US: DEBT RELIEF FOR IRAQ BUT NOT DESTITUTE ETHIOPIA.

By Ann Pettifor and - - Reprint | | Print |

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LONDON, Feb 1 2004 (IPS) - The US has been quick to call for cancellation of the odious debts of Iraq largely because it will cost the US very little and free up resources for US projects. Yet at the same time the US is blocking debt cancellation for one of the poorest country in the world, Ethiopia, writes Ann Pettifor, director of Jubilee Research at the New Economics Foundation (nef) and editor of Real World Economic Outlook. This is a glaring double standard, writes Pettifor in this article. Additional relief for Ethiopia is being delayed and blocked by the US with the tacit support of Germany and Japan as US and German creditors have gone to great lengths to obtain international legitimacy for the cancellation of Iraq\’s debt. The international community must honour commitments made to the millions of Jubilee 2000 supporters worldwide, in Cologne in June 1999. Led by Chancellor Schroder, world leaders promised to deepen and broaden debt relief for countries like Ethiopia. Above all the hypocrisy of their diverging approaches to Iraq and Ethiopia must be thwarted.

The US has been quick to call for cancellation of the odious debts of Iraq largely because it will cost the US very little and free up resources for US projects. Yet at the same time the US is blocking debt cancellation for one of the poorest country in the world, Ethiopia. This is a glaring double standard.

Late in 2003 the International Monetary Found (IMF) and World Bank reported that Ethiopia was eligible for an additional USD 700 million (”Topping Up”) in debt relief in addition to that already agreed upon. Such relief is necessary, argues the Bank, to return Ethiopia to ”sustainability” and to make her eligible for a new concessional (low-cost) loan of USD 1 billion from the Bank.

If Ethiopia does not receive ”topping up” and become ”sustainable”, her government will spend an average of USD 35 million per year more on debt service over the next ten years. This is money that could save many lives if it were spent instead on clean water, sanitation, and services for mothers in childbirth. Denial of debt relief will also prevent Ethiopia from receiving new loans because HIPC (Debt Initiative for Heavily Indebted Poor Countries) rules prevent any bank from lending to countries deemed ”unsustainable”.

Jubilee Research at nef (new economics foundation) has been reliably informed that the promised relief is being delayed and blocked by the US with the tacit support of Germany and Japan. These creditors are attempting to bypass a framework for debt relief designed by creditors and biased in their favour. Because HIPC does not return debtor nations to ”sustainability” even under its own stringent terms, these creditors have ”added on” a new principle called ”topping up”, which is additional debt relief provided to countries when ”external shocks” (like droughts or a collapse in commodity prices) worsen their ”insolvency”.

In other words, two of the world’s richest creditors are attempting to fudge their own fairly arbitrary criteria to deny a poor country USD 700 million of debt relief. This is particularly ironic given that the Enhanced HIPC Initiative was largely the creation of the German government, which obtained G-8 endorsement for more generous debt relief for countries like Ethiopia at the Cologne Summit of 1999 after a huge sustained campaign by Jubilee 2000 supporters in the US, Germany, and Japan.

In response to Jubilee Research’s demands that they proceed to implement their own rules and commitments, the US Treasury has fought back. According to a spokesperson, it is concerned that Ethiopia would have an excuse to borrow more from the Bank.

We of Jubilee Research rebut this assertion. If the US is concerned about new lending, Treasury should encourage the Bank to grant more aid — just as President Bush argued in July, 2001. ”Grants,” he said, ”were the long-term solution to the debt burden of developing countries. We could not agree more.

USD 700 million of debt relief will have a significant impact on the Ethiopian economy: it represents almost twice the revenues from national exports per year.

Let us not forget that Ethiopia is one of the poorest countries in the world, with human indicators at the opposite end of the scale from those of her creditors. Forty-four percent of Ethiopians live below the poverty line. Per capita GDP is as low as USD 89 per annum, compared with USD 36,300 in the US and USD 26,200 in Germany. Ethiopia has the third largest number of people living with HIV/AIDS in the world.

As it tries to prevent Ethiopia from being granted less than a billion dollars in additional debt relief, US and German creditors have gone to considerable lengths to obtain international legitimacy for the cancellation of Iraq’s debt. Official figures on Iraq’s debt are dubious, but estimates vary from USD 120 billion and USD 200 billion.

While there is a noticeable difference between the two countries in terms of per capita GDP (Iraq’s is USD 2,400) other poverty indicators for Iraq are not unlike those of Ethiopia. The economic outlook for the two countries, though, is dramatically different. The price of Ethiopia’s major export, coffee, fell 73 percent in the last 20 years, and the climatic conditions of the continent seem to deteriorate further every year. The 2003 drought was one of the worst in Ethiopia’s history and cut agricultural production and exports dramatically, necessitating large food imports.

In Iraq, in stark contrast, according to Forbes news wire, revenues from oil could rise to USD 16.6 billion in 2004 and USD 21.1 billion in 2005. In other words, Iraqi oil revenues for 2003 are projected to be almost three times Ethiopia’s total GDP and 35 times the value of Ethiopia’s exports in 2002.

The double standard applied by western creditors to these two debtor nations reveals that debt relief no longer conforms to a set of rules agreed to by the international community under HIPC but instead is subject to arbitrary geo-political considerations.

The international community must honour commitments made to the millions of Jubilee 2000 supporters worldwide, in Cologne in June 1999. Led by Chancellor Schroder, world leaders promised to deepen and broaden debt relief for countries like Ethiopia. Above all the hypocrisy of their diverging approaches to Iraq and Ethiopia must be thwarted. (END/COPYRIGHT IPS)