Debt Relief: Bread for Iraq, crumbs for Africa

International development agency, Oxfam New Zealand today welcomed the proposal by the G8 to cancel $NZ 145 billion of Iraq's foreign debt. But Oxfam NZ Executive Director, Barry Coates pointed out the deep inconsistency in the G8's approach. African countries have waited for more than two decades for debt cancellation. Now they are being offered a pittance as a sweetener to persuade other countries to back the US proposal on Iraq debt.

The UK proposal was for $NZ 56 billion to write off all of the multilateral debts owed by the 42 Heavily Indebted Poor Countries (HIPCs). Instead, the G8 has been talking about $NZ 1.6 billion extra for the HIPCs as a top up. Oxfam research reveals that at least $NZ 3.7 billion is needed, just to fund the existing commitments under HIPC.

"Zambia, Mali, Niger and the Gambia spend more on debt servicing each year than they do on education," said Coates. "If world leaders are willing to write off around $NZ 145 billion for Iraq, why not use about $NZ 56 billion to write off all of the debts of some of the poorest nations in the world?"

"Rich countries can afford the debt relief required. What they cannot afford is the current crisis of poverty and instability. Debt relief is an essential component of the international community's commitment to African peace and security.

"The G8's Africa Action Plan – on education for all, good governance, conflict prevention, water, corruption and health – will amount to little unless there is relief from the crushing debt burden.

"Well-intentioned declarations without significant transfers of resources ring hollow on a continent in need of global action," Coates added.

There is another important point. The Iraq debt was incurred by Saddam Hussein to pay for military equipment, even when the lenders knew he was committing human rights abuses. Like much of the other debt owed by the poorest nations, these are illegitimate debts that should be paid for by reckless lenders.

 

Notes:

(all $ figures following are US$)

 Following huge protests around the world, in 1999 rich countries announced the Highly Indebted Poor Countries Initiative (HIPC) for debt relief.  The HIPC initiative was promised to provide ‘a lasting exit' from unsustainable debt burdens for 42 heavily indebted countries. Five years later HIPC has slowed to a crawl, and debt is still crippling the poorest countries in the world.  The initiative is meant to end in December 2004, yet 11 countries have not even entered the process as yet.

 Confidential documents from the World Bank itself calculate that the HIPC initiative needs an extra $2.3 billion of top up as a bare minimum. Not even that much is currently on offer – the only money on the table is a figure of $1 billion being discussed at the G8 meeting,  and even that is not certain.

 It is clear that an investment in human development is an investment in a more peaceful and secure world, yet the continued debt crisis shows that the poorest countries are being prevented from doing this by their rich creditors. After the Second World War 50% of Germany's debt was written off, and there the ratio of debt to government revenue was never more than 5% as a result.  The explicit point of doing this was to avoid the situation after WW1, where punitive debts and reparations had led to the collapse of the German economy, and the rise of extremists and state terrorism. In contrast, the government of Senegal will spend 15% of its revenue on servicing its debt this year, compared to 6% on health.  

 Figures at a glance

 Amount of extra money being proposed for HIPC at Sea Island

$1 billion

This is the only money on the table, and is not certain.  Main obstacle to this is the German government.

Bare Minimum required to deliver on existing HIPC requirements

$2.3 billion (World Bank)

This would deliver topping up finance to the HIPC countries that are near or have reached Completion Point, the end of HIPC process, to bring their debt to exports ratio down to the agreed 150%.

Total HIPC multilateral debt relief given to date

$15 billion (Jubilee)

 

Total outstanding multilateral debt of HIPC countries

$35 billion (Jubilee)

Under the UK/ US proposed plan, this debt stock would be written off.

Total outstanding multilateral debt of 52 countries identified by Jubilee in 2000

$72 billion (Jubilee)

This figure includes countries that are desperately poor and indebted like Bangladesh, which were left out of the original HIPC list.

Total Iraqi Debt

$122 billion (Oxfam)

 

Total suggested for Iraqi debt write off

$90 billion (Guardian)

This figure is 40 times the $2.3 required for HIPC, and nearly three times what is required to cancel 100% of multilateral debt.

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