Still Waiting For Debt Relief

Last July, debt relief was all the rage. Bono crooned at the Live 8 benefit concert in London–one of almost a dozen taking place worldwide–and the leaders of the G8 nations met in Scotland to negotiate a response to the issue. In the end, the elected officials agreed to a breakthrough debt relief deal for some of the poorest countries in the world. They unanimously declared that providing relief, especially for sub-Saharan Africa, was a moral and economic imperative. President George W. Bush remarked that struggling nations “should not be burdened by mountains of debt” and announced that the G8 proposal would “eliminate 100 percent of that debt.” All that was left, the rhetoric suggested, was for the heads of state to congratulate themselves for their high-minded deeds.

Fast forward to the present. Public attention has shifted elsewhere, the G8 deal has only been partially implemented, and much more work remains to be done to eliminate unjust debts that stifle countries in the developing world.

Most immediately, the task ahead boils down to addressing three problems. First, the World Bank has yet to follow through on its part of the G8 deal. Second, many desperately poor countries do not qualify for relief from the World Bank, IMF or regional banks under last year’s agreement; G8 leaders must expand the deal to include timely cancellation for more nations. Third, citizens in countries that have overthrown undemocratic leaders are still stuck paying the debts of their past oppressors–because even after proclaiming that the Iraqi people should not be burdened with Saddam Hussein’s debts, President Bush has failed to apply the same standard of forgiveness to countries the U.S. army has not recently invaded. The Bush administration should lead the G8 in creating a mechanism to eliminate all odious debts.

So, first of all, if everyone agrees that debt relief is needed, why is the World Bank still dragging its feet over eight months after the Scottish summit?

In December, the International Monetary Fund hammered out the details for implementing its part of the deal, and it cancelled relevant debts in January. Yet the World Bank lags behind. The Bank’s Executive Board is holding yet another meeting today to try to resolve lingering issues. Observers are hopeful that this meeting will yield results; nevertheless, immediate debt relief still may not be forthcoming.

What the World Bank is currently offering is a plan that would force indebted countries to continue making payments for up to the next 15 months. Rather than following the IMF’s lead in giving debt relief right away to qualified nations, the Bank is pursuing an annual approval process that would keep all the debtors sending non-refundable payments until July–a full year after the G8 agreement. Newly eligible countries will have to wait still another year for cancellation, until July 2007. These include the AIDS-ravaged nations of Burundi, Guinea, Malawi and Sierra Leone.

The central reason for the delay has been the World Bank’s drive for bureaucratic self-preservation. The institution wants to make sure that donor countries will give it extra funds to make up for lost interest payments from poor nations. It has been willing to hold impoverished countries hostage to get the money. That means funds which could be spent on health, education and human development in Africa and beyond are still being sent back to Washington.

Equally outrageous is the fact that, while the IMF forgave debts accumulated by the eligible countries through the end of 2004, the World Bank only plans to cancel debts accumulated through 2003. Rather than living up to promises of “100 percent cancellation,” the Bank is milking poor nations for payments on an extra year’s worth of debt.

World Bank board members will have an opportunity to remedy these problems at their meetings this week–and they should. But even if the Bank clears the hurdles of self-interest, barriers to ending the debt crisis will remain. Two especially pressing concerns must be addressed not only by the World Bank and IMF, but also by their paymasters at the G8: finding a way to include more poor countries in the deal without making them submit to onerous economic conditions, and canceling illegitimate debts amassed by the dictators of the past.

The current G8 agreement, while representing a historic advance, is only a limited response to the debt problem. Only a fraction of the poor countries that need relief are now getting it. In order for others to qualify they must spend years submitting to a long list of “neoliberal” economic mandates, such as downsizing government and opening markets to foreign corporations. The track record of these reforms at reducing poverty is dismal. And the fact that countries pursuing other strategies for development must forgo needed assistance is offensive.

Many advocates in the international Jubilee Debt Campaign contend that poor countries should proactively renounce unjust debts rather than wait for overdue “forgiveness.” That lender agencies continue to make debtors adopt neoliberal policies as a pre-condition for debt forgiveness lends considerable weight to the activists’ argument.

The stance in favor of renunciation is doubly valid in cases of “odious” debt, and addressing these cases represents the third critical task ahead. Wealthy nations are still pushing for payments from countries whose bills were run up by dictators that have since been deposed. Money lent to military governments was often used to line the pockets of corrupt officials or, worse yet, to purchase American and European-made arms, which were then deployed to repress democratic movements.

After the U.S.-led assault on Baghdad in 2003, President Bush argued that odious debts endangered Iraq’s “long-term prospects for political health and economic prosperity.” He insisted that the future of a people “should not be mortgaged to the enormous burden of debt incurred to enrich” a despot. The U.S. then mobilized its political will to persuade national and multilateral creditors to erase the bulk of Saddam Hussein’s debts.

The Bush administration was right to do this. The problem is that it didn’t go far enough. Washington has yet to push for the elimination of debts accrued by tyrants like Pinochet in Chile and Suharto in Indonesia, whom the United States supported when they were in power.

This double standard has tragic implications. Evidence shows that debt cancellation can be a most effective form of humanitarian assistance, allowing developing countries to draw on their own resources to provide critical social services. The Jubilee USA Network has highlighted the Zambian government’s announcement, just before the G8 deal was finalized, that it would “use debt relief proceeds to provide anti-retroviral drugs to 100,000 HIV/AIDS patients.” The bottom line, Jubilee advocates note, is that debt cancellation can save lives.

“In a situation where literally thousands of children die from preventable diseases every day, it’s our duty to act,” said British Prime Minister Tony Blair in advance of last year’s G8 summit. That sentiment is as true now as it was when the cameras were rolling. And if leaders like Bush and Blair are not willing to honor it, solutions like debt renunciation present the only moral alternatives for the poor.

Mark Engler, a writer based in New York City, is an analyst with Foreign Policy In Focus. He can be reached via the website DemocracyUprising.com. Research assistance for this article provided by Kate Griffiths.