We need to assess the public health crisis that is about to explode in the Global South if debt is not outright cancelled. While most Northern countries are in the midst of fighting against the virus, the heaviest impact caused by the pandemic will be on countries in Africa, South & Latin America and Southeast Asia. With many of the Healthcare and social security systems of these countries being ill-equipped to handle the outbreak, the virus will have a devastating effect on the poorest communities. Jubilee Scotland has signed onto a new Debt Jubilee along with 200 other organisations, alling for the cancellation of debt payments paid out from global south countries to the World Bank and IMF during this time. This petition  is one of many calling on the government to take a stance on a pressing issue. It’s estimated by the Jubilee Debt Campaign that over $300 Billion in full debt cancellation is necessary for these countries to fight the virus over the next year. Some payments have been delayed so far, but by merely suspending debt payments, they only defer the problems of these countries for a little while. 

This approach ends up costing creditors nothing, but borrowing countries will have bigger repayments and higher debt risks down the line for many of these countries. Covid-19 has already led to falls in commodity prices and projected increases in borrowing costs in the global south, with limited resources at hand to handle a public health crisis. If these countries have to rely on more outside loans to fight the pandemic they will be stuck in high interest debt traps for decades to come.  One of the biggest risks that these countries are exposed to is the legal challenges that can be brought upon them for failing to keep up their payments. The G20 have called upon private creditors to delay payments, but they are not obliged to. Currently 77 countries are estimated to pay $9.4 Billion from May to December, as part of the G20 deal. Private lenders can sue governments in the UK courts for following the G20’s advice and suspending payments. But the Global South should not be pushed into this by the western institutions who have pledged to help them.

We need your help to call on Chancellor Rishi Sunak, to promote debt relief in these countries that are worst affected by the virus. By signing up to our petition, you help us put across the message that we need real debt cancellation and ways to work out debt in future that doesn’t put human lives at risk. 

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Oxfam International’s Head of Washington DC Office, Nadia Daar, said:

“We commend Congresswoman Maxine Waters, Chairwoman of the HFSC, for advancing this crucial reform agenda at the IFC where the US remains the largest shareholder, and applaud IFC CEO Philippe Le Houérou for his leadership in making these reforms possible. This is a huge step forward not just for the IFC, but for how we understand the role of the private sector in development.”

“This historic decision from the IFC will ensure its investments support improvements in education without excluding children or impoverishing families. Public aid money should not be used to fund corporate-backed private school chains that fuel inequality. Other donor agencies and governments now need to follow suit.”

This freeze is in response to concerns raised by 170 organizations, including Jubilee Scotland who called on the World Bank to end support for these forms of private education that profit on the exploitation of poor children, creating wider inequality. We called for expansions of public education that everyone can access- instead of ‘low-fee private schools’ which exclude girls, impoverished children and paid extremely low wages to under qualified teachers. In Uganda and Kenya, these schools have been accused of refusing to comply with minimum government education standards.

In addition to the freeze the IFC announced an evaluation of its investments in private schools by the World Bank’s independent evaluation group. Oxfam have stated that the COVID-19 Pandemic cannot be used by any donor as an excuse to invest in for-profit education, with the need for these organisations to financing to help countries meet educational needs of millions of children out of school with no access to online classes, tutors or computers.

This move by the bank has been a good start for ending private financing that negatively impacts communities while letting private companies profit. It is time for the UK to take out their investment in these schools that are part of this problem, especially when this investment is supposed to be providing aid.

The Guardian published an article this weekend that focuses on the UK’s current position on this issue.

“The Department for International Development (DfID) has given millions of pounds to low-fee private schools (LFPS) in countries around the world, including Nigeria, Kenya, Uganda, Ghana and Pakistan. It believes the money can help improve the educational prospects of children in places where public-sector schools are poor or lacking.

But the funding, some of it channelled through DfID’s private investment arm, CDC, has proved controversial. Among those that have received UK taxpayer cash are the private school chain Bridge International Academies (BIA) which has also been the recipient of money from Bill Gates and Mark Zuckerberg.”

Bridge International Academies runs low-cost schools with the UK investing £12.3 in the company. Last year a World Bank watchdog, the Compliance Adviser Ombudsman (CAO) investigated BIA’s operations in Kenya and found allegations of human rights abuses, poor working conditions, discrimination, lack of transparency and intimidation, as well as concerns about pay, health and safety and sanitation.

At the time the DFID said they would investigate the situation, something which they are continuing to work on with the WBG. But this should be a sign that the policy of DFID investing aid money in Public Private Partnerships can can lead to situations like this. PPPs and their lack of accountability and transparency have led to fee-paying schools with questionable quality popping up in countries which need to fight for free and universal education.

Linda Oduor-Noah, project manager at East African Campaign for Human Rights commented “We have heard first-hand from other investors that they are keenly awaiting the outcome of the investigation,”she said. “I would like Bridge to respect human rights and I think that no for-profit entity should masquerade as having social agenda, when at the end of the day profit drives all decision making. People involved in the provision of public goods should never endeavour to make profit off the poor.” Bridge Schools have had a researcher arrested and have lobbied the investigation of the issues of their schools. The reseracher they arrested, Curtis Riep made the recommendation to not fund Bridge Schools as they neglect legal standards while driving profit, a clear case of a PPP that starts with an altrustic goal that become consumed by profit margins as time goes on.

As a private company they have produced research and press releases justifying the existence of PPPs that come off as strange and potentially misleading PR moves. In one report produced by BIA about the British public’s support and approval of Privately provided education in foreign countries, they say that over half of people are in support of these type of schools. They’ve done the same for the public opinon of USA citizens, but the reports use leading questions that doesn’t show any transparency of what these private schools actually are like.

These reports don’t talk about the actual work they do, but just dress up some market research, that makes it look like people are in favor of this, but It’s hard to say that the every-man on the street in any English speaking country has enough information to make a valid assessment of the issues surrounding privatization of education in Africa. With statistics that look good, they can claim that people approve of what they do without shedding much light on it at all or twisting figures and claims. They asked people if a social enterprise company like them should run schools that cost parents about $7 US dollars a month, in countries where there is a lack of other schools. Of course this sounds like a great idea when you think about what that amount of money means to you, but this is without mentioning that $7 can be a huge amount of a persons income in these countries. The teachers at these Schools work up to 65 hours per week and only take away $100 per month. In Kenya, sending three children to a Bridge school is estimated to represent almost a third of the monthly income of families living on $1.25 (94p) a day, according to a joint study by Kenya National Union of Teachers and Education International, a federation representing 32 million teachers and support staff. Instead of spending time

The European investment bank financed Bridge International Academies Ltd (BIA) through an equity fund, who became involved in a controversial PPP educational project in Liberia. Indeed, the Liberian government outsourced the lion share of its public pre-primary and primary schools to BIA, but the process was not competitive, local communities were not properly consulted, and there was not full transparency.

This is just one of many providing this form of private-for-profit education, PPPs in Africa that provide public services in a way that makes it harder to make people accountable when they can’t meet standards that they promised. The issues is that many countries can’t offer a full education system alone without some reform of the corruption within their society, in places like Liberia the education system has been broken for years. Private alternatives are marginally better for learning outcomes, but still fail students on basic human rights and protections from abuse.

The steps that the World Bank group have taken are great and hopefully open up a conversation about how to ensure the education in the global south can thrive and not be used as a tool to drive profit. But this is an issue that should be closely watched. While our government uses PPPs to provide part of our education infrastructure with mixed results, handing a contract over to private companies to overhaul a whole system in places like the Global South edges out what the ultimate aim should be in these places – quality universal free education for all children.

This article was initially posted on our Medium.com blog.

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Some of the world’s poorest countries are facing health and economic crisis unlike what we have seen here. By cancelling the upcoming debt payments owed by these countries, it would be the best way to free up existing public revenue to support their people and not be burdened with debt that rises unsustainably over the next few years of recovery.

The IMF and the World Bank have called for debt payments by the poorest countries to other governments to be suspended, but with the effects of the pandemic likely to last for years, delaying rather than cancelling payments won’t solve the problem. 

Cancellation also needs to apply to all creditors, including bilateral, multilateral and private lenders, to ensure freed-up money goes to support the pandemic response, and not to pay off other debts.

Anne Funnemark Campaign director of Jubilee Scotland, said: “Millions of people in some of the world’s poorest countries are facing devastating health, social and economic crises as a result of the Covid-19 pandemic. Permanently cancelling upcoming debt payments owed by these countries would be the fastest way to free up existing public resources to tackle this unprecedented crisis and to save lives.

“The suspension on debt payments called for by the IMF and World Bank will fall short of this goal if it doesn’t apply to all lenders, and only postpones payments. Full cancellation of all external debt payments is critical, along with emergency finance that doesn’t add to debt burdens. This must be followed up with a more comprehensive and long-term approach to debt crisis resolution.”

As well as a cancellation of debt service, up to an additional US$ 73.1 billion of emergency finance will be needed to help low income economies as they respond to the crisis in 2020. This must be provided through grants, rather than loans, to stop recipient countries getting even deeper into debt. Addressing the long-term debt pressures on developing countries also requires decision-makers finally agreeing reforms to the international system for dealing with sovereign debt restructuring, once the acute Covid-19 crisis has passed. 

A joint letter– signed by Jubilee Scotland – will be sent to governments and their representatives at the IMF and World Bank today. It calls for:

• The permanent cancellation of all external debt payments due in 2020 by developing countries, with no accrual of interest and charges and no penalties. 
• The provision of additional, fresh emergency finance that does not create more debt.
• Debt cancellation and new financing to be provided free of demands for market-friendly and austerity-focused policy reforms in developing countries.
• Measures to be put in place to protect developing countries from lawsuits when ceasing 2020 debt payments.
• A process under UN auspices to be agreed in the longer term, to support systematic, timely, and fair restructuring of sovereign debt.

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By Charlotte Snelling.

For much of the post-war period, Guatemala’s past has been a story of dictatorships, terror, and genocidal regimes. It is estimated that 200,000 people have died as a result of murder, torture, and extreme poverty whilst the country continues to be affected by a legacy of successive odious governments. It remains one of the most impoverished countries in Latin America and ranks at just 131 on the United Nations Human Development Index, out of a total of 187 countries. In the Americas, only Haiti ranks lower.[1]

A recent report by Jubilee Debt Campaign has been launched to investigate the build up of sovereign debt in Guatemala and the role this has played, and continues to play, in reproducing poverty across the country, particularly in its rural areas. It looks at how debt has been accumulated, the impact on the country’s economy, society, and population, as well as the steps needed to ensure the people of Guatemala are not left paying for the illegitimate actions and unfair treatment endured at the hands of their former leaders.

Guatemala has a long history of debt and exploitation by foreign powers. In the late 1970s and early 1980s, when the wave of terror was at its highest level, foreign lending to the country increased substantially. Successive loans of between $100 million and $300 million every year were granted from 1978 to 1982 and by 1985 Guatemala’s debt had reached $2.2 billion, an increase of over $2 billion in just 10 years. The majority of this debt was owed to multilateral institutions, in particular the World Bank, and today the country is still paying these institutions back over $400 million every year. This undoubtedly has important implications for Guatemala’s ability to rebuild and develop its economy alongside providing essential services to its citizens. Money which could otherwise be spent on moving people out of poverty and developing essential infrastructure is being shipped out of the country and into the pockets of Western lenders.

Guatemala, March 2009. Dozens gather to commemorate the 27th anniversary of the Rio Negro Massacre at Pak’oxom Peak in 1982. Photo: James Rodríguez / MiMundo.org

Significantly however, the loans granted to Guatemala were crucial in supporting the decades of terror its population endured, funding ill-conceived, unsustainable projects which impoverished families and led to displacement and destruction of rural communities. The Chixoy Dam is just one example but one which highlights some of the worst effects of the World Bank’s irresponsible lending. [2]In the late 1970s and early 1980s the Chixoy Dam project, $400 million of its budget financed by the World Bank and Inter-American Development Bank, acted only to exacerbate levels of violence and persecution against Guatemala’s indigenous people. In seeking to create a new reservoir as part of the project, the population of the Rio Negro region were threatened with eviction. When the local population resisted this pressure to move, their opposition was then exploited by the government as justification for counter-insurgency and increased violence against the Rio Negro community. It is estimated the project forcibly displaced more than 3,500 Mayan community members and led to 6,000 families suffering loss of land and livelihoods, with more than 400 people were massacred because of their opposition to the project. For the survivors the impact continues to be felt. A Probe International Report from 2001 states: “members of the Rio Negro community live in extreme poverty in comparison to neighbouring communities. However, before dam construction, the community enjoyed, relatively speaking, a high standard of living.”[3] Furthermore, World Bank loans for this project (and a second Chixoy Dam project in 1986) have cost Guatemalan governments $100 million in interest. The Chixoy Dam is a single example within a large back catalogue of odious debts originating from multilateral lending to Guatemala’s past dictatorial regimes. Worryingly the World Bank appears content to continue lending money to the country for new projects which threaten to exploit and impoverish even more communities.

A mural in Pacux, home of the Rio Negro survivors. http://upsidedownworld.org/main/guatemala-archives-33/1442-guatemala-the-forgotten-spirits-of-rabinal

As Barbara Rose Johnston at the Center for Political Ecology states, “the World Bank and Inter-American Development Bank… loans were the primary source of foreign aid to a nation ruled by a military dictatorship engaged in systematic state-sponsored destruction of Mayan peoples”[4]. Debt accrued in the period was loaned to illegitimate and unaccountable governments of which the lenders were well aware whilst only minimal, if any, token investigations into possible impacts of projects were conducted. It is unjust for new governments to be saddled with these debts and responsibility must be shared by the countries and multilateral organisations which funded and supported projects at the expense of the Guatemalan people.

The experience of Guatemala and this new report show that something needs to change. Not only should these illegitimate and destructive debts be cancelled, the accumulation of new odious debt has to be prevented. Lobbying for an audit of the debt in Guatemala and campaigning to force the World Bank to overhaul its current policy and apply ethical principles of justice, fairness, and sustainability to its future lending will be vital in this process.

Importantly though, we should also be looking closer to home. In the UK, UK Export Finance (previously the Export Credit Guarantee Department), a semi-autonomous government body existing to support UK exporters to enter in to international markets considered risky and where the likelihood of failure is high, has been responsible for numerous dodgy deals similar to that seen in Guatemala. Deals where UKEF is involved are typically made in the arms trade, aerospace or fossil fuel related industry (over 75 percent of UKEF’s observable transactions) and are often based in countries with unstable governments, despotic regimes, and areas of conflict, which further compounds their negative effects. Egypt, for example, owes the UK approximately £100mn which includes loans for arms made to the regimes of both Mubarak and his predecessor Sadat. Between 1985 and 1986 UKEF supported £250mn of arms sale loans to finance a tank factory near Cairo and a military city west of Alexandria.[5] As in Guatemala, the Egyptian people are now left paying for the actions of the governments which previously oppressed them.

Scotland has an opportunity to take a stand against unethical lending. It seems possible that, whatever the result of the referendum, Scotland will be given the powers to create export credits. We must campaign here to ensure that this agency will not follow the route of corrupt deals, human rights abuses and disregard for environmental considerations that has characterised UKEF, but instead lead the way in being a positive and socially responsible export agency, setting an example internationally of how exporters can be supported in a way that is ethical and fair[6].

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Economics on the one hand, and justice and human rights issues on the other hand, are often discussed as separate phenomena; as ways of looking at the world that don’t connect or intersect. But I believe that it’s of fundamental importance that we consider them alongside each other. In this blog I would like to use the example of Egypt’s arms debt to the UK to argue this point, touching on the gaps in international law and the importance of lending in the often violent shaping of the political map.

Jubilee Scotland is campaigning at the moment alongside its sister organisation – Jubilee Debt Campaign – for the cancellation of $100 million is owed by the Egyptian people to the UK government.

We are asking for it to be cancelled because we believe it to be an odious debt. An odious debt is one taken on by an unelected dictator – in this case Hosni Mubarak – the repayment for which is then demanded from the people of the country. This is the moral equivalent of someone breaking into your house and taking out a huge second mortgage against it, which you then have to repay when you get back into the house.

This would be enough to make the debt odious, but in the case of Egypt there is another layer to consider. The debt was used to pay for Rapier and Swingfire missiles, Lynx helicopters and a tank factory, weaponry which would actually have been used to shore up the illegitimate Mubarak regime. So to use our previous analogy, the house owner is also having to pay for the weapons that kept them out of their own house

Unfortunately, international law doesn’t recognise the concept of odious debt. This ties into the wider fact that it only recognises sovereign states and leaders; individuals, or whole peoples even, have no personality in its eyes. To go back to the house example, national law would seek to protect the interest of the party whose house had been stolen, but international law, if it operated the same way, would recognise the existence of the house, but assume that whoever was in charge of the house was the rightful owner – a kind of ‘finders-keepers’ approach to ownership. It is not a Code of Law in the true sense, as first formulated in ancient Babylon, because it does not protect the weak against the strong. It’s a system in which individuals – and whole peoples – are totally exposed to the Great Predators of the global economy: dictators, arms manufacturers, and lenders.

Mubarak’s arms debts are owed to a branch of the UK government called the Export Credit Guarantee Department (now renamed as UK Export finance), who use British tax-payers’ money to underwrite ‘high risk’ exports such as arms deals, meaning that both the arms exporter and the dictator remove themselves from the equation, leaving a debt owed by the people who suffered from the deal to us, the UK taxpayers.

The Export Credit Guarantee Department are the UK’s Export Credit Agency. Every major world power has one of these bodies, whose job it is to promote and support risky investments overseas. By using tax-payers’ money to underwrite deals they totally transform the risk profile of these risky deals, in effect creating a market where otherwise there wouldn’t be one.

For decades, Export Credit Agencies such as the ECGD have been used to set up trading relations with dictators in all parts of the world, including President Suharto in Indonesia and President Marcos in the Philippines. Their activities have provided domestic weapons manufacturers with stable overseas markets, have shored up regimes sympathetic to the West and have ensured a steady flow of debt repayments.

Export Credit Agency lending forms part of a wider portfolio of lending and aid – and it’s worth knowing that to qualify as ‘Overseas Development Assistance’ (the most widely used concept of aid) capital flows only have to have a 25% component of grant finances. This lending has been used for many decades to shape the map of the world, and to ensure that governments sympathetic to lending powers remained in charge of the house.

By sympathetic, we mean sympathetic to the supporting superpower, rather than sympathetic to the people of the country. As Franklin Roosevelt famously said of Nicaragua’s dictator Somoza, ‘he may be a son of a bitch, but he’s our son of a bitch.’

Because the bloody origins of many of these debts are not widely discussed, all debt campaigners are frequently asked whether we should in fact cancel debts to poor countries without being very vigilant on how the money is spent. To my mind this would be shutting the stable door after the horse has bolted. In the case of an Egypt or Indonesia the money for these debts has already been spent by a dictator on arms – often under the lender’s very vigilant eye.

Cancelling the debts is morally essential because it’s wrong to keep collecting money from the people whose oppression we have unwittingly colluded in. But if we are serious about stopping oppression we need to put a stop to bad lending, not just cancelling pre-existing bad debt.

In 1997, when Robin Cook became Foreign Secretary, he spoke of an ‘ethical foreign policy’. This statement was widely derided at the time as being a joke. In 1998, the scoffers were to some extent proved to be right, when the UK’s Export Credit Guarantee Department underwrote a huge sale of jet-fighters to the Indonesian dictator Suharto. The phrase ‘ethical foreign policy’ – even the idea of having an ethical foreign policy – became at this point even more bankrupt.

This trend needs I believe to be reversed. We may view ourselves as individuals, or as citizens of the world, we may campaign or give as individuals, and strive as campaigners to change the international system but we should not ignore the large proportion of our individual global impact which is mediated through UK foreign policy. It’s for this reason that, as well as building individual links with debt campaigners around the world, and while campaigning for an international system through which odious debts can be recognised and cancelled as as such, Jubilee Scotland also campaigns – alongside Campaign Against the Arms Trade and Amnesty International – for the radical reform of the Export Credit Guarantee Department.

Find our more about the campaign to end unfair lending at www.cleanupexports.org.uk and Jubilee Scotland at www.jubileescotland.org.uk

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‘Debt cancellation is a call not for charity but for justice’ – Lidy Nacpil.

By Olga Bloemen

‘We have a very fruitful partnership with the Philippines’, says the World bank ‘The World bank owes us for its damaging loans’, counters Filipino campaigner Lidy Nacpil. Jubilee Scotland is campaigning for the Scottish government to set up an international debt arbitration tribunal where creditors and debtors can meet. Thorough debt audits could help solve the debt crisis that is currently keeping developing countries in a poverty trap.

Third world debt seems to have disappeared from the public mind along with Jubilee 2000, Bono and Geldof. In 1998 and 2005, two initiatives pledged the one-off cancellation of the debts of 40 of the poorest countries. But, according to Jubilee Scotland, this remedy is ‘in many ways merely a sticking plaster’, offering too little too slowly: Many countries, like the Philippines, are excluded and debt is only cancelled to what is considered a ‘sustainable’ level, based on the country’s export earnings, while ignoring its domestic spending needs. Besides, the International Monetary Fund (IMF) and the World Bank demanded austerity measures in turn for debt cancellation like cuts on public spending and the privatisation of basic services, which many of the 40 countries have as yet not been able to meet.

This means that in 2008, the world’s poorest 48 countries still had debts totalling US$168 billion, and the 128 poorest together owed a dazzling total of US $3.7 trillion to multilateral bodies, individual countries, private companies, banks and individuals. Over the course of 2008 alone, the developing countries paid $602 billion towards servicing these debts. This year’s figures will be even higher, as the economic crisis has led developing countries to take up more loans. As a result, despite the aid rhetoric and the Millennium Development Goals, money keeps flowing from the Global South to the North instead of vice versa.

Many of the debts still stem from the 1960s and 1970s, when banks and governments in the North were eager to lend the huge amounts of money made from the rising oil prices to developing countries. Looking for Cold War allies, lending parties closed their eyes on corrupt or oppressive regimes and most of the money did not go into responsible hands and into development. In the 1970s and 1980s, the oil crisis led interest rates on the loans to soar. Additionally, falling commodity prices left countries with less hard currency to service the debts. The knock-on impact on exchange rates means that debts, which are most often counted in foreign currency, have skyrocketed in real terms for the affected countries. The debt total of US$3.7 trillion is the result.

Already since the early 1990s, campaigning organisations have called for an arbitration forum of some sort where historical cases of illegitimate or unfair debt can be lodged and solved, as well as unpayable debt relieved. With the 2010 Arbitration (Scotland) Act and the newly set up Scottish Arbitration Centre, Scotland would be a suitable host for such a tribunal. To demonstrate this, Jubilee Scotland organised a mock debt tribunal in Holyrood on the 5th of October. Here, the Philippines and the World bank met. Or, better said, Lidy Nacpil met “John Smith”, an actor who played, scarily realistically, a World bank representative quoting solely from the Bank’s official documents. In the debt tribunal, the legal principle of ex aequo et bono (“from equity and conscience”) was applied, according to which an arbitrator or tribunal has the power to move away from the law as laid down and to consider the case in the light of arguments of natural justice such as fairness and equity.

Lidy presented her country’s case: The New Economics Foundation has calculated that the Philippines need at least 63% debt cancellation in order for the government to meet the basic needs of its citizens, such as health, education and infrastructure, without taxing those living below the ‘ethical poverty line’ of $3 a day. According to a recent study, 107 countries are burdened with an ‘unpayable debt’ like the Philippines.

Former president Marcos, who governed the country from 1965 to 1985, left the Philippines with more than half of its current foreign debt. Although democratically elected, Marcos turned the Philippines into a dictatorship with martial law in 1972. When he fled the country in 1985, the country’s debt had gone from US$1 billion to of US$28 billion, most of it either stolen by Marcos or invested in failed or useless projects. The Bataan nuclear power plant is notorious in this regard. It was built by the US company Westinghouse on an earthquake fault-line at the foot of a volcano and has therefore remained unused. Westinghouse got paid generously nevertheless as the US government credit agency took over the standing debt. In 2007, the Filipino government finally completed paying off the $1.5 billion for the plant’s construction, more than 30 years after it began. As Marcos’ regime devastated the country’s economy, subsequent governments had to continue taking on loans to pay off the old ones.

During the fourteen-year dictatorship, the World bank granted five loans to Marcus. Now, the Philippines still owe the World bank around US $3 billion out of a total foreign debt of US $47,5 billion. The original loans from the World bank have long since been repaid, but because the interest has compounded, 80% of the debt is still owed. If nothing changes, Filipino taxpayers will continue to pay for the illegitimate debts of Marcos until 2025, 39 years after he was overthrown. While ‘Smith’ glorified the loans as an investment in pro-poor development, Lidy Nacpil said there is little evidence that the World bank has had any positive impact at all. ‘Debt cancellation is a call not for charity but for justice’, Nacpil concluded.

Of course, one could argue that debt cancellation would create poor incentives by making future borrowers hope that they will have their debts waived too. Also, developing countries are dependent on loans and if creditors would stop this flow of money due to lack of trust in return, the result could be disastrous, especially now in times of economic downturn. This, however, would relieve Northern countries of responsibility too easily. As we have seen, a major part of the third world debt is the result of the self-interested and reckless lending of first world creditors during the Cold War. Filipino people are currently forced to pay off a loan that was not taken up in their name and went to support an undemocratic dictator. The World bank could have reasonably foreseen this and should thus assume responsibility. Besides, one could argue that the Filipino people themselves never had a contractual arrangement with the World Bank.

The envisioned debt tribunal is just one step in creating a fairer lending system. Future loans should be given responsibly, on fair terms, and in a transparent way that is open to scrutiny by parliaments, media and citizens. Any loans given on unjust terms should be considered the responsibility of the creditor and thus eligible for cancellation in future. Jubilee’s mock tribunal demonstrated that debt arbitration can be done fairly and effectively. Or would it take a Bono to convince the Scottish government?

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‘Odious debt’ is a concept which enjoys some international credibility, but not nearly enough! Put simply, it is based on the idea that, if a dictator takes out loans for violent, abusive or simply frivolous purposes, his people should not be required to pay back the debt after he has gone. Every victory of debt-cancellation on this basis – and there are many such campaigns all over the world – strengthens this important doctrine.

Why is there any need for this? What was wrong with campaigning for debt cancellation solely on the basis of a country’s poverty? Here are a couple of reasons to be going along with, although there are plenty more.

Firstly, the existing debt-cancellation mechanisms demand that a country be branded as a ‘Heavily Indebted Poor Country’ before it qualifies for debt relief. It is obvious why this is demeaning.

Secondly, if debt cancellation is enacted on the basis of bad lending, it turns the spotlight back on the lender, and perhaps makes them think twice about dealing with dictators in the future.

This is a global movement within which Jubilee Scotland plays a small part. Jubilee USA are campaigning, for example, on cancelling the debts extended to Haiti’s infamous Duvalier regime, the European anti-debt coalition EURODAD is working to get government’s to sign a declaration of responsible lending, while the Norwegian government has already cancelled its debts to Ecuador and other countries on the grounds of illegitimacy.

More to follow…

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At about 2.30pm, several thousand people dressed in black emerged from the ranks of the eighty-thousand peaceful demonstrators and marched at the police. Clashes started shortly afterwards. The police’s initial charges were limited, and did not disperse the group in black – though they did send panicking bystanders fleeing into the festival area that had been agreed as a no-conflict zone. After several hours, as crowds restricted access by fire engines to a burning car, heavy anti-riot machines were brought in and five hundred injuries from tear gas ensured, with two hundred arrests and injuries to twenty police (according to reports).

I don’t think that the violent protesters on Saturday had a thought-out political programme (whereas the peaceful summit blockaders do – and they are being injured and arrested in large numbers, possibly as a result of tougher policing following Saturday’s violence). However, their actions lent the Summit a needed air of crisis. For as regards the intermeshed causes of global poverty, the only thing in question at the Summit is what margin of backsliding will be countenanced. This G8 is a theatre of sterile debate: 2005’s categorical pledges to end global poverty have been broken down – as they always are – into incomprehensible technical formulae, which consume the intellectual energy that should be spent on making a just world.

For background information, and pictures, see Jubilee Scotland’s website.

Debt and poverty: the trends and debates.

Level of reduction

The G8’s debt deal has been implemented for twenty-two countries. This has reduced the net debts of these countries from US$34.7 billion to US$15.4 billion (calculated by Eurodad using World Bank figures: see Eurodad p.6). Of these twenty-two, the eighteen in Sub Saharan Africa have had debts reduced from US$26.3 billion to US$9.3 billion.

Meanwhile:

The World Bank offsets the costs of this debt cancellation by reducing the loans it makes to the countries in question (see “World Bank Debt Relief – TOTAL scam“, and “Disappearing Debt Relief“).

The crucial question for us is: by how much are countries’ monthly debt repayments being reduced? The IMF’s recent State of Implementation for HIPC (PDF here) report shows that, due to new borrowing, the debt service is not reducing by very much at all. It looks like it is down by about a fifth (18%) (p.10, fig.4).

How can it be that the overall debts are being reduced by over half, but the debt service reduces only by a fifth? One reason is that countries are taking on new loans. The IMF says that countries will have to show “strengthened management of both external and domestic debt” to avoid falling back into unsustainable debt. That is, it blames the countries themselves for their debt problems. But, arguably, the root problem of debt was not poor financial management: it was the structurally unfair trade that prevents the poorest negotiating a fair price for their exports. The fact that countries are having to take on new loans to survive suggests that the structural problems are unresolved. There will always be those, however, who want to present the African finance ministers as feckless or venal. Another reason may be that the loans being cancelled were not really being serviced anyway, or that there were other debts that were not being serviced which were serviced using the relief (this certainly happened in Zambia), such that the debt cancellation was on paper only.

However, some judge the debt cancellation a success, because what definitely is reducing is the ratio between debt service and export earnings. This is down by over half (p.10, fig.4). The very poor countries are making more from exports, and so are judged by able to pay off their debts.

The IMF reports that poverty reducing expenditures have increased from 7% of GDP to 10% of GDP in the poorest, most indebted countries, since 1999; however, the definition of what counts as a poverty reducing expenditure has also been expanding over that period, so the actual increase may be lower. An alternative World Bank report says there is an increase in education spending, and a very slight increase in health spending, in the poorest countries (p.12 nt.16).

A fair summary of the present situation, then, could be that the G8 has done very little to solve the problem of debt, and that the high primary goods prices caused by China’s growth are providing a temporary respite to Africa’s problems.

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Officially, Zambia is receiving a reduction in debt service equal to 5.3% of its GDP, annually, over the next few years; but according to McKinley and Weeks the new money available for anti-poverty spending is only 0.8% of GDP.  Where’s the rest?

1. Redirection of G8 debt relief to private debts

According to Weeks and McKinley, over half of the funds accruing to Zambia by way of debt relief are redirected to pay other debts.

Given that the Bank of Zambia faced large debt service obligations, whose non-payment could have resulted in a curtailment of non-HIPC donor assistance, [some of the] HIPC interim debt service relief accruing to the Bank of Zambia was designated for debt service payments.  [IMF 2005]

Thus, according to McKinley and Weeks, “over half of HIPC interim debt relief (3.1 out of 5.7 percentage points) was merely an accounting entry.”

The debts to be serviced by this redirection of HIPC money are likely to be private sector debts – possibly government bonds bought by domestic businesses, possibly commercial banks in donor (G8) countries.  If so, banks are benefitting from money supposedly given to the poor.  Note that the figures given above are for interim HIPC relief; the figures for relief at completion point are lower (see section 3, below), but still considerable.

2. Tighter public spending limits

One of the conditions Zambia had to meet for debt relief was a reduction in its fiscal deficit: public overspending was to be reduced from 3.9% of GDP (2000-2004) to 0.6% of GDP (2006 onwards) (p. 11, table four).  Unless these savings are found by cutting budgets which have nothing to do with human development, the consequences will be felt by the poor.

3. Reduction in grants and other loans

As pointed out previously, the World Bank reduces the amount of aid available to heavily indebted countries in order to offset the cost of debt cancellation.  According to EURODAD, Zambia will receive debt service reduction of $38 million in financial year 07-08; but it will have its loans from the World Bank’s International Development Association reduced by about $31 million (pdf of report here; table 4; loans reduction calculated by subtracting column three from column two, or column four from column one).  Net benefit to Zambia of G8 deal is thus $7 million a year.

McKinley and Weeks calculate the reduction in grants, plus the accounting entries described above, to total 3.0% of GDP.  In summary (paraphrasing p.11):

The G8 debt deal ought to reduce Zambia’s debt service by 6.9% of GDP.  Better terms of trade also improves things by 0.2% of GDP.  Total improvement in Zambia’s finances ought to be 7.1% of GDP (as it stood in 2005).

However:

Redirection of debt relief to commercial debt service, plus reduction in grants, reduces this by 3.0. Tighter deficit limits reduces it by 3.3.

So:

Real benefit to Zambia of G8 Debt Deal is: 0.8% of GDP.

However…

The use of debt relief to service commercial debts looks like a naked transfer of aid money to the private sector, but it’s possible that the IMF is doing Zambia a favour by allowing this.  Officially, countries are meant to clear debt arrears before they can receive HIPC relief; this redirection of interim relief might have been a way for Zambia to meet that criteria and so qualify for completion point.  This needs further investigation.

On the face of it, though, it seems the conditions attached to debt relief have the effect of making virtually all the money disappear.  If the analysis is right – and if, as seems possible, what holds for Zambia also holds generally – we can expect very little improvement over the next few years, and the lack of improvement might well be used to discredit the idea of debt relief itself. 

But if the situation really is as McKinley and Weeks describe, debt relief is not at fault: the fault lies with the conditions under which it is disbursed.

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The G8’s debt deal seems to work like this: the financial flows out of the country represented by debt service payments are cut, and at the same time there is a cut in the financial flows into the country represented by World Bank development aid. Result: countries find themselves in pretty much (not quite, but pretty much) the same situation they were in in the first place. They are paying less debt service and receiving less aid.

I would love to hear from people who think I’ve got this wrong – particularly if you work at the Bank and worked on the deal. As, if it’s not wrong, the G8 Debt Deal (the “Multilateral Debt Relief Initiative” or MDRI) is a near-total scam.

Not a total scam, though, for at least three reasons. For one thing, the IMF (International Monetary Fund) has cancelled its share of the debts of (pretty much) those nineteen countries. This happened in January, and doesn’t seem to have the same caveats as the World Bank proposal. But the IMF’s debt only amounted about 10% of the debt cancellation package agreed by (actually: prior to) the G8 in Gleneagles.

Second, the World Bank is generally upping its aid to the countries that are supported by the IDA (International Development Association), so even after their aid is cut to offset the debt cancellation, they will be in a better situation than before. Only not much better. According to a report from EURODAD (based on report from Debt Relief International here) the net benefit of the World Bank’s part of the debt deal ranges between $53 million a year to $1 million a year (mean benefit about $13 million), with the money being awarded according to what the World Bank thinks of national social and economic policy. Big winners are Ethiopia ($53m), Tanzania ($39m) and Uganda ($27m); little winners are Guyana ($1m), Bolivia ($4m), Niger ($5m). These are the figures which – as far as I can tell – represent the true value of the G8 Debt Deal.

Third, because the debt cancellation, even if offset by a cut in development aid, might leave the governments of the countries in question in a better position to respect their own internal democratic processes in setting economic and development policy. Last week Susan George came to Edinburgh (where I’m writing this) and spoke at the Scottish Parliament. Debt, she says, is power: the creditors have great influence over economic policy in the developing countries. For someone who takes this view (as I do), the G8 debt cancellation ought to be welcome since it might make a political difference even if the financial difference is small. But in the present case, the debt cancellation is only available to countries that have already satisfied the IMF that they will adopt and pursue strong programmes of adjustment and reform – to countries, it seems, that have already had the power exercised over them.

The World Bank debt deal has had a lot of publicity: Reuters/ABC tells us, for example, that $2.7 billion of cancellation has been granted to Zambia. Wonderful! And what’s the overall benefit to them this year? errr… $7 million (according to EURODAD).

I am very cynical about cynicism: it can be very superficially attractive (think only of Han Solo), and it’s a great way to make oneself look more clever than one actually is: but generally speaking it’s a rocky road. This isn’t meant to be cynical; it’s mean to be sceptical. If anyone thinks I am missing something, if there’s a substantial reason why this debt deal really is to be welcomed, I’d like to hear it.

Ben at Jubilee Scotland

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