2004 WCC UNITED NATIONS ADVOCACY WEEK
DOCUMENTS

Remarks at the public seminar on economic justice
Neil Watkins, co-coordinator, Jubilee USA Network
November 15, 2004

Greetings and thank you to the World Council of Churches for the invitation to speak to you today. I bring greetings on behalf of Jubilee USA Network’s 70 member organizations – including churches and faith-based groups, some of whom are represented here, but also labor unions, environmental groups, solidarity organizations, and community groups and coalitions across the United States working for Jubilee justice. Jubilee USA Network is the US arm of the global Jubilee movement, and we are here today to speak about the importance of debt cancellation to achieve the MDGs and to move us towards a more just world.

Let me begin by being direct: If we are to have any hope of achieving the MDGs, poor country debt must be fully cancelled. This will not be sufficient – additional aid and trade justice will be necessary as well – but without debt cancellation, the task will be much harder. To illustrate this point, I want to paint a picture for you today of the current debt crisis, efforts made to address it to date, and the current political moment we are in on the issue of poor country debt.

The debt crisis today

Africa’s debt today stands at more than $300 billion. According to an excellent new report published by UNCTAD in September, “Debt Sustainability: Oasis or Mirage,” from 1970-2002, Africa received some $540 billion in loans and paid back some $550 billion in principal and interest. Yet Africa remains today with a debt stock of $295 billion. The debt has already been paid.

African nations and indeed impoverished nations worldwide remain mired in a crisis of debt. Take the case of Zambia. Life expectancy in Zambia is 38, down from 50 in 1980. The HIV/AIDS pandemic is devastating the country – it is estimated that 15-20% of the population is infected.

Today, Zambia’s debt stands at $6.5 billion. In a country of 10 million people, that means the debt is $650 per capita. That is double the GNP per capita. It is a country that is forced to spend a tremendous amount of its scarce resources in servicing debt, rather than servicing people’s needs. A recent study by Jubilee Zambia found that during the 1990s, 20% of Zambia’s GDP went to service debts, while only 2-3% went towards health and education.

Zambia is part of the Heavily Indebted Poor Countries Initiative (HIPC) of the IMF and World Bank and has received some debt relief. But even after HIPC “relief,” Zambia stills pays $120 - $150 million each year on debt servicing. That is more than it pays for health and education.

In 10 out of 14 HIPC countries in Africa where data is available, debt service payments still take up a larger share of the budget than do health services. In Ghana, 11% of govt. spending goes into repaying debts while only 9% is spent on health.

Debt is making it impossible to make the investments in health, education, and clean water that are needed to meet the MDGs.

Current status of debt relief efforts

Clearly we have a long way to go on debt. But we are making progress. After years of pressure from campaigners and social movements across Africa, Asia, Latin America, and North America and Europe, the G-7 has largely cancelled bilateral debts for the most impoverished nations. The largest remaining amount of debt in the most impoverished nations is owed to multilateral creditors like the IMF, World Bank, and the regional development banks. The Heavily Indebted Poor Countries Initiative (HIPC), which was set up to reduce multilateral debt, has delivered around $30 billion in debt cancellation.

The limited debt relief that has come via this program has had results on the ground. Debt relief works:

• In Malawi, resources generated from debt relief have been used among other things to train 3600 new teachers a year.
• In Benin, 43% of debt relief went to education, 54% to health which was used to recruit health staff for rural clinics, and the remainder was allocated to implementing HIV/AIDS and anti-malarial programs and increasing immunizations.

According to the most recent analysis by World Bank and IMF, from 1999-2003, countries that have received debt relief have doubled their spending on poverty reduction. A common concern raised about debt cancellation is that it encourages corruption. The study found no evidence of debt relief proceeds being diverted for military use or for corruption.

Debt relief works, but the current vehicle for it – the HIPC Initiative – has failed.

First, though debt stock has been cut under the HIPC Initiative, UNCTAD has found that actual debt service payment reductions have been “quite marginal.” The IMF and World Bank claim that service payments in 27 HIPCs have fallen by 1/3. But actual debt service payments were slightly higher in 2001 than 1992-1994. The poorest nations in the world – struggling to fight HIV//AIDS and to meet the MDGs – cannot afford this or any level of debt payment.

Second, the HIPC Initiative requires countries to undertake “structural adjustment” reforms in order to receive relief. In Tanzania, privatization of the water system in Dar es Salaam was a key condition of debt relief. While the country was granted a waiver because privatization took too long, donors eventually forced through the privatization, which has led to increased prices, worsening service delivery, and a project agreement in which 98% of the money is being spent on 20% of the population. This is the case in countless countries, and the conditions are devastating.

Third, the HIPC Initiative includes far too few countries. Because countries are selected for inclusion based on economic criteria rather than social criteria, severely indebted poor nations like Nigeria, Haiti, Jamaica, and Bangladesh are excluded from the initiative.

Finally, the HIPC Initiative has failed on its own terms. After 8 years, Only 14 countries have graduated from the program, or reached the so-called “completion point.” But even half of these countries soon found themselves back at an unsustainable level of debt. The IMF and World Bank’s latest assessment showed the failure of the initiative on its own terms: costs to “top up” countries that had already reached the conclusion of the HIPC process more than doubled from $800 million to almost $2 billion in 2004.

After 8 years of the HIPC Initiative, it is time for a bold new approach.

Cancel the debt to achieve the MDGs

Research has been conducted in the past several years to determine how much finance would be needed to reach the MDGs. A significant amount of the financing needed to meet the MDGs could come from debt cancellation. In fact, it is becoming clear that it will be impossible to meet the MDGs without 100% multilateral debt cancellation for impoverished nations.

In a recent report, Jubilee Research in London found that at a minimum, the 42 HIPCs would need 100% debt cancellation to have any hope of meeting MDGs. Debt cancellation would not be sufficient: above the cancellation, the study found that they would need $30bn in aid each year to have any hope of meeting Goal 1 and for the other goals $16.5b would be needed annually.

Of course, the challenge of meeting the MDGs varies goal by goal. To meet goal one, it is estimated that poor countries would need to achieve 7-8% annual growth rates. This will be impossible so long as debt payments crowd out investments and other government spending priorities.

Moreover, Jubilee Research has estimated that HIPCs will between them need to spend $20 billion annually on health if they are to hope to meet goals 4, 5, and 6 which relate to health. This is almost three times their 1999 level of debt service. It is clear that full debt cancellation is an insufficient step. But it is a critical first step, and without it dreams of meeting the MDGs are likely to be left unrealized.

Debt cancellation is also better than most other forms of aid. Debt cancellation acts as de facto direct budget support, which is in direct support of national planning and expenditure priorities, and unlike project support provided by individual donors it does not need to come with specific donor requirements or preferences. Debt relief is also more predictable than most aid – it does not wildly fluctuate based on door priorities, and affords countries the ability to plan how to use their own resources.

Debt cancellation will help to create a more just world

It is increasingly clear that immediate 100% multilateral debt cancellation is essential if the global community has any hope of meeting the MDGs.

Debt cancellation is also a critical element in the broader struggle for global justice. First, debt is a tool of leverage that institutions such as the IMF, World Bank, and regional development banks use to enforce harmful economic conditionalities. 100% debt cancellation means much less power for the IMF and World Bank to dictate policies to impoverished nations.

IMF/World Bank structural adjustment policies have been in place since the early 1980s. A growing number of analysts and organizations see the policies as failures. As UNCTAD points out : “in the 1980s and 1990s these programs failed to deliver on the promise of growth and development, and these failures have in fact compounded the debt situation in African countries.” Full and unconditional debt cancellation will afford impoverished nations more freedom to set their own development policy.

Debt cancellation is also about the biblical notion of restoring right relationships. The debt has been repaid, over and over again in many cases. Many debts were illegitimate or odious. Debt cancellation would be a small step towards reversing the resource drain from South to North, and to begin addressing inequities in place between North and South that date to the era of colonialism.

A critical moment on debt

This is a critical moment for the issue of international debt. As the debt crisis worsens, there is a growing consensus that a much bolder approach must be taken.

Calls for repudiation and refusing to pay the debt have rightfully grown louder in recent years, with Jubilee South leading civil society groups across Asia, Africa, and Latin America under the slogan “Don’t Owe, Won’t Pay.” Jeffrey Sachs, an adviser to Kofi Annan and leading advocate of the MDGs recently advised African leaders to consider refusing to pay these illegitimate and unpayable debts if the G-7 don’t fully cancel the debt soon.

Faced with this growing revolt and ongoing pressure by the Jubilee movements, more and more governments and intergovernmental agencies are supporting calls for 100% multilateral debt cancellation. The African Union and leaders like President Obasanjo of Nigeria support 100% cancellation. Jubilee USA helped to introduce a bill into the US Congress which calls for 100% multilateral debt cancellation for 50 countries. And, the US and UK governments have both now publicly committed themselves to the need for “up to 100%” multilateral debt cancellation for the poorest nations. Though G7 leaders failed to announce a new proposal at the most recent IMF/WB meetings, discussions on 100% debt cancellation figure prominently at these meetings.

Discussions have been ongoing within the G7 – these nations are critical because they have a controlling influence in the IMF and World Bank – since June about a bold initiative on debt that would lead to 100% cancellation for the most impoverished countries. A progress report on their efforts is due out by the end of the year, and they will next meet – with debt likely on their agenda – in early February in the UK and discussions are likely to continue through 2005 when the UK holds the presidency of the G8. We must -- as churches, civil society, and social movements, work now to put pressure on the G7 governments to take action on debt cancellation in early 2005.

What does Jubilee call for?

Jubilee USA Network calls on the G8 and the International Financial Institutions to enact 100% multilateral debt cancellation for all impoverished nations (not just the 42 HIPC countries) without harmful economic conditions attached. We believe the cancellation should be financed from the institutions’ own resources, preferably through the responsible sale of IMF gold. A recent report by Jubilee Research’s Sony Kapoor finds that responsible sale of IMF gold could raise over $30 billion and cover most of the costs of canceling poor country debt to all multilateral financial institutions with little impact on the gold market. The US and UK governments now support the use of IMF gold to cancel the IMF’s debt; we are urging that they use the gold to cancel debts claimed by the World Bank and the regional development banks.

But our vision must and does extend even further. In the current political moment and in the context of the MDGs, we are only talking about the debts of the very poorest nations. The debt crisis extends beyond these nations. Debt campaigns across the South under the banner of Jubilee South are currently in the process of undertaking “debt audits” to catalog debts in countries like Argentina, Brazil, the Philippines, and others, to assess the illegitimacy of so much debt incurred by dictators or in the context of the Cold War. The black majority in South Africa, now politically liberated, continues to service its Apartheid-era debt, which was incurred by a racist regime to brutally repress its people. National level efforts to address odious and illegitimate debts must be supported and an international forum to address these debts must be created if we are to truly address the debt crisis.

Join with us

To conclude, I want to invite you all to join with us at this critical moment for the Jubilee movement. In the short term, we need your help to ensure that the G7 – who will meet in February and then again in July – act in 2005 to support full multilateral debt cancellation. I ask those of you from G-7 nations especially to join with the debt campaign groups in your country to make this an issue for your governments. For people from other nations, your government’s support will be critical in the IMF and World Bank.

I invite you today to take one simple action with Jubilee USA as the holiday season nears. We are currently organizing a campaign to send thousands of holiday cards calling for 100% debt cancellation in the New Year to the White House and the US Treasury Department. If you live in the US, please consider adding them to your card list – you can find sample messages and even card designs on our website, www.jubileeusa.org. If you live in another country, please send a card to your President or Prime Minister and Finance Minister. Please encourage your members and constituents to do the same.

For if we are to achieve the MDGs and move towards a more just world, we must drop the debt. Thank you for your support.