Shalmali Guttal
The most glaring problem with the Heavily Indebted Poor Country (HIPC) initiative
for debt relief is that it will not provide lasting relief from debt for the
highly indebted countries of the south. The HIPC process is aimed not at canceling
debts, but at ensuring that they can be repaid. It has little to do with enhancing
human development, reducing poverty, or even increasing economic growth in
the debtor countries. Rather, it is designed to massage debt figures down
to a level where they would be deemed "sustainable" again according
to the criteria of the IMF.
Enhanced HIPC (the born-again version of HIPC) is not much different from
a bribe forced on poor, highly indebted nations to convince them to stay within
the debt-finance system. It seeks to make and keep poor countries solvent
enough so that they can continue paying their debts to international creditors.
The so called easing of eligibility conditions for debt reduction, interim
strategies for providing credits and grants, and announcements of a multi-billion
dollar trust fund for fighting poverty, are all ways to calm frustrated debtor
governments, who are fed up with the conditioning of meagre debt relief benefits
on continued adherence to structural adjustment type policies.
Where one door is opened, another is closed. Through Enhanced HIPC, its architects
and sponsors (the World Bank, IMF, G-8 governments and Paris Club creditors)
have agreed to ease the criteria by which countries qualify for debt relief.
But at the same time, they have also introduced a number of new hurdles into
the process, from pre-entry requirements to ways in which resources eventually
"freed up" through debt relief will be used. Enhanced HIPC thus
represents a season of high conditionality: the macroeconomic, structural
and institutional conditions already central to Bank-Fund adjustment programmes
will be fully retained, with additional rigorous requirements in the areas
of governance, public expenditure planning, private sector expansion, and
the linking of any debt relief made available with Bank-Fund approved poverty
reduction strategies.
From Rhetoric to Reality
The HIPC initiative was first proposed in 1996 by the World Bank and the International
Monetary Fund (IMF) as an ostensibly comprehensive approach towards reducing
the external debt of the world's poorest and most heavily indebted countries.
At its launch, the World Bank and IMF assured the international aid community
that under the HIPC initiative, between 20 and 30 of the world's poorest countries
would have significant portions of their debts reduced by the year 2000, paving
the way for their eventual exit from endless debt restructuring towards lasting
debt "relief."
By the end of 1998, HIPC had made little progress and only four countries
(Bolivia, Uganda, Guyana and Mozambique) had qualified for extremely small
amounts of debt reduction. In September, 1999, based on a global review of
the initiative, growing pressure from civil society organisations and proposals
discussed at the G-7 summit in Cologne, the World Bank and IMF announced changes
to the HIPC initiative. The new, Enhanced HIPC would use more flexible criteria
to assess debt sustainability and eligibility for debt relief, and offer quicker,
greater support to more countries. Forty-one countries were identified as
eligible for support under the new HIPC, and the G-7 countries at the Cologne
summit announced debt relief of up to 90 percent 20 of the world's poorest
countries by the end of the year 2000.
In the same meetings, in order to demonstrate their commitment to poverty
elimination, the World Bank and IMF also announced that debt relief would
now be directly tied with poverty reduction programmes. The IMF's old Enhanced
Structural Adjustment Facility (ESAF) was renamed the Poverty Reduction and
Growth Facility (PRGF), and its old Policy Framework Papers (PFPs) were replaced
by Poverty Reduction Strategy Papers (PRSPs)s. The PRGF constitutes the central
mechanism through which the IMF will provide assistance to the HIPC and in
order to reach the "completion point" (i.e., the point at which
debt stocks are cancelled), countries must prepare PRSPs that are acceptable
to the Boards of the Bank and the Fund.
The World Bank and the IMF have widely promoted the Enhanced HIPC as an innovative
and groundbreaking initiative towards debt relief. Not surprisingly, the key
benefits that the initiative promises are emptied of meaning when we compare
the rhetoric with reality.
1. Deeper and broader debt Relief: The World Bank claims that through the
new HIPC framework, external debt servicing will be cut by approximately $
50 billion, and that the World Bank itself will reduce its debt claims by
nearly $ 11 billion.
In reality, the current relief amounts proposed by the major multilateral
creditors is a far cry from the promised $ 50 billion reduction. The World
Bank itself only proposes to reduce $ 5.7 billion through the International
Development Association (IDA) and $ 600 million through the International
Bank for Reconstruction and Development (IBRD). It has a long way to go to
make good its $ 11 billion promise.
Further, the relief provided through Enhanced HIPC initiative is neither deep,
nor broad. After debt relief, many countries will spend more on debt servicing
than on priority areas such as health, food security and education. The current
method used to assess debt sustainability is deeply flawed: it is based purely
on econometric and financial indicators (debt /export and debt/government
revenue ratios) and does not take into account the chronic levels of poverty
in the HIPC, or what debt servicing would cost the population of a country
even if its financial indicators showed that it was debt "sustainable."
Research conducted by Jubilee 2000 shows that the first five recipients will
still be paying more than half a billion dollars every year to external creditors,
and overall, countries already in the pipeline for HIPC assistance will pay
more in debt servicing than they will in public healthcare and education.
The cruelest cut of all is that 15 of the 41 HIPC countries will end up paying
more after so called cancellation than they were paying earlier.
Despite claims that the funds "freed up" from debt reduction will
now be redirected towards social spending, reports from Africa show that increased
expenditures in areas such as health and education are miniscule in light
of the combined cutbacks in these areas over fifteen years of structural adjustment
programmes (SAPs). At this rate, it will be 2010 before levels of expenditure
in health and education in most African countries can reach pre-1985 (pre-SAP)
levels.
2. Faster debt relief: The World Bank claims that both the Bank and Fund will
start providing assistance immediately at the point at which HIPC assistance
is approved.
In reality, gaining approval for HIPC assistance is in itself a time consuming
process, complicated by a number of conditionalities that a debtor country
must satisfy. First there are the eligibility requirements: a country should
have successfully (in Bank-Fund terms) applied a structural adjustment programme
for three to six years and must have a level of debt considered unsupportable
by the two institutions. If the Bank and Fund are convinced of the country's
good faith intentions to continue with the Bank-Fund package of neoliberal
reforms, the country must begin its negotiations with the Paris Club of Creditors.
If this proves successful, they must then return to the Bank-Fund negotiating
table to hammer out the details of a HIPC relief package. Since 1999, a new
conditionality has been added: the preparation of poverty reduction strategies
(PRSPs) that outline measures that the debtor country will take to counter
poverty.
The process does not become any faster once the above hurdles have been crossed
and HIPC assistance begins. HIPC assistance is predicated on the recipient
country putting into place the usual assortment of neo-liberal reforms. Experience
from Guyana, Honduras and Mozambique show that assistance can be stalled or
delayed because of negotiations over conditionalities and the time required
by Bank-Fund internal approval processes. The Bank and Fund themselves state
that full debt relief will be spread over 20 years. Having seen what simply
ten years of structural adjustment and debt servicing can do to developing
and transition countries, the pace of debt relief promised through Enhanced
HIPC is unlikely to make any positive impacts on the well being of the HIPC.
In order to "expedite" the debt relief process, the Enhanced HIPC
allows for interim relief measures, provided that the debtor government demonstrates
full commitment to future implementation of the HIPC framework. To this end,
"floating completion points" were introduced in 1999, which assess
a country's eligibility for debt relief based on its performance on specific
reform programmes, rather than its overall track record. "Floating completion
points" are intended to provide an incentive to HIPCs to implement macroeconomic
and sectoral reforms quickly, and also provide avenues by which the Bank and
Fund can introduce new conditionalities along the way. Country specific requirements
for the ten HIPC who have reached completion points show that seven are required
to introduce further privatisation and sectoral reform programmes on top of
already existing structural adjustment programmes.
To date, only ten countries have started to receive any type assistance under
the HIPC initiative and not even one has received real debt reduction.
Stronger links between debt relief and poverty reduction: The World Bank and
IMF claim that resources freed up from debt relief will be used to support
poverty reduction strategies, developed with civil society.
In reality, the structural adjustment programmes imposed by the Bank and the
Fund have created and entrenched poverty to unprecedented levels in over 90
developing and transition countries worldwide. Despite ample documentation
and evidence of the disastrous effects of Bank-Fund programmes, the two institutions
have been unwilling to introduce any fundamental changes in their thinking
or approach. Their latest commitment to poverty reduction is proving to be
another expensive, renaming exercise, and structural adjustment policies continue
to form the bottom-line of the Enhanced HIPC framework.
The Bank and Fund claim that the bad days of structural adjustment are over
and debt relief will be accompanied by nationally owned poverty reduction
strategies and papers (PRSs and PRSPs). Experience thus far shows that the
PRSPs are yet another resource-intensive conditionality that debtor countries
must cross in order to qualify for any multilateral assistance at all. The
poverty reduction strategies are certainly not nationally owned: they must
be prepared according to Bank-Fund guidelines, with predetermined policy matrices
that perpetuate old style Bank-Fund adjustment and reform programmes, and
often conflict with nationally developed anti-poverty strategies. A senior
Bank official described the PRSP-PRGF as a "compulsory programme, so
that those with the money can tell those without the money what they need
in order to get the money."
Civil society participation in the formulation of these poverty reduction
strategies has largely consisted of consultation meetings with prominent and
well-resourced NGOs. Labour unions, peasant and fishers associations, indigenous
people's organisations and social movements have been conspicuous in their
absence. Apart from over-orchestrated meetings with civil society representatives
in high profile international meetings, the Bank and Fund have made few attempts
to engage with ordinary people who will bear the brunt of their so called
poverty reduction programmes.
Interestingly, honest assessments of the role of external debt, the impacts
of past debt servicing and SAPs on highly indebted countries do not seem to
be on the Bank's and Fund's PRSP agendas. There is much talk about debt to
export ratios, the need for greater trade and investment liberalisation and
competitiveness, but no mention of the need to amend international terms of
trade in favour of highly indebted countries, or preferential market access
in industrialised economies for the poorest countries. There is plenty of
rhetoric about good governance and the need to fight corruption in debtor
countries, but there are no proposals to penalise irresponsible lending on
the part of international creditors, or to curb the "corporate creep"
that is increasingly evident in bilateral and multilateral development assistance
and credits.
The Promise Unravels
During the G-8 meetings in Cologne in 1999, G-8 members pledged $ 100 billion
to finance the HIPC Trust Fund, the primary pot from which multilateral debt
reductions would be made. Then in September, 1999, U.S. President Bill Clinton
announced that the United States (U.S.) would write off a 100 percent of the
bilateral debts owed to the U.S. by 30 of the poorest countries. This was
followed by similar announcements by Britain, France, Italy, Germany Canada
and Japan. Shortly thereafter, non G-8 governments also declared their commitment
to debt cancellation: Australia, Belgium, Netherlands, Norway, Spain and Switzerland
all announced their readiness to go beyond what HIPC promised, and cancel
a 100 percent of the bilateral debt owed to them by some of the poorest countries.
Today, the promises made in Cologne ring hollow. Barely $ 3 billion of the
$ 100 billion pledged to the HIPC Trust Fund has materialised and Northern
governments are dragging their feet on making good their pledges of full cancellation
of the bilateral debts owed to them by their poorest debtors. The worst offender
is the U.S., which promised $ 600 million towards multilateral debt relief,
but has come up with less than $ 70 million. The European Union (EU) and Japan
are conveniently using the U.S.'s failure to delay their own contributions.
In all, there are 27 multilateral institutions that are creditors to the HIPC
and have agreed to participate in the HIPC initiative. These institutions
hold a total of $ 70.2 billion (about 33 percent) of HIPC outstanding debt.
The World Bank group is the largest creditor with $ 39.4 billion: $ 37.1 billion
owed to the IDA and $ 2.3 billion owed to the IBRD. This is followed by the
African Development Bank (AfDB) which is owed $ 10.4 billion; the IMF, which
is owed $ 8.2 billion; and the Inter-American Development Bank (IADB) which
is owed $ 3.8 billion. The Asian Development Bank (AsDB) despite being the
largest creditor in Asia, holds only $ 892 million of HIPC debt.
Among the IFIs, the World Bank and the IMF enjoy preferential status compared
to bilateral and other multilateral creditors in debt repayments and scheduling.
They are owed over almost $ 48 billion by the HIPC countries, and this debt,
unlike bilateral debts, cannot be rescheduled or defaulted on by borrowing
countries. The debts must be paid, and servicing them has cost debtor countries
far more than the original sums borrowed, both in terms of the actual sums
repaid as well as in terms of shouldering the social, economic and environmental
impacts that debt servicing has entailed.
The World Bank and IMF have no plans whatsoever to write off even 50 percent
of the debt owed to them by the poorest countries. Under Enhanced HIPC, the
World Bank plans to provide relief of 25 percent ($ 600 million) of the debt
owed to its non-concessionary arm, the International Bank for Reconstruction
and Development (IBRD), and for 32 percent (5.7 billion) of the debt owed
to its concessionary arm, the International Development Association (IDA).
The IMF has proposed to relieve 37 percent ($ 2.3 billion) of the debt owed
to it. The AfDB proposes to relieve 31 percent ($ 2.2 billion) of debt owed
to it. The IADB proposes to relieve 39 percent ($ 1.1 billion), and the AsDB
proposes to provide relief for 24 percent ($ 103 million) of the debt owed
to it.
Research conducted by Jubilee 2000 shows that the IMF, the IBRD, the IADB
and the AsDB could easily write off 100 percent of the debts owed to them
by the HIPC through their own resources, and neither lose their triple A credit
ratings, nor suffer significant losses in usable equity. Through its own resources,
the World Bank could also write off two-thirds of the HIPC debts owed to IDA,
and with donor funding of $ 6 billion, it could fully cancel its HIPC debt.
The AfDB, with its own resources and modest donor support, could also write
of a 100 percent of the HIPC debt owed to it.
Measurements of debt relief already carried out since 1996 show that the reductions
obtained by the HIPC to date do not exceed 5 percent of HIPC debt in 1996,
or 0.25 percent of the total debt of developing countries. The sum allocated
by U.S. Congress towards the reduction of HIPC debt owed to it amounts to
less than 0.05 percent of its annual spending on defense. The amount pledged
by the United Kingdom (UK) over a 20-23 year period (635 million pounds) represents
approximately two thousandths of the UK defense budget. According to some
calculations, even if the creditor nations of the North made good on their
1999 pledges, none of them will contribute more than one percent of their
defense budgets towards debt relief.
Clearly, the financial resources to fully cancel the multilateral debt owed
by the 41 HIPC countries do exist among the IFIs and the Northern donor community.
What does not exist, however, is the political will to let go of debt servicing
as an instrument of economic domination, regardless of its consequences on
an increasing number of marginalised populations in the HIPC.
Debt Relief in Perspective: Who Really Pays?
In February, 2000, World Bank President James Wolfensohn claimed that outright
cancellation of the debt of the poorest countries would "screw up"
the market for debt instruments. The "costs" of debt reduction and
cancellation are highlighted by both, multilateral and bilateral credit agencies
as the reasons for delay in implementing the HIPC initiative. But a quick
look at the world debt situation shows that the debt of developing countries
and among them, those of the HIPC, are miniscule compared to the debt of wealthy,
industrialised countries.
In 1999, developing country debt (not counting the former Eastern Bloc) was
placed by the World Bank at $ 2,060 billion, less than 6 percent of total
world debt ($ 37,000 billion). The debt of former Eastern bloc countries was
calculated at another $ 465 billion. The public debt of Belgium is approximately
$ 250 billion, the public debt of France is $ 750 billion, the national debt
of the United States is $ 5,000 billion, U.S. household debt is $ 6,000 billion,
and the national debt of Japan at $ 2,000 billion. In contrast, the total
debt of the 41 HIPC countries is approximately $ 200 billion (less than one
percent of world debt). It is difficult to imagine how canceling the $ 200
billion owed by the HIPC would seriously affect the market that Mr. Wolfensohn
is so worried about.
The debt management strategies enforced by the G-8 countries and their watchdog
institutions (The World Bank and the IMF) are classic examples of how northern
financial institutions and economic interests can be protected, with scant
attention to the long-term impacts of these strategies on majority populations
in debtor countries. Since the debt crisis exploded in the early nineteen
eighties, countries in the south have paid their external creditors at least
four times what was originally owed. The debt crisis heralded a new era of
massive resource transfers from developing countries to the wealthy, industrialised
countries not only through higher interest rates on debts, but also through
a simultaneous fall in commodity prices which constituted the primary exports
of many developing countries.
One of the major worries in the U.S. and Europe when the crisis broke out
was that many of their largest banks were overexposed to debtors many times
over total bank capital. Motivated by the desire to protect their banking
systems and financial strength, the western governments (particularly the
U.S.) used their control of the IMF and the World Bank to not only ensure
full repayment of past loans, but to also lay the ground for a continued scenario
of debt dependency through IMF-World Bank SAPs and austerity measures. Public
debts incurred by developing countries to northern private banks were transformed
into "official debts" to northern governments and multilateral institutions.
Private banks not only got away with irresponsible lending, but were encouraged
to keep lending with new guarantees and protections from institutions such
as the Multinational Investment Guarantee Association (MIGA), export credit
agencies and other IFIs.
The entire gamut of debt reduction measures since then, from the Brady Bonds
to the current Enhanced HIPC initiative, have invariably resulted in many
more gains for the creditors with little and dubious gains for indebted countries.
The solution to the indebtedness of developing countries continues to be more
debt, which has ballooned drastically as interest is charged on unpaid interest,
and the principal remains untouched.
In the period from 1984 - 1991, developing countries paid northern creditors
$ 209 billion more in interest payments and principle repayments than they
received in new loans. Among the 38 countries that were identified by the
World Bank as 'severely indebted low income countries,' total debt rose from
5 percent of GNP in 1970 to 139 percent of GNP in the late nineties. In 1999,
all the developing countries combined transferred a net sum of $ 1146.6 million
to the creditor nations in the North.
In 1998 alone, the 41 HIPC transferred $ 1,680 million more to the North than
they received in credits. From 1992 - 1998, the World Bank and the IMF extracted
more from the HIPC than they offered in loans and credits. Research conducted
by Jubilee 2000 shows that 22 of the poorest HIPC transferred $ 6.8 billion
to the IMF and IBRD during this period, $ 5.8 billion of which went to the
IBRD. IDA transfers to these countries during this period amounted to $ 7.8
billion, with no new credits from either the IMF or the IBRD. Further, these
22 countries have had zero or negative per capita income growth over the last
35 years as a result of SAPs and debt servicing. In each of these countries,
the debt owed per person is significantly higher than the annual public health
spending per person. For example, in the Central African Republic, debt owed
per person in $ 263, while annual public health spending per person is only
$ 6; in Ghana, the debt owed per person is $ 319, while annual public health
spending is only $ 7.3; in Nicaragua, debt owed per person is $ 1243, while
annual public health spending is $ 18.3.
The amount of debt that the World Bank and IMF "forgive" is not
simply forgotten, or absorbed as "losses" by the Bank and the Fund.
The institutions have a plan to get their money back, except not directly
from the debtor countries. They would be repaid from the HIPC trust fund,
established specifically to finance the reductions that the Bank and Fund
claim so generously. Creditor countries (who are members of the IMF and World
Bank anyway) are expected to make contributions to this trust fund, which
are invested by the Bank and Fund on the international financial markets.
Returns from these investments would be then used to pay back the so-called
"forgiven amount" to the IMF and the World Bank.
Bilateral funds allocated for debt reduction under the Enhanced HIPC initiative
will not go directly to the debtor countries. In many cases, these funds will
come out of the development aid budgets of creditor countries, and be used
to relieve debts incurred by debtor governments to private investors and companies
in the north. Many of these companies are already insured against non-payment
risks through guarantees by institutions such as the Exim Bank in the U.S.
and COFACE in France. Creditor countries (of the G-8) will use portions of
public funds earmarked for ODA to pay these guarantor institutions to compensate
the private companies for the debts to be "forgiven." Debt to private
financial institutions, then, will be paid for by ordinary citizens in both
the creditor and debtor countries, while private companies get away with profits
and incentives to continue business as before. In some countries (for example,
Sierra Leone, Honduras, Zambia, and Tanzania), a significant portion of foreign
aid is already being used to repay debts to the World Bank and the IMF.
France and Japan have demanded that the debts owed to them must be repaid
and they will then donate the funds back to the debtor countries. However,
Japan specifically requires that funds handed back to debtor countries be
used to purchase goods and services supplied by Japanese companies. Similarly,
France has been offering debt "relief" to the HIPC for several years
on the condition that debtor countries privatise their public sectors to benefit
French private corporations. Research conducted by the Committee for the Abolition
of Third World Debt, a Belgian NGO, shows that French multinationals such
as Bouygues and Vivendi have been able to purchase entire sectors of economies
in the former French colonies as a result of France's debt "relief"
policies.
Thus, one way or another, through cash transfers, or through transfers of
their economic and environmental resources, the HIPC themselves will repay
their own debts, barely disguised as debt reduction and relief. Maintaining
consistency with the earlier debt management strategies of northern financial
powers, the so-called "relief" provided under HIPC will benefit
the governments and private corporations of the north, rather than the people
in debtor countries.
The Myth of Debt Sustainability
Debt sustainability assessments made by the World Bank and IMF have more to
do with how much debt servicing can be squeezed out of a debtor country than
the country's actual ability to pay without sacrificing human and social development
objectives. Under the first HIPC initiative (launched in 1996), a country's
debt was considered sustainable if it was able "…in all likelihood
to meet its current and future external obligations in full without resorting
to rescheduling in the future or accumulation of arrears." A HIPC sustainability
criterion in 1996 claimed that annual debt service should be between 20 -
25 percent of export earnings. In the 1999 G-8 summit in Cologne, it was agreed
the debt sustainability criteria should be modified to provide "deeper
debt relief" and therefore lowered. However, these criteria apply to
the debt stocks of the countries, and not to the amounts that actually go
towards debt servicing. As such, they are both, inappropriate and inaccurate
methods by which to assess the debt burdens of the HIPC.
Nowhere in the Bank-Fund descriptions of debt sustainability do we find any
substantial discussion about the economic and human development challenges
faced by countries that have been servicing heavy debts for long periods of
time. Debt reduction is directed towards reducing debt stocks rather than
debt servicing amounts. Although debt stocks determine the amounts that go
towards servicing, many HIPC have such large debts (in principal, compound
interest and arrears) that only a fraction of it is actually being serviced.
The impact of heavy indebtedness is felt not through these stocks, but through
active debt servicing, which redirects national resources away from essential
domestic needs towards debt repayment.
Debt sustainability is not simply an issue of econometric and financial indicators
by which financial technocrats can determine whether or not a country qualifies
for debt relief. Countries that have undergone almost 20 years of structural
adjustment and heavy debt servicing obligations face not only worsening poverty
conditions, but also massive backlogs of social, human, technological and
economic capacity that calls for a complete rethinking of the debt sustainability
criteria in the Enhanced HIPC. According to Jeffrey Sachs:
The IMF and World Bank have been mouthpieces of this deceit, with their charade
of analysing the "debt sustainability" of the poorest countries.
These analyses have nothing to do with debt sustainability in any real sense,
since they ignore the needless deaths of millions of people for want of access
to basic medicines and nutrition. Money that could be directed towards public
health is instead siphoned off to pay debts owed to western governments and
to the IMF and World Bank themselves.
In truth, debt will never be sustainable unless the wealthy and powerful countries
stop demanding in trade and investment privileges the miniscule amounts of
debt repayments that they "forgive." Nor can these countries, or
their collection agencies talk about debt sustainability when money that is
urgently needed for strengthening public health systems, national food stocks
and distribution systems, and clean water is diverted to servicing debts that
have already been paid many times over. Talk about debtor countries needing
to increase exports as a way of "growing out of indebtedness" are
meaningless in the face of economic manipulations that control the values
of the goods that these countries export. Rhetoric about debt sustainability
becomes particularly ridiculous when on one hand a country like the U.S. trumpets
its contribution towards the fight against HIV/AIDs in Africa, but at the
same time, aggressively promotes the patenting of drugs by its pharmaceutical
companies, thus raising the costs of essential drugs to those who need them
most.
Possible Alternatives
The Enhanced HIPC is certainly not going to provide any kind of solution to
the debt or poverty problems of highly indebted poor countries. Poverty is
created not by debt per se (many northern countries have much higher levels
of public debt than the HIPC), but by debt servicing under specific economic
and political terms, which the World Bank and the IMF have mastered to perfection.
It is this aspect of debt "relief" that the Enhanced HIPC misses
entirely. No matter how one puts the pieces together, the final picture that
emerges from the jigsaw of Bank-Fund debt relief measures is one of continuing
domination of the global economy by a handful of northern countries. The HIPC
initiative is simply the most recent, in a long line of instruments that the
World Bank and the IMF have used to ensure this domination.
A more effective way of dealing with the chronic and expanding debt problems
in the south would be to do away with instruments such as the HIPC and Enhanced
HIPC altogether. If there is indeed genuine worldwide concern about growing
poverty, inequality, social disintegration and environmental destruction in
the world' poorest countries, many positive steps can be taken that go well
beyond the Enhanced HIPC in achieving long term freedom from the debt overhang..
The first positive step would be the unconditional cancellation of the external
debt of the poorest countries of the world. The need to reduce poverty is
urgent, but it will not be achieved by pro-rating debt reduction on externally
imposed anti-poverty measures. Years of SAPs and debt servicing have weakened
the social and economic bases of many of the world's poorest debtors. Rebuilding
this capacity is crucial for lasting solutions towards poverty elimination,
but this will not happen as long as the debtor countries are increasingly
strapped with debt service payments and further structural adjustment in the
name of debt relief. Methods by which countries can redirect resources previously
used for debt servicing towards human, social and economic development goals
should be decided by citizens and their selected representatives, and not
by foreign creditors, donors or multilateral agencies
The second positive step would be to abandon the neo-liberal reform agenda
that currently underwrites north-south development assistance through grants
and credits. In particular, trade and financial liberalisation must be curbed
because of their negative impacts on the local and national economies of poor,
indebted countries.
The third positive step would be to end the impunity of southern elites who
have become illegally rich on the backs of their citizens (such as Mobutu
and Suharto) and their accomplices in the World Bank, IMF, private banks and
other international institutions. Proceedings should immediately be started
to return to the respective populations their stolen wealth, much of which
is earning hefty profits in northern financial institutions. This must be
accompanied by the introduction of mechanisms that hold creditors equally
responsible and penalise them to the same degree as self-serving borrowers,
for bad and irresponsible loans.
The fourth positive step would be to introduce capital controls that prevent
the unrestricted inflows and outflows of large amounts of short term capital
in developing and transitional countries; an example of such controls is the
imposition of taxes on foreign exchange transactions (such as the Tobin Tax)
in order to protect countries from sudden financial shocks and discourage
the disastrous impacts of speculative capital
The fifth and most enduring step would be to reduce dependency on foreign
financing, especially loans, in local and national development. Most development
priorities (for example, food security, education, healthcare, environmental
protection, clean water, etc.) can be supported through domestic resources,
and the use of foreign financing can be limited to those goods and services
that are as yet unavailable at reasonable cost domestically. But this would
then entail the reorientation of our economies from production for export
to production for local/national markets, and the redistribution of land,
income, and other productive assets to strengthen local and national economic
capacities.
Most important, the above steps would require that we subject economic policy
decisions and economic transactions to the service of people, community and
society, rather than vice versa, as exists now. While the above steps would
not redress all the past economic imbalances of the past, they would be a
start towards achieving long term social, economic and political justice,
and towards preventing the use of debt as a tool of domination by the wealthy.