FINANCE: Poor Countries ‘Still Waiting’ For Promised Debt Relief

By Neena Bhandari Reprint | | Print |

Neena Bhandari

LONDON, Jul 17 2000 (IPS) - The promised Third World debt relief has still not been delivered even as the Group of Eight (G8) leaders prepare to meet for yet another summit in Okinawa (Japan) later this week.

In a report entitled ‘Still Waiting’ released here Monday, the development agency, Christian Aid, calls for a new deal for poor countries where debt is written off on the basis of what’s needed to tackle poverty.

The World Bank and the International Monetary Fund (IMF) last year introduced Poverty Reduction Strategy Papers (PRSPs) where, for the first time, Third World debt and poverty were linked in the debt relief process.

But the PRSPs come at the end of the process, that is after the amount of debt relief a country will receive has been decided.

The report says, “The PRSP should be the key to the rest of the process as it would clearly show the resources a country requires to provide clean water, food, health and education. In this way poor countries would get the amount of debt relief they need.

“Also, what debt repayments they could sustain in future would be made on the basis of the levels of poverty in each country. This would qualify many more poor countries like Bangladesh for debt relief”.

Christian Aid is campaigning for the cancellation of 300 billion US dollars of unpayable Third World debt. It estimates that this is the amount required to cut poverty in half by the year 2015.

At the 1999 Cologne summit, world leaders promised to cancel 100 billion US dollars – a third of what is needed.

So far only 10.6 billion US dollars has been cancelled while earlier this year the British Government alone earned more than three times this amount from the sale of new mobile phone frequencies.

Despite Chancellor Gordon Brown and International Development Secretary Clare Short promising in December to cancel 100 per cent of the debts owed to it by poor countries, Britain will collect 44.7 million US dollars in debt services this year.

Tanzania will be paying about 149 million US dollars every year in debt service, after receiving debt relief. This is roughly the amount Britain spent on one of its favourite potato snacks in 1998.

In total poor countries are still paying wealthy countries 21.9 billion US dollars every year. At least three quarters of this is servicing unpayable debt.

“In spite of promises over the last three years, G8 leaders have cancelled little more than a token amount of unpayable Third World debt while millions of children have died in Africa alone as a result of debt,” says Andrew Pendleton, co-author of the report.

What G8 are offering is only 100 per cent relief of bilateral debt, which in itself is around 48 per cent of all Third World debt; 37 per cent is multilateral debt mostly owed to the IMF and World Bank; and 15 per cent is private company debt.

The promised 100 per cent debt relief translates into less than 10 per cent cancellation of the 300 billion US dollar target set by Christian Aid.

There are 41 countries, which have been designated ‘Heavily Indebted’. But by July this year only 10 had reached decision point and none had completed the process. Tanzania is one of the 10 countries currently going through the HIPC initiative having a total debt of 6.5 billion US dollars.

This year it will pay over 230 million US dollars to service that debt, more than the government spends on either health or education.

But putting together its Interim PRSP has shown that Tanzania, like most other HIPC countries, needs far more money to spend on poverty reduction than HIPC debt relief will give.

For example, in the 1970s the World Bank lent Tanzania 45 million US dollars for the cashew nut industry, in part to build processing plants.

The bank overestimated the production, few plants were fully operational and most are now dormant. Tanzania now owes the Bank some 2.5 billion US dollars, about 38 per cent of her total debt.

It owes Japan 661 million US dollars for the equipment for the plants.

Countries like Bangladesh and Haiti are not even under consideration for cancellation and yet they are among the poorest in the world.

Over half of Bangladesh’s population lives on less than one US dollar a day. As Dr. Devapriya Bhattacharya, Executive Director of the Centre for Policy Dialogue explains; “It has not been included in the HIPC initiative because it has been a regular payer of debt”.

The country owes 16 billion US dollars in debt. Its annual debt repayments are nearly twice its health budget. As Imam Uddin of the Development Support Centre in Bangladesh says; “The IMF claims that Bangladesh’s debt is sustainable. It is sustainable on the backbone of poor people”.

For every Bangladeshi there is a GNP of less than 223.5 US dollars per capita whereas in the UK it is 20 860 US dollars. For every doctor in Bangladesh there are 5,500 people whereas in Britain there are 600.

For every 1.49 US dollars Bangladesh receives in aid, it returns 0.745 US dollars in debt repayments.

As Zahin Ahmed, executive Director, Friends in Village Development, Bangladesh says; “Whenever people think of aid they think of mega projects, yet it costs just 20.86 US dollars to send a child to school in Bangladesh for a year.

If Bangladesh’s debt were cancelled it could pay for 50 million places on adult literacy courses”.

Two thirds of Bangladesh’s debts are multilateral. So bilateral debt relief, outside the HIPC initiative is likely to make little impact.

Bangladesh is scheduled to pay 750 million US dollars to service its foreign debts over the next 12 months. As leaders of USA, UK, Italy, Japan, France, Germany, Russia and Canada meet on July 21-23, campaigners across the world will demand an end to Third World debt.