BIG NEWS By Dave Crampton
Why G8 leaders, the World Bank and the IMF will not relieve debt in third world countries
It is ironic that during last weekend’s G8 summit there were two sets of demonstrators – the anarchists who were
campaigning against globalisation and the pacifists who were demonstrating against debt.
Anti-globalisation activists have subscribed to globalisation. Just like globalisation protestors in Wellington,
Washington, and Wyoming use Microsoft products on their computers and eat McDonalds hamburgers, they also attend U2
concerts in California, Canada and Cincinnati. Lately they have been trotting the globe to protest in Seattle, Genoa and
Melbourne – provided world leaders are meeting at the time. So they are campaigning against the very system they are
partaking in. Debt campaigners, on the other hand, are not suffering from debt, they are campaigning on behalf of the
poor for total debt cancellation.
But total debt cancellation wont work much better than the World Bank and IMFs Highly indebted poor countries (HIPC)
debt cancellation programme does. The aim of HIPC was to cancel debt that cannot be paid – “unpayable debt” - to bring
debt repayments to sustainable levels, in turn reducing poverty. But what HIPC really is about is a system of wiping
unpayable debt that countries are not even in a position to pay in the first place, and has no effect on the real flow
of money. But it does minimise debt service, reduce panic in debtor governments in how they will repay the huge debt
burden. It also makes it safer for foreigners and locals alike to take risks and invest.
IMF and World Bank economists set sustainabilty levels of that portion of export earnings that goes into repayment of
principle interest on debt at 15-20 percent, despite saying in 1995 that 15 percent was too high.
Although Third world countries are being asked to pay at rate of 15 percent debt to exports ratio, no European country
including Britain France and Italy (G8 countries) is paying its loans higher than four percent, which is an indicator as
to why they are not in debt trouble. Zambia spends a quarter of its national budget on debt to rich countries and the
Since revenue projections are linked to growth, the more an economy grows, the more likely a country is to pay debt off.
Conversely, the more countries pay in debt service, the slower the economy grows. This means debt is less likely to be
paid off as the interest on debt increases due to the shrinking economy. So the IMF and World Bank’s own guidelines of
sustainability are in fact unsustainable. Sustainability should be based on how much a country needs to develop, not on
how much countries can be bled dry on debt repayments. It’s a vicious circle.
The World Bank and IMF’s projected growth estimates of poor countries are at best optimistic and at worst unrealistic.
Revenue projections are supposed to be linked to growth, but revenue projections for poor countries have been
overestimated, resulting in debt absorbing a greater proportion of revenue. AIDS hasn’t helped. In fact in Sub Saharan
Africa, a negative GDP has reduced growth, yet the World Bank has set growth at 5-6 percent for most countries. Result:
HIPC is not as effective as it is cracked up to be. Some countries will eventually be paying more after HIPC than before
they entered the scheme.
Yet last weekend G8 leaders have continued to support the HIPC initiative aimed at reducing debt to what poor countries
are able to pay, despite the US Government estimating that 91 percent of the debt cannot be repaid – as it is “unpayable
debt”. The US also controls 15 percent of the votes on the boards of the IMF and World Bank. They are also giving money
to the HIPC fund, and are being told by the World Bank that there is not enough money in the fund to cancel debt, and
the countries should put up the money themselves if they want debt cancelled.
But “unpayable debt” should be cancelled out right, as countries are not going to pay it anyway. “Payable debt” should
be part of HIPC, and any relief of this debt should have economic conditions related to poverty reduction and should not
be taken away from any development assistance.
Cancelling unpayable debt doesn’t reduce poverty – it just reduces debt. But The World Bank don’t want to cancel debt as
they don’t want to lose their hold over third world economies or destroy their AAA credit rating.
For those countries who are to receive some debt relief, three quarters will still be spending up to 10 percent of
government revenue on debt, most will be spending more on debt than health and some will be spending more on debt than
on health and primary education combined. That’s after debt relief. Yet these countries were supposed to put the savings
in to poverty reducing plans, it’s just that they cant afford to, so poverty is not being reduced.
Debt relief will help in providing for free education and better health services. After all debt relief is a grant, as
it is not money that countries can afford to pay back. Only cancellation of unpayable debt and cancellation of payable
debt to countries that demonstrate their commitment in helping the poor can assist poor countries in their way out of
- Dave Crampton is a Wellington-based freelance journalist, in addition to writing for Scoop he is the Australasian
correspondent for newsroom-online.com. He can be contacted at email@example.com