF and African Development Fund were cancelled by September 2006.

Malawi's external debt was cut from more than US$2.9 billion to about US$400 million. Malawi will save on average around US$110 million every year. Now, rather than this national income going to service the debt, Malawi President Dr. Bingu Wa Mutharika has stated that the money will be spent on education, health and other social projects. He gave his "personal commitment to continue on the path of financial prudence and to ensure that the increased resources that we are now accessing will be used wisely for the elimination of poverty of our people." Generally, countries that have received debt cancellation have used extra resources to improve health and education.

While Malawi saw a significant cancellation of its foreign debt, other countries benefited much less as more of their debt was owed to creditors not participating in the 2005 G8 initiative. The UK Jubilee Debt Campaign reported that Guyana benefited the least with only US$343 million or little more than 20 percent of its debt cancelled. Nicaragua, Honduras and Bolivia faced a similar reality as debts to the Inter-American Development Bank (IDB), the biggest lender in Latin America, were not cancelled.

During 2006, debt campaign organizations in Europe, North America and Latin America advocated with the IDB to cancel the debts of these four countries, as well as Haiti's debt. Haiti is severely indebted and by far the poorest country in the region. In November 2006, Eurodad (the European Network on Debt and Development) reported that the IDB agreed to cancel US$2.1 billion of the US$3.5 billion owed by the five Latin American Highly Indebted Poor Countries, including US$249 million for Guyana.

Illegitimate debt

Many debt campaigns around the world are calling for impartial public audits to determine the origin and legitimacy of debts. KAIROS has described illegitimate debt to include:

• debts contracted by illegitimate military dictatorships
• debts contracted by corrupt rulers who stole the proceeds
• debts with illegitimate terms such as floating interest rates which were later unilaterally raised above 20 percent
• debts used for illegitimate purposes such as destructive projects
• debts which cannot be repaid without denying peoples' basic human rights to food, shelter, health care and education.

In 2001, Ecuador's Centre for Economic and Social Rights initiated a citizen audit to investigate, jointly with Ecuador's anti-corruption commission, a case of Ecuadorian debt. They concluded that the debt was illegitimate and needed cancellation. This debt was originally contracted between a private company and Norway for the purchase of four cargo ships in the late 1970s. The sale was part of the Norwegian Ship Export Campaign in which Norway exported ships primarily to help its domestic ship building industry rather than the needs of developing countries. When the Ecuadorian company closed down, government guarantees were triggered. The Ecuadorian government assumed responsibility for part of the debt, which increased from US$13.6 million to US$50 million despite payments made totaling US$14 million. No direct benefit to the people of Ecuador could be identified from this loan.

In October 2006 the Norwegian government took a bold lead and announced that it would unilaterally and unconditionally cancel NOK 520 million (US$80 million) of debt held by five countries, including Ecuador, originating from the Ship Export Campaign (1976-80). Norway called the campaign a "development policy failure" and accepted shared responsibility for the resulting debts.

Debt and development groups around the world praised Norway for breaking rank with creditors who refuse to recognize any shared responsibility for extending loans irresponsibly. In many cases creditors, including G7 governments, knowingly lent to corrupt or dictatorial regimes to suit their own political and economic interests.

The Philippine Freedom from Debt Coalition called on the Philippine government to create a congressional Debt Audit Commission to investigate the public debt. One example of Philippine debt many consider illegitimate concerns the Bataan Nuclear Power Plant Project. Commissioned by former Philippine dictator Ferdinand Marcos in the 1970s, he received an estimated total of US$80 million in bribes and kickbacks. The project ultimately cost more than US$2 billion yet never generated any electricity as it had been built near an active volcano and along a fault line at risk of earthquakes. Still the Philippine people continue paying this debt today.

Around the world, voices call for the unconditional cancellation of illegitimate debt. Many debt advocates are calling for an independent, fair and transparent process that would impartially assess the legitimacy of a country's debt and declare any illegitimate debt null and void. Many debt organizations/networks also offer solidarity to debtor countries who refuse to pay illegitimate debts.

Foreign aid

Despite the debt cancellation, countries like Malawi still have desperate levels of poverty. The average life expectancy in Malawi is around 40 years. UNAIDS reported that Malawi has more than half a million orphans due to AIDS and one in seven adults aged 15 to 49 years is HIV positive. Foreign aid is still needed to meet even the minimal MDG targets to reduce poverty.

The world's governments have repeatedly committed to the foreign aid target of 0.7 percent of wealthy countries' Gross National Income (GNI). Although the United Nations General Assembly first pledged this target in 1970, most countries have failed to reach it. Canada currently contributes around 0.33 percent of GNI to foreign aid. The House of Commons Standing Committee on Finance is recommending that the Canadian government adopt the 0.7 percent target by 2015 after hearing this request from many people during its pre-budget consultations across Canada.

Aid needs to focus primarily on poverty reduction rather than the security, political and economic interests of donor countries. Make Poverty History Canada has been advocating for Bill C-293 on Aid Accountability as it makes its way through Parliament. If supported the bill would require Canadian foreign aid to contribute to poverty reduction, consider the perspectives of the poor, and be consistent with international human rights standards.

Halfway to 2015

This year 2007 marks the halfway point set out by governments around the world to achieve the Millennium Development Goals (MDGs). While there have been some hopeful steps along the way, it is not yet enough. Too many countries are still excluded from debt cancellation. Too many conditions are still attached to debt relief, new loans and even aid, making it difficult for countries to qualify or benefit. Too little sharing of responsibility exists for illegitimate debt. If current trends continue, the MDGs will not be met.

This year Germany will once again host the G8 summit, this time in Heiligendamm, from June 6 to 8. Make Poverty History will be calling on G8 leaders to commit to a timetable to reach the 0.7 percent of GNI aid target by 2015 as well as take further steps on debt cancellation.

Make Aid Work – The World Can't Wait is a campaign launched in February by two international Catholic aid and development networks, Caritas Internationalis and CIDSE. The campaign calls on Catholics around the world to put pressure on the richest countries to keep their promises of increased debt relief and aid to poor countries as well as to make aid work for poverty reduction and the achievement of the Millennium Development Goals.

Eight years since the Jubilee debt campaign, our economic relationships have yet to reflect a Jubilee justice where we ensure the common good of our one human family.

Jesus said "I have come that they may have life and have it to the full" (John 10:10). As people of faith sustained by everyday Easter hope, we are invited to humbly continue this mission however circumstances permit.

Karen Van Loon is the coordinator of Scarboro's Justice and Peace Office.

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