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Michael
T. Seigel, SVD After five years of campaigning, where are we with the debt crisis and the campaign for debt cancellation? In July, the G8 will meet in Genoa, and this will be the occasion for renewed appeals. What should we aim for in these appeals? I will try to address these questions. I will begin with a summary of where we stand with the process for debt cancellation and follow this up with an assessment of what still needs to be achieved. I will conclude with some suggestions for consideration in working out specific appeals to the G8 Summit in Genoa. The Status of Debt Relief All involved in the campaign for debt cancellation will recall that nothing was achieved at the Okinawa Summit. The main basic process for debt cancellation remains the HIPC initiative with the modifications to this as introduced at the G8 meeting in Cologne in 1999. However, there have been some initiatives to speed up the process of HIPC and, in addition, a number of countries (including all the major bilateral creditors) have made initiatives to cancel bilateral debt (in whole or in part, and in some cases conditional on completing the HIPC Initiative process). The HIPC Initiative The HIPC Initiative aims at bringing the debt of the Heavily Indebted Poor Countries (HIPCs) to sustainable levels, where sustainability means that a country would "be able to meet its current and future external debt-service obligations in full, without recourse to debt relief, rescheduling of debts, or the accumulation of arrears, and without compromising growth".1 Since Cologne, that goal has been maintained in conjunction with the goal of poverty reduction. To qualify for debt relief under the Initiative countries must have implemented three years of reform, which involves implementing the kinds of policies associated with structural adjustment programmes, and produced at least an interim poverty reduction strategy paper. Having done this, they arrive at what is called the decision point, at which the World Bank and the IMF evaluate the debt of the country and determine the amount of debt relief required for it to achieve debt sustainability. Debt relief begins at this point and once further reform has been carried out and a full poverty reduction strategy paper produced, the country reaches the "completion point", and is granted all the relief required to bring it to debt sustainability. Initially, the completion point came three years after the decision point but the Cologne Summit introduced a floating completion point which was expressly intended to enable countries to gain full debt relief sooner. Before going on to a summary of what has been achieved by this initiative and by the additional cancellations of bilateral debt, I will first give a brief summary of what is considered inadequate about this initiative by numerous members of the debt campaign.
Achievements of the HIPC Initiative The World Bank reports that, as of February 2001, 22 countries had reached their decision point, allowing them to begin receiving debt relief that is ultimately expected to amount to about $34 billion (World Bank and IMF Staff 2001, p. 3).2 Along with other forms of debt relief, including the bilateral debt cancellations that have been announced, this is expected to reduce by two-thirds the external indebtedness of these countries.3 This is not actually the most important figure, since much of that debt would never have been paid anyway. The more important figure is how much actual payments are reduced, since indebted countries will only get real relief to the extent that cancellation goes beyond the amount that they have not been able to pay anyway. In fact, according to the World Bank’s estimate, actual debt-service payments for these 22 countries will be reduced by about one-third.4 This is the first time that there has been a promise of debt cancellation that will actually go beyond the amount that indebted countries were not able to pay anyway. It therefore constitutes a real step forward, albeit a minor one, for debt cancellation. The same report also estimates that for these countries, the ratio of debt-service payments to exports will be 8% — a substantial improvement on the present ratio of 17%.5 (Note that these figures include the debt cancellations that have been announced by numerous governments). This means that these countries do have more money to invest in health education, development, etc. The limitations of what has been achieved Too little Debt Relief Even for these 22 countries, the amount of debt cancellation is too small. Of the 22 countries already having reached the decision point, fully 17 are listed by the United Nations as Least Developed Countries (LDCs).6 The LDCs are the poorest countries in the world. The criteria for listing as an LDC include per capita GDP ($675 or less), a low quality of life index (based on life expectancy, nutrition levels, literacy and school enrolment levels), a very low level of economic diversification with little industrial development and little diversification in exports, and a population of less than 75 million.7 In fact, of the 17 LDCs among these 22 countries, the per capita GNP is below $400 for all except Guinea ($511), Mauritania ($414), and Zambia ($464). (A comparison with some other notably poor countries might indicate just how poor these countries are: the per capita GDP for the Philippines in 1999 was $1200, for Indonesia it was $1100, for Peru it was $2610, and for Mexico it was $3700 — all of them raging from about three to as much as twelve times that of the LDCs on the HIPC list).8 The level of absolute poverty — i.e. living on less than one dollar a day — exceeds 30% in all of these 17 LDCs, 50% in eleven of them, 70% in four of them.9 Given that level of poverty, these countries need 100% debt cancellation. This is all the more the case when one considers that many of these countries are also afflicted with severe health problems such as HIV/AIDS, malaria and tuberculosis. Further, more than half of them (The Gambia, Guinea, Guinea-Bissau, Madagascar, Malawi, Mali, Mauritania, Mozambique, Niger, Rwanda, Tanzania, Uganda, Zambia) experienced declines in per capita food production in the 1990s — in spite of their already high levels of absolute poverty. As I have already indicated, what these countries will really gain from the expected debt cancellation is a reduction of about one-third (on average) in their actual debt-service payments every year. The total of debt- service actually paid by these countries in 1998-99 was $2.7 billion and this will be reduced to $1.9 billion, a reduction of 0.8 billion.10 Since the total population of these 22 countries is 212 million, it amounts to less than four dollars per person per year. This is a paltry sum, and the remaining debt burden an excessive demand when the needs of these countries are considered — or for that matter when one considers what a small sum the remaining $1.9 billion is for the creditors and how easy it would be for them to cancel it completely. They have, after all, complied with the policy wishes of the creditors. The impact of declines in aid and dependence on commodity exports Even these modest benefits are likely to be offset due to the decline in aid to these countries. At a talk in Berlin on 2 April, expressing concern about this ongoing decline in overseas aid, World Bank President James Wolfensohn pointed out that "overseas aid to Africa has fallen from $32 per person in 1990 to $18 per person in 1998" (Wolfensohn 2001). This makes the mere $4 per person resulting from debt relief look very meagre indeed. Further, these countries are enormously dependent on the export of primary products, many of them having more than 90% of their exports made up of agricultural goods. Given that commodity prices have been in decline for some time, their revenue from exports is greatly at risk. When these factors are taken into consideration, it seems dubious that things are likely to improve for these countries. In fact, since these countries are faced with enormous problems in terms of health issues, poverty, etc., and at the same time are faced with reduced aid and probably with reduced income from exports, it seems inevitable that they will have to borrow further, so one must presume that there is already a renewed debt crisis looming. Too many countries are left out The World Bank lists 41 countries as heavily indebted poor countries. Even of these countries, barely more than half have begun to receive debt relief. But the HIPC list itself is far too short. Bangladesh, with a per capita GDP of $339 and fully 48% of its people living in absolute poverty, in 1997 paid 16% of its export earnings on debt servicing. Cambodia, struggling to rebuild the country, is paying 54%.11 These are just a couple of examples. The Jubilee 2000 Campaign listed 52 countries that it considered needed debt cancellation. Others have insisted on debt cancellation for the whole developing world. Twenty-two countries is simply too few. Too narrow a perspective The interpretation of the debt crisis itself still attributes the causes of the crisis to bad governance in the indebted countries and apportions too little of the responsibility to the creditors and to international structures. The demand for structural adjustment While the goal of poverty reduction has been introduced, this has not replaced the demands of structural adjustment, but has simply been added on. Even when the word "structural adjustment" is replaced with "reform", the policy content does not change. In April of this year, the World Bank published a document called Aid and Reform in Africa: Lessons from Ten Case Studies.12 This document was even lauded as an abandonment of structural adjustment. AllAfrica.com said that the report "marks abandonment of the mandatory structural adjustment approach that has defined World Bank and IMF aid to Africa for almost three decades".13 In fact, however, the only aspect of structural adjustment that this report seeks to bring to an end is the process of imposition that, according to the report, leads to a lack of sense of ownership by the countries undergoing reform programmes. By ownership is meant the sense that the programmes adopted are the countries own programmes, coming from the countries own choices, and not imposed from without. The report states that the sense that reform is imposed results in that reform not being sustainable.14 There is, however, nothing in the report to suggest that the policies that make up structural adjustment and reform need to be reconsidered. The policies that make up reform are policies that derive from the neo-classical or neo-liberal school of economics and include privatization, currency devaluation, opening of markets, deregulation of foreign investment, the removal of subsidies to local producers and products, etc. From Catholic religious working in countries undergoing structural adjustment programmes, we hear stories of increased gaps between rich and poor, increased unemployment, projects to promote rural development and self-reliance being undermined by the influx of cheap goods from overseas, concentration of ownership of land in the hands of the few as agricultural production is focused more and more on exports, etc. On the whole, the on-the-ground experience of Catholic religious seems to be negative towards structural adjustment. Likewise, numerous NGOs, also working largely from on-the-ground experience, have been equally as critical. Most particularly the NGOs involved in the Structural Adjustment Participatory Review Initiative Network (SAPRIN) have reached very similar conclusions: As a result of privatization policies, for example, there has been an increase in unemployment and job insecurity, workers’ rights have been weakened, regulatory efforts have been ineffectual, user costs have increased while service quality has declined, and service expansion has not met needs. In some cases, privatized industries have proven to be more inefficient than public enterprises. Liberalization policies have had a significant negative impact on agricultural production and the rural sector, women, unskilled workers, and small and micro-enterprises, thereby exacerbating inequalities and leading to a further concentration of wealth. Local industry has suffered, and priority has not been given to reorienting and strengthening local productive capacity. The labour-market reform programme has led to greater job instability, poorer working conditions and higher incidence of abuse of labour rights. A fall in real wages, declining purchasing power and greater inequality in the distribution of income have accompanied the move to greater labour-market flexibility. Fiscal-policy reform, in the form of public expenditure cuts and imposition of user fees, has led to reduced access by the poor and disadvantaged groups to quality health care, education and housing.15 In fact, numerous economists, such as former World Bank Chief Economist Joseph Stiglitz, have raised serious questions not just about the processes of imposition of structural adjustment policies, but about the policies themselves. So it is not just the fact of imposition but the very policies being imposed that is the problem. Yet the commitment of the World Bank to these policies remains unchanged. In fact, so strong is this commitment that the HIPC section of the World Bank web site defines the very purpose of the HIPC Initiative in terms of reform: "The principal objective of the Debt Initiative for the heavily indebted poor countries (HIPCs) is to bring the country’s debt burden to sustainable levels, subject to satisfactory policy performance, so as to ensure that adjustment and reform efforts are not put at risk by continued high debt and debt-service burdens".16 In fact, the report mentioned above, Aid and Reform in Africa: Lessons from Ten Case Studies, winds up being a call to other donors as well to refrain from supporting countries that do not implement reform. The end result is likely to be even more coercive — a form of sanctions or a boycott of aid to those countries who do not implement the desired policies. Goals for Genoa Certainly the results achieved by the campaign remain far from the ultimate goal of the campaign. As many will recall, these goals were: - cancellation of all unpayable and all unjust debt of developing countries, - the establishment of independent, transparent and representative (of creditors, indebted country governments and civil society) procedures for dealing with this and future debt issues. - the establishment of procedures to see that similar debt crisis do not emerge in the future — implicitly, the establishment of an equitable world economy. While only minimal steps have been taken towards only one aspect of this goal, in other respects the debt campaign has achieved a great deal. The very fact that some countries have achieved some debt relief is a step forward. Further, perceptions of the debt crisis have changed enormously in the past five years. The call for debt cancellation has become mainstream, and mainstream economics newspapers and periodicals such as the Financial Times and the Economist have published editorials supporting debt cancellation. This is a significant achievement for the campaign and it implies that the campaign’s methods have proved effective and should be continued. While the meeting of the G8 is not a decision-making meeting, it provides an opportunity to make appeals to the governments of the G8 countries who are both the major creditors and have essential control of the voting in the World Bank and the IMF. The Genoa meeting of the G8 will provide an opportunity to make the creditors realize that, although the Year 2000 has passed, the debt campaign has not gone away and it will continue until the debt is cancelled and a reasonable degree of equity is established between developing and developed countries. Perhaps, in the process of formulating goals and demands for the summit, the following factors could be considered: - The biggest hold-up to debt cancellation now is the unwillingness to cancel multi-lateral debt. Demands could therefore focus on having the World Bank and the IMF cancel debts. - Little will be achieved if debt relief is accompanied by cuts in overseas aid. Debt relief must be in addition to, not instead of, other forms of aid. - The aspects of the campaign that have so far been ignored by the creditors (an independent, transparent procedure and measures to avoid similar crises in the future) still need to be addressed. - Far from avoiding future debt crises, there appears to be a renewed one in the making. The decline in overseas aid, the dependence of many indebted countries on commodity exports along with an ongoing decline in commodity prices, and continued loans for activities that will not generate income (such as for dealing with the HIV/AIDS crisis) are all setting countries on course for a continued or renewed debt crisis. Some of the following measures could be considered: - Free access to developed country markets for the goods of the developing countries; - Assistance to countries to enable them to overcome their dependence on agricultural exports, or, more importantly, a better deal for agricultural producers in the world market; - Value to be placed on self-reliance, not just on market competitiveness; - Assistance in the form of grants, not of loans, at times of humanitarian crises, or for health related issues, or for other projects that will not be profit-generating. These grants could be considered compensation for past and present injustices and not simply as charity. (The World Bank has loaned an estimated $578 million for AIDS.17 No matter how concessional the interest rates, these are not funds that are going to generate income with which debts can be repaid. It is hard to imagine how these loans can do anything but generate debt crises. They should have been grants). In sum, the goals and demands of the campaign remain what they were: the immediate goal is the cancellation of the debt, and the long-term goal is an equitable world economy. We approach the Genoa Summit aware that we remain a long way from these goals, but encouraged by the partial successes already achieved and by the growing number of people who have come to awareness and support these goals. Bibliography: World Bank Abandoning Structural Adjustment Approach. AllAfrica.com. 27 March 2001. http://allafrica.com/stories/200103270418.html Andrews, David; Boote, Anthony R.; Rizavi, Syed S. and Singh, Sukhwinder. Debt Relief for Low Income Countries. IMF Pamphlet Series No. 51, 1999. http://www.imf.org/external/pubs/ft/pam/pam51/contents.htm#glossary Devarajan, Shantayanan; Dollar, David; Holmgren, Torgny (edd.) Aid and Reform in Africa: Lessons from Ten Case Studies. Washinton D.D.: The World Bank, 2001. http://www.worldbank.org/research/aid/africa/release/aid.htm UNCTAD 1. Criteria for Identifying LDCs. http://www.unctad.org/en/subsites/ldcs/document/criteria.htm UNCTAD 2. The Least Developed Countries —Country Backgrounds. http://www.unctad.org/en/subsites/ldcs/country/country.htm Wolfensohn, James. The Challenges of Globalization, The Role of the World Bank. http://allafrica.com/stories/200104030088.html World Bank and IMF Staff. Heavily Indebted Poor Countries (HIPC) Initiative: Status of Implementation. Development Committee of the World Bank and the IMF. 19 April, 2001. http://wbln0018.worldbank.org/dcs/devcom.nsf/(documentsattachmentsweb)/April2001EnglishDC20010012/$FILE/DC2001-0012-HIPC.pdf World Bank 1. Saprin Challenges World Bank on Failure of Adjustment Programs. SAPRIN, April 2000. http://www.igc.org/dgap/saprin/april2000.html Notes: 1 Andrews, David; Boote, Anthony R.; Rizavi, Syed S. and Singh, Sukhwinder. Debt Relief for Low Income Countries. IMF Pamphlet Series No. 51, 1999. http://www.imf.org/external/pubs/ft/pam/pam51/contents.htm#glossary 2 World Bank and IMF Staff. Heavily Indebted Poor Countries (HIPC) Initiative: Status of Implementation. Development Committee of the World Bank and the IMF. 19 April, 2001, p. 3. http://wbln0018.worldbank.org/dcs/devcom.nsf/(documentsattachmentsweb)/April2001EnglishDC20010012/$FILE/DC2001-0012-HIPC.pdf 3 Ibid. p. 4. 4 Ibid. p. 8. 5 Ibid. p. 8. 6 UNCTAD. The Least Developed Countries —Country Backgrounds. http://www.unctad.org/en/subsites/ldcs/country/country.htm 7 UNCTAD. Criteria for Identifying LDCs. http://www.unctad.org/en/subsites/ldcs/document/criteria.htm 8 Statistics taken from the APEC homepage (http://www.apecsec.org.sg/member/indi.html) and ascribed to The Economist Pocket World in Figures, 2000 Edition. 9 UNCTAD. The Least Developed Countries —Country Backgrounds. http://www.unctad.org/en/subsites/ldcs/country/country.htm 10 Heavily Indebted Poor Countries (HIPC) Initiative: Status of Implementation. p. 9. 11 UNCTAD. The Least Developed Countries —Country Backgrounds. http://www.unctad.org/en/subsites/ldcs/country/country.htm 12 Devarajan, Shantayanan; Dollar, David; Holmgren, Torgny (edd.) Aid and Reform in Africa: Lessons from Ten Case Studies. Washinton D.D.: The World Bank, 2001. http://www.worldbank.org/research/aid/africa/release/aid.htm 13 World Bank Abandoning Structural Adjustment Approach. AllAfrica.com. 27 March 2001. http://allafrica.com/stories/200103270418.html 14 Ibid. p. 9. 15 SAPRIN Secretariat and Executive Committee. Saprin Challenges World Bank on Failure of Adjustment Programs. April 2000. http://www.igc.org/dgap/saprin/april2000.html 16 (http://www.worldbank.org/hipc/about/about.html) 17 World Bank HIV/AIDS Project Lending. http://www.worldbank.org/html/extdr/pb/pbaidsactivities.htm
Ref.: Text from the Author.
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