The continuing crisis of impoverished countries' debt

By Derek MacCuish

In impoverished countries, the struggle for a living takes place close to the edge. The participants bear the weight of a thousand physical, spiritual and emotional burdens, none of which are reflected adequately in the statistics of disease and mortality that we use to reference poverty. Childhood friends lost to diarrhea, teenage friends lost to AIDS, mothers broken by labour and fathers lost to the city or to the mines or to despair and its chemical manifestations. The scale of tragedy we allow is beyond comprehension.

There are obvious beginnings to solutions available now. Reducing poverty will require action in health and nutrition, conflict and the arms trade, governance and corruption, technology transfer and Western protectionism. For any of these to be successful, we will have to understand that the fight against poverty to mean more than increased income, that it has to be a fight for empowerment of the people affected.

The severe indebtedness of impoverished countries has been recognized for years as one of the main obstacles to economic growth, and some level of social improvement, since the 1980s or 1990s (depending on whether one understood "debt crisis" to refer to banks or to people). People overwhelmingly agree that regions like sub–Sahara Africa need effective debt cancellation if there is to be any hope of economic stability or real growth.

Public support of debt cancellation grew stronger throughout the 1990s, and in 1996 the World Bank and IMF – at the request of the G7 group of rich countries – launched the Heavily Indebted Poor Country (HIPC) Initiative. Since then, the financial institutions and the wealthy country that direct them have been tacking against the current of opinion, postponing and minimizing actual relief while arguing that their movements to and fro are proof of progress.

If the goal is a resolution to the debt crisis in impoverished countries, the Heavily Indebted Poor Country (HIPC) Initiative program has meant little in the short term, and will mean nothing at all in the long. More damaging still, the conditions attached to the program are designed to dis–empower the state while enhancing private sector capacity, regardless of the impact on vulnerable communities.

Criticism of current debt relief program can be considered in three levels. The first looks at the speed and depth of the relief. Only six countries have reached the "completion point" since the 1996 launch of the HIPC Initiative. Relief given is insignificant, based as it is on unrealistic IMF export growth predictions that no one ever took seriously.

There is no indication that G7 leaders are willing to push for deeper and faster action and so, even at this first level, there is a disheartening failure of political will.

The second level of criticism targets the World Bank. Any reduction in World Bank debts that does take place is actually being covered by the rich countries. The Bank itself refuses to write off debts. This debt is about a third of what impoverished countries are scheduled to pay each year. About 30% of the payments to the World Bank are interest payments on old, unproductive debt that provides no ongoing benefit to the economy. Meanwhile, levels of indebtedness are too high for productive new funding.

The World Bank has sufficient resources to manage full cancellation of these debts, including substantial loan loss provisions and the resources of its main division, the International Bank for Reconstruction and Development, without harm to its operations. The Bank sometimes argues that debt cancellation would affect its future lending capacity, an interesting position to take in that it reveals its priority (similar to too many other institutions): to ensure that it continue to exist, no matter the need or the cost.

The reason for the failure to adequately cancel debts of impoverished countries can be found at the third level of criticism, which targets the conditions attached to relief.

The lynchpin of the major debt relief programs, including those of individual creditor countries, is the HIPC Initiative directed by the World Bank and IMF. Central to the design of this program is the requirement that countries complete the structural adjustment conditions set by the Bank and Fund. The HIPC Initiative has strengthened the hand of the Bank and Fund in demanding compliance in the three main aspects of market system adjustment – privatization, deregulation, and cutbacks in public service spending. For example, it is common practice for the Bank and Fund to delay or deny debt relief when countries are deemed reluctant to privatize public services like electricity, telecommunications or water, and natural resources like oil, gas and mining.

In other words, the World Bank and IMF are refusing full debt cancellation because they are using the crisis to force compliance with expanded private ownership and exploitation of resources.

The need for cancellation has been recognized for years. There is capacity to do so. In the final analysis, the reason it hasn't been done is because of continuing dynamics of exploitive power and impoverishment.