World Debt Day Special

Although third world debt has long been recognized as a major obstacle to sustainable human development, poor countries are still paying money to rich countries and institutions at great cost to their domestic development.

Responding to the gravity of the situation, 16 May 2007, World Debt Day, reminds us of the millions of people living in poverty as a result of unpayable world debt – notwithstanding the fact that poverty increases the power relations between the north and the south.

On 16 May 1998, at the G8 Summit in Birmingham, 70,000 people formed a human chain around Tony Blair, Bill Clinton, and other world leaders to call for a debt free start to the new millennium. The annual observance of the events that took place on this day highlights the financial burden still shackling poor countries.

In many cases large amounts of the money owed by indebted countries is unpayable. Most African countries are barely managing to provide access to clean water, adequate housing and basic health care for their citizens. Julius Nyerere, former President of Tanzania put it eloquently when he asked, "Must we starve our children to pay our debts?”

Moreover, Augustine Mkandawire, Research and Monitoring Consultant for the African Monitor, argues that “the repayment of debt is robbing developing countries of millions that they could be investing in creating employment and making progress in human development.” 

In some cases the amount of money that is owed by African countries is illegitimate. The Jubilee Debt Campaign, which calls for a 100% cancellation of unpayable poor country debt advocates for debt cancellation where the loans were contracted irresponsibly or unfairly, commonly referred to as odious debt. Odious debt is debt acquired by undemocratic countries and tends to be misspent. 

In the last couple of years there have been many cases put forth advocating for debt cancellation. However, some argue that, “the problem with the simple cancellation of debt is that it gives a reprieve to third world elites, many of them undemocratic, without requiring any reforms.” It must also be acknowledged that debt cancellation does bring with it a few questions, as Kevin Danaher highlights in his article calling for a new approach to the third world debt crisis.

Nevertheless, in those cases where debt has been cancelled, it has come at a high price indeed. To meet the qualifying conditions for debt cancellation, indebted countries must comply with harmful poverty-reduction efforts, like forced privatisation.

G8 talks from 1999 – 2005 have resulted in promises of up to US$150 billion of debt cancellation, for countries that have completed the Heavily Indebted Poor Countries Initiative (HIPC). Currently, 22 countries have HIPC status. These are : Benin, Bolivia, Burkina Faso, Cameroon, Ethiopia, Ghana, Guyana, Honduras, Madagascar, Malawi, Mali, Mauritania, Mozambique, Nicaragua, Niger, Rwanda, São Tomé and Príncipe, Senegal, Sierra Leone, Tanzania, Uganda and Zambia.

Once a country acquires HIPC status, they will also receive further cancellation under the terms of the Multilateral Debt Relief Initiative (MDRI), agreed in 2005 at Gleneagles.

However, this initiative comes with unfair strings attached. Meeting the conditions that have been laid down for the indebted countries can in some instances take more than six years. In the meantime, the indebted countries repay their debts right up to completion point of the HIPC process.

Mkandawire notes that although there are indications that donors are willing to provide debt relief, the pace at which the cancellation is taking place is very slow, “Time is of the essence when it comes to saving lives,” he says. As a result he maintains that although there is some progress in debt cancellation a lot still needs to be done to relieve debt.

He is of the view that the current situation does not really favour the poor low income countries. To substantiate his argument, Mkandawire argues that because developing countries have to pay huge amounts of money, that they cannot afford, they become more dependent on the donor countries and institutions as they scramble to pay off their debts by getting in more debt. The indebted countries get caught up in a perpetual dependency on debt, he states.

In light if this situation,the Declaration on Debt which emerged out of the World Social Forum in Nairobi, Kenya earlier this year notes that, “The debt crisis is not just a financial problem for the countries of the South. It is also a political problem that is based on and reinforces unequal power relations.”

The Declaration on Debt calls for a Global Week of Action against Debt, from 14-21 October 2007. This week offers campaigners the opportunity to mark:

• October 15 – 20th anniversary of the death of Thomas Sankara
• October 16 – World Food Day
• October 17 – International Day to Eradicate Poverty
• October 20 – World Youth Day
• October 19-21 – IMF-WB Annual meetings

The call to governments during the Week of Action will be:

• South – debt repudiaton
• North – debt cancellation

As the debate for debt relief continues, it has become abundantly clear that very few realise or are willing to admit that debt relief is an essential element of defeating poverty on a long-term basis.

– Badumile Duma, Civil Society Information Coordinator, SANGONeT.

– Picture courtesy of the Social Youth Organisation, iEARN-USA and the New Internationalist.