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debt relief

One of the most welcome events of the final years of the 20th century was the creation of the campaign which challenged international creditors to cancel the debts of the world’s poorest countries as a celebration of the millennium.

With the quadrupling of the price of oil in the early 1980s, OPEC creditors invested their huge surpluses of US dollars into the international money markets prompting Western banks to go on a lending binge. Overwhelmed by this new availability banks drastically reduced their lending criteria and margins and set out to find new customers to whom to lend. Among the many new avenues pursued were developing nations in Asia and Africa and little heed was taken with regard to what kind of regimes were running these countries. Not surprisingly, then, in many cases much of this money was scandously wasted or siphoned off to Swiss bank accounts by unscrupulous rulers. At the same time interest rates on these (mainly) US$ loans spiralled as the US Federal Reserve tried to quell runaway inflation. Exacerbating the problem further was the plummeting price of commodities. As a consequence when these loans started to mature debtor countries, in almost every case, couldn't find the funds for repayment and the loans had to be rolled over time and time again. This pushed these poor countries further and further to the brink.

In London, in 1994, Jubilee 2000* was set up by a small group of concerned individuals, backed by Tear Fund, with a call to the international creditors to cancel the unpayable debts of the world’s poorest countries by the end of the year 2000. Starting with more hope than money, one of Jubilee 2000's first actions was to draw up an international petition in several languages addressed to the international creditors asking them to cancel these debts under a fair and transparent process.

Coincidentally, at the same time, the International Monetary Fund (IMF) and World Bank set up the US$7-$10bn Heavily Indebted Poor Country (HIPC) Initiative in 1996 in an attempt to tackle the problems some of the world’s poorest countries were experiencing in making debt repayments. In this historic change of attitude, the IMF and World Bank accepted that some debt cancellation would be required if the poorest countries were to make any meaningful attempt at tackling the extreme poverty experienced by their people. In practice, however, this scheme proved disappointing in both the amounts available and in the conditions laid down by the creditors before any relief became due.

By 1997, Jubilee 2000 was becoming more influential and better organised having won the support of the churches, and international NGO’s working on poverty relief in the developing world. With this backing, and catching the mood of the time, Jubilee 2000 now started to make waves and at the G8 meeting in Birmingham in 1998, it mobilised an astonishing 70,000 supporters to form a peaceful human chain round the building where the annual G8 meeting was due to be held. On the same day 1,500,000 signatures from 50 countries were presented to Clare Short, the UK International Development Secretary. The result - just four hours later - a promise from Tony Blair and world leaders to cancel US$50bn of the debts of the world's poorest countries. For President Bharrat Jagdeo of Guyana who was there 'this is a tremendous inspiration, a defining moment in history.'

Rising media coverage, increasing international build up, along with support coming all the way from the Pope to the pop world, meant that Jubilee 2000 was now on a roll. In 1999, a human chain consisting of 50,000 peaceful demonstrators snaked its way round the centre of Cologne where the G8 was presented with the latest number of signatures on the petition - 14,700,000. In another impressive display of people power, the G8 now doubled the amount of debt relief to US$100bn. By December 1999, through bilateral promises, that figure had increased to US$110bn.

With all this money piled up on the table, inevitably expectations had raced far ahead of reality. To qualify for debt relief a country had to draw up a Poverty Reduction Strategy Paper highlighting how it intended to use the money saved as well as how it planned to promote economic growth. The IMF and World Bank then had to pass the paper. On agreement, each country then had to reach a Decision Point when their debt was crystallised and later a Completion Point where the final amount for cancellation was calculated so as to leave each country's debt on a 'sustainable' level. However, according to many economists and international aid agencies, this still left the world's poorest countries with an intolerable burden.

Under the HIPC Initiative loans totalling more than US$77bn have been written-off the books of the 36 countries which have already reached the HIPC Completion Point. These countries are - Afghanistan, Benin, Bolivia, Burkina Faso, Burundi, Cameroon, Central African Republic, Chad, Comoros, Congo Republic, Cote d'Ivoire, Democratic Republic of Congo, Ethiopia, Gambia, Ghana, Guinea, Guinea-Bissau, Guyana, Haiti, Honduras, Liberia, Madagascar, Malawi, Mali, Mauritania, Mozambique, Nicaragua, Niger, Rwanda, Sao Tome & Principe, Senegal, Sierra Leone, Tanzania, Togo, Uganda and Zambia.

In total it will save these 36 countries $3.0bn annually in interest payments which will now be ring fenced and be made available for investment in health education, clean water and infrastructure.

A good example of how these savings were put to good use was in Uganda, one of the first countries to receive debt relief under the HIPC Initiative. Here all money saved went into a Poverty Action Fund which was monitored by civil society under the Ugandan Debt Network. Some of this money helped to build new classrooms in schools. This meant that primary school attendance rocketed from 2.5 million to 7 million in just four years after debt repayments were reduced in 1997. In total it is estimated that 52 million children today in the developing world can trace their education to Jubilee 2000 and debt cancellation.

Then in early 2005, in a further development, thanks to the Make Poverty History campaign and a report by Tony Blair's Commission for Africa, debt relief for the poorest nations was again high up on the political agenda. And at the G8 meeting held at Gleneagles in July Tony Blair persuaded his fellow leaders to agree to cancel most of the outstanding international debts of countries which had reached the HIPC Completion Point.

The IMF and World Bank duly endorsed this decision in September, 2005 under the Multilateral Debt Relief Initiative (MDRI) in order to provide further support to HIPC's in efforts to reach the Millennium Development Goals. So now once countries get through HIPC, MDRI means that they get cancellation of more World Bank, IMF and African Development Bank debts than was originally agreed at Completion Point. To date this has meant that countries completing HIPC have seen further amounts wiped off their outstanding debts as a result of MDRI. This means the HIPC countries have benefited to an amount of US$99bn in total loans written-off which represents more than 75% of their international poor country debts.

In a further move the Paris Club of international creditors also joined in and started to cancel debts owed by the world's poorest countries.

As an example of this largesse given by the IMF, World Bank and now international creditors Nigeria's external debt fell from US$35bn to US$17bn. The country then repaid US$12bn to creditors leaving just US$5bn outstanding.

Now that rich countries had taken this pragmatic approach and forgiven debts owed by many of the world's poorest countries this should have seen both debtors and creditors take a much more conservative approach to future international financial arrangements.

However, it seems that the World Bank and rich nations are again lending to impoverished countries and have not learned from the debt crisis. (China has now become the largest bilateral creditor to Africa lending more than US$140bn in the last 20 years. After the IMF and World Bank it is now the continent's largest creditor.) And so, more than a decade after the last major write-down, many African states are again in difficulties. Erlassjahr (Jubilee Germany) is currently drawing attention to the growing debt problems in as many as 40 African countries. Low interest rates across the world after the financial meltdown of 2008 encouraged many nations to borrow from international investors and, with Africa's prime export commodities/raw materials now commanding lower prices, governments there are finding it hard to meet their interest and repayment obligations.

Of the 40 African countries flashing a debt warning, 26 went through the HIPC programme. One of these countries was Mozambique which ceased paying back its debts in January, 2017. In 2012 Mozambique's obligations to its creditors amounted to 40% of GDP, now the debt totals 110%. Part of this increase was borrowing to finance new armed vessels to patrol the coast line but somehow most of the funds here appear to have finished up in the pockets of the ruling elite. And investors who believed it was safe to lend to a country possessing large reserves of coal and natural gas are being made to wait, perhaps indefinitely. Mozambique is the first country to stop paying creditors in such a dramatic fashion since the debt crisis. Other nations in sub-Saharan Africa which have high foreign borrowings relative to GDP are: Djibouti 157%, Mauritania 93%, Cape Verde 89%, Zambia 74%, Mauritius 72%, Angola 54% and S Africa 51%. Overall external debt in sub-Saharan Africa has gone up from US$236bn in 2008 to US$583bn in 2018. China is now the largest creditor in Africa holding 20% of the continent's foreign debt.

At the start of 2020, 34 nations were assessed by the IMF as being in debt crisis or at high risk, and 64 nations were spending more on debt repayments than healthcare. It seems, then that poor countries have failed to learn the lessons of the debt crisis and neither have the international creditors.

Three countries that are still eligible for HIPC and MDRI debt relief are Somalia, Eritrea and Sudan and here there is at least some good news.

In the case of Somalia debt relief, at long last, appears to be on the way. The IMF and World Bank have formally agreed that Somalia has reached Decision Point as at March 2020 when conditions were set for what the country needs to do to reach Completion Point. Once it has been agreed that these conditions have been met, Somalia will qualify for debt cancellation of 90% of its US$5.3bn foreign debt. At the same time, the Paris Club of creditor nations have agreed to restructure Somalia's external debt with an immediate cancellation of US$1.4bn. Taken together, in time, these cancellations will help Somalia to reduce its external debt to US$557m from US$5.2bn.

All of this should then increase the prospects of the Somali government being able to obtain much-needed resources for investment in health, education, infrastructure and water/sanitation preferably through grants. 'Through economic growth, empowering young men and women, through creating jobs and the allocation of resources in a fair and transparent manner you hopefully go on to defeat terrorism' Prime Minister Hassan Ali Khaire.

Sudan was recently declared eligible for debt relief by the World Bank and IMF. Sudan's debt had exploded to US$80bn under three decades of autocratic rule by al-Bashir. Repayment of debts outstanding to the World Bank, IMF and African Development Bank have now been made and debt relief will follow allowing the country to start to borrow again.

More than a year on from the start of the Covid-19 pandemic the World Bank estimates that 40 of the world's 74 poorest countries are at high risk of debt distress, and that figure will rise. In order to stave off castastrophe the World Bank, IMF and G20 nations are delaying repayments under the 'Debt Service Suspension Initiative' (DSSI) This, however, just buys time as ultimately debt restructuring will be needed.

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* Jubilee 2000 was set up as a time limited campaign (1994-2000) seeking to convince rich countries and international institutions of the need to help the world's poorest countries by cancelling their unpayable debts as a celebration of the millennium. In these 7 years the Jubilee 2000 petition gathered 19.6m signatures from 165 countries making it the largest international petition. And taking the amount of debt relief promised by the G8 at December, 2000 - $110bn (£74bn) - this meant that each signature was worth $5,610 (£3,740). None of us regularly sign cheques for £3,740 yet each signature, often from people who had literally nothing else to give, was worth this large sum.

And in what could possibly be claimed to be another record, the total income of Jubilee 2000 from 1994-2000 was in the area of £5,000,000. If we take again the total debt relief promised by the G8 and the international institutions - $110 bn (£74bn) - it means that every £1 donated returned an incredible £14,800. Some investment!

Furthermore those supporters of Jubilee 2000 who went to Birmingham in May 1998 and took part in forming the human chain round the Conference Centre can EACH proudly claim to be responsible for 60 children now being in primary school in Uganda, the first country to receive debt relief.

And so, within the space of just 7 years, this small group of people who set up Jubilee 2000, which later became Jubilee Debt Campaign, saw their dream realised and as a result many people in poor countries are no longer being born into debt. And for Martin Wolf of the Financial Times 'Jubilee 2000 had become the world's most effective single issue initiative. Some ordinary idea, some extraordinary people!'

for more information and latest campaign news see www.jubileedebtcampaign.org.uk

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Today, in 2021, it is estimated that total debt owed by governments, companies, and individuals to governments, companies and individuals is US$101 trillion. This is equivalent to US$13,000 (£10,000) per person or 113% of global income.

 
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