Debt cancellation: Still not there

Implementation of last year’s impoverished country debt cancellation deal, now called the Multilateral Debt Relief Initiative (MDRI), is slowly moving forward. In December, the International Monetary Fund (IMF) gave its approval for $3.3 billion of debt cancellation for 19 of the world’s poorest countries and predicted that a 20th nation, Mauritania, would soon qualify for debt cancellation as well.

Two months later, as the World Bank Executive Board prepared to meet to implement debt cancellation for those impoverished countries made eligible under the terms of the July 2005 G-8 agreement, the limitations of World Bank plans became evident and the consequences for Latin American countries of the Inter-American Development Bank’s complete lack of participation in MDRI came to the fore.

The World Bank proposed what would amount to a 15-month delay for any additional countries to receive cancellation beyond the initial 17 nations. This new approach would mean that some countries that have already qualify for the program – such as Burundi, Cameroon, Guinea, Malawi, and Sierra Leone, many of which are heavily burdened by HIV/AIDS – would have to wait until July 2007 at the earliest for debt cancellation – a full two years after the G8 summit was held in Gleneagles.
While the IMF cancelled all debts contracted through the end of 2004, the World Bank proposal would only cover debts that predate the end of 2003. Nations like Cameroon and Malawi, even after “100 percent debt cancellation,” would owe millions in debts to the World Bank for debts incurred between 2004 and 2007.

Furthermore, far too few countries get debt cancellation under the current program. In April, the World Bank proposes to add four new countries to the HIPC Initiative – Haiti, Eritrea, Kyrgyz Republic, and Nepal. But these nations – including Haiti, the Western Hemisphere’s poorest nation – will face interminable delays and in the case of Haiti will not see actual debt cancellation until December 2009 because of the harmful economic conditions attached to qualification for debt relief.

Moreover, the fact that the World Bank proposes to add only four nations again demonstrates the utter inadequacy of the HIPC framework. The UK government and leading international charities have identified at least 60-70 countries that would need 100 percent debt cancellation to meet the Millennium Development Goals and many more nations require cancellation of odious and illegitimate debts.

Beyond challenging proposals of the World Bank for implementing the MDRI, international debt campaigners have also been advocating for inclusion of debt owed to the Inter- American Development Bank in the MDRI. When last year’s multilateral debt cancellation accord was reached, it included the Africa Development Fund, but not the IDB.

Under the terms of the MDRI, 14 nations in Africa and four nations in Latin America were promised 100 percent cancellation of their debts to the International Monetary Fund (IMF), the World Bank, and the African Development Fund in 2006. This deal established an important precedent and will release nearly $1 billion annually in funds to fight poverty in these nations. But the G-8 deal did not include the cancellation of the debts owed to the IDB by the Latin American nations in the agreement. Therefore Latin American countries that qualify for the G8 debt deal – Bolivia, Guyana, Honduras and Nicaragua – will pay almost $1.4 billion in debt service over the next five years to the IDB. With debt cancellation this money could be used to fight poverty and provide education and health care.

The Jubilee USA Network Fact Sheet on IDB Debt offers Honduras as an example:

Seventy percent of Hondurans live below the poverty line and a staggering 81 percent do not have access to clean drinking water. In 2003, Honduras made $363 million in debt service payments, which is nearly onethird of the government’s revenue for that year. That same year Honduras spent twice as much on debt service as on public health. The G8 debt deal means that the country will see US$1.53 billion of its debt burden cancelled. But in 2006, Honduras is scheduled to send $80 million in debt service payments to the IDB. This is money that could be spent on health care, education or clean water.

In addition, other impoverished countries in Latin America and the Caribbean that are not yet part of the G8 deal are also heavily burdened by unjust and unpayable debts, including a significant debt to the IDB.

Jubilee campaigns across Latin America and the Caribbean say that much of the debt in the region is odious in nature. Under international legal precedent, a debt is considered odious when creditors knowingly lent to undemocratic or illegitimate regimes and the funds did not benefit the population. In Haiti, for example, the IDB lent $290 million to the two repressive Duvalier regimes. In Argentina, the IDB lent $1.6 billion to the military junta responsible for the death or disappearance of more than 30,000 innocent people between 1976 and 1983. And much of Nicaragua’s current debt burden was incurred under the Somoza family’s military regimes, with the most notorious dictator being Anastasio Somoza, whose rule from 1967-79 was marked by political repression, deteriorating economic conditions and embezzlement of international aid funds. Yet, between 1961 and 1979 the IDB lent $321.6 million to Nicaragua.

Faith in action:
As the annual meetings of the IDB approach in April 2006, join the Jubilee USA Network in calling for the immediate and total cancellation of the debts owed by Bolivia, Guyana, Haiti, Honduras and Nicaragua to the Inter-American Development Bank (IDB). Debt cancellation should be enacted without economic conditions - and urgently - as delays to debt cancellation cost lives. Write to the U.S. Secretary of the Treasury John Snow (john.snow@do.treas.gov or fax: 202- 622-0073). For additional information or a sample letter go to www.jubileeusa.org.