Memorandum submitted by the Jubilee Debt
Campaign
1. INTRODUCTION
1.1 Jubilee Debt Campaign is a coalition
of over 70 national organisations and around 100 local and regional
campaigning groups. It is a registered company (number 3201959)
and a charity registered in England and Wales (number 1055675).
1.2 This brief submission covers the need
for further debt cancellation, including on the grounds of illegitimacy;
the need for new processes through which cancellation should occur;
and the problems of conditionality associated with debt relief
and cancellation.
2. DEBT CANCELLATION
BEYOND HIPC AND
MDRI: UNPAYABLE AND
ILLEGITIMATE DEBT
2.1 The Development Committee and the International
Monetary and Financial Committee both welcomed the continuation
of debt relief under the Heavily Indebted Poor Countries (HIPC)
initiative, now in its 10th year, and the implementation of the
Multilateral Debt Relief Initiative (MDRI). These two initiatives,
whilst limited and unfairly controlled by creditors, now offer
considerable debt cancellation to those countries that qualify.
2.2 Jubilee Debt Campaign recognises the
strong commitment of the UK government towards securing additional
debt cancellation in recent years. It welcomes the very strong
support of the UK government for multilateral debt cancellation
beyond HIPC, which was crucial in securing agreement on the MDRI.
2.3 However, Jubilee Debt Campaign and partners
do not consider that these initiatives adequately recognise the
full extent of debt cancellation which is required, either in
terms of poverty and need, or in terms of the legitimacy of outstanding
debts.
2.4 Considering first the question of need
and poverty: the UK Chancellor acknowledges that the list of 40
countries now "ring-fenced" as eligible for debt cancellation
through HIPC and MDRI is too limited.[54]
For instance, he has stated that: "A post-Gleneagles agenda
should as a matter of urgency include full debt relief for not
38 but all the world's poorest countries . . . In Britain's view,
all 67 of the poorest countries should secure debt relief."[55]
This is a welcome statement, which is being translated into action
through the (entirely separate) UK MDRI, which offers 10-year
relief on the UK "share" of multilateral debts to IDA-only
countries outside HIPC. However, the requirement for countries
to have a PRSC in order to qualify means that only four countries
currently qualify for this cancellation. There is a need to ensure
that more countries qualify, without having to comply with the
requirement to have a PRSC, programmes which frequently include
conditions around privatisation. There is also a need to call
for further international agreement on countries requiring debt
cancellation on the grounds of need: there has been no sign from
the World Bank and IMF that they share the Chancellor's assessment
of the need for further debt cancellation.
2.5 We are also calling for a recognition
that some countries are currently servicing illegitimate debts,
which should not be paid. "Illegitimate debt" is that
which results from the irresponsible lending decisions of the
creditor, the expense of which should not now be borne by the
people of the debtor countries. It can also be taken to include
"unpayable debt": that is, debt that a country cannot
afford to repay if it is to meet the basic needs of its own people.
It would generally include debts that should be considered the
responsibility of the creditor on the grounds that the original
loan was knowingly made: to an oppressive former regime; for purposes
that would not benefit the people of the recipient country; on
extortionate or usurious terms; or for projects that failed because
of bad lender advice.
2.6 More than eight years ago, in its report
on debt relief, this Committee noted that "the unsustainable
debt burden of heavily indebted poor countries exists to some
extent as a result of irresponsible lending policies pursued by
bilateral and multilateral creditors" and cited in support
of this statements made by HMG and the World Bank.[56]
Senior government figures and officials at the World Bank and
IMF continue to acknowledge the fact of "reckless lending"
or "cold war lending" in the past. In February 2006,
for instance, the Secretary of State for International Development
referred to problems with aid in the past, "where aid was
used to buy support in the Cold War, rather than to fight poverty.
All too often it rewarded dictators and the corrupt. Mobutu's
Zaire received enormous aid flows during this period."[57]
A huge amount of this aid was given in the form of loans that
have since become debt obligations of successor governments.
2.7 However, there has hitherto been a marked
unwillingness in the international creditor community to translate
this awareness of reckless lending in the past into cancellation
of the resultant debts. Eligibility for the HIPC initiative and
MDRI is based only on the size of a country's debt relative to
its exports (or, for export-heavy economies, relative to revenue):
that is, based on its theoretical ability to pay. Paris Club negotiations
are similarly based explicitly on a consideration of "sustainability",
that is, ability to pay, and not of legitimacy of claims.[58]
There is a need for official international recognition of illegitimacy
as grounds for debt cancellation. This is necessary not only on
the grounds of justice but also in order to render the current
discourse on corruption and governance credible and consistent.
2.8 Despite the overall picture of creditor
reluctance, there has recently been a breakthrough, in the form
of an extremely welcome and hugely significant decision by the
Norwegian government. On 2 October 2006, the Norwegian Development
Ministry announced that it will cancel debts being paid by five
low- and middle-income countries, on the grounds that they were
incurred through Norway's own "development policy failure".
The debts, being paid by Ecuador, Egypt, Jamaica, Peru and Sierra
Leone, relate to Norway's Ship Export Campaign of 1976 to 1980,
a campaign that served Norway's ship-building industry far better
than the recipient countries. The Norwegian government has concluded
it was at fault for carrying out "inadequate needs analyses
and risk assessments" and that "Norway shares part of
the responsibility for the resulting debts". It is therefore
cancelling them unilaterally, without conditions, and without
counting the cost of the cancellation as ODA.[59]
Norway's Development Minister Erik Solheim has also stated that,
"by cancelling these debts we want to give raise to an international
debate on lender responsibility", an aim which we whole-heartedly
endorse.
2.9 There is already a body of evidence
on debts outstanding to the UK which could be considered similarly
illegitimate. For instance, Kenya is still paying off debts to
the UK which arise from export credit guarantees given for work
on the Turkwell Gorge and Ewaso Ngiro hydropower projects in Kenya,
despite concerns over corruption being voiced at the time by the
World Bank, the EC representative, and others.[60]
There is ongoing concern about the repayment of debts by Indonesia
to the UK relating to arms sales to the former dictator General
Suharto. These and many other examples warrant further investigation.
2.10 In this context, there is a clear need
for the UK and other wealthy creditor countries to review the
outstanding debts being paid to them by low- and middle-income
countries, and to cancel those found to be illegitimate. We propose
an audit of debts to the UK, which should look at the original
loans, including the contracting parties, the terms of the loan,
the purpose of the loan and its impact in terms of the success
of the project funded.
2.11 We are aware that there are concerns
about how to define illegitimate debt, and in particular about
the feasibility of declaring loans to certain regimes (or to regimes
between certain dates) to be illegitimate on the grounds of the
illegitimacy of the regime. We would argue that, as Norway's example
above shows, there are clear cases where debts can be shown to
be unjustifiable and illegitimate claims even before the resolution
of these issues, and that cancellation of these debts should not
be held up. But there is clearly a need for broad international
discussion of these more difficult issues. It is therefore extremely
welcome that the Norwegian government is sponsoring studies into
illegitimate debt to be undertaken at both the World Bank and
the United Nations, and we urge the UK government to support and
engage with these studies. There so far appears to have been some
reluctance within these bodies to take the studies forward. It
has indeed been suggested in the Norwegian parliament that the
Utstein Group, of which the UK is a member, should use its collective
influence to advance the progress of these studies.[61]
The eventual aim should be a widely-accepted international consensus
on the definition of illegitimate debt.
Questions:
— Is the UK prepared to cancel bilateral debts on the grounds of illegitimacy?
— Will the UK government sponsor and participate in a full audit of debts being paid to the UK by low- and middle-income countries, to ascertain their origins and legitimacy?
— Will the UK government engage with and support the studies into illegitimate debt currently being undertaken at the United Nations and the World Bank, with sponsorship from the Norwegian government?
— What action is the UK government taking to persuade other creditors of the need for further debt cancellation on the grounds of poverty and need?
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3. DEBT CANCELLATION
PROCESSES
3.1 Current processes for debt cancellation—the
HIPC initiative and the Paris Club—are entirely designed,
monitored and controlled by creditors. They leave little or no
room for debtor countries to make their case about their country's
needs or the legitimacy of their debts. The World Bank and IMF
have not questioned their own right to control debt cancellation
processes.
3.2 Even those debtor governments that have had relatively
successful negotiations at the Paris Club have commented on this
fundamental unfairness and opacity. The former Nigerian Finance
Minister Dr Ngozi Okonjo-Iweala, for instance, has commented that
for debtor governments at the start of negotiations "the
rules are not always clear", and asked "can the Paris
Club survive with its current way of doing business, where the
rules of the creditors are not always known?" Dr Okonjo-Iweala
also stated that her delegation was told by Paris Club negotiators
not to mention the Millennium Development Goals, as "we were
told these were not the concern of the Paris Club".[62]
3.3 Jubilee Debt Campaign is calling on the UK government
to engage in substantial multilateral discussions about impartial
arbitration processes to consider debt cancellation, which can
allow for a fair hearing of both debtor and creditor, and which
can take into account the development situation and needs of the
debtor, as well as the origins and legitimacy of debts.
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Question:
— Will the UK engage in multilateral discussions about impartial arbitration processes to resolve debt crises and disputes?
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4. CONDITIONS ATTACHED
TO DEBT
CANCELLATION
4.1 Jubilee Debt Campaign has serious concerns about
the conditions currently attached to debt cancellation, particularly
through the HIPC initiative, and looked to see these addressed
at the 2006 annual meetings. The problems with these kinds of
conditions are well-rehearsed, in particular how they undermine
democracy and domestic accountability systems and how they impose
sensitive and controversial policies which are often harmful to
the poor.
4.2 In regards to debt cancellation, these conditions
also cause serious delays. In the decade since the HIPC scheme
was established, only 20 countries have completed it and had debts
cancelled. Of the nine now going through the process, five entered
the process more than five years ago, and most have had debt relief
suspended during this time because of failure to meet controversial
IMF economic targets. In that time they have between them paid
out nearly $1 billion in debt payments to the rich world, and
in all but one case have been spending more on debt than on health.[63]
The major cause of delays is the IMF-directed conditions about
how to run the economy, which are themselves contentious.
4.3 The UK government has stated its opposition to conditions
on privatisation and trade liberalisation, and we welcome this
commitment. However, most debt cancellation is delivered multilaterally,
through the HIPC scheme, and is subject to conditionality from
the international financial institutions, including privatisation
and liberalisation conditions. Countries reaching decision point
in HIPC now, or already at decision point but embarking on new
PRGF programmes, are still having debt cancellation made conditional
on implementation of specific economic policy conditions, including
privatisation. Burundi, for instance, which entered HIPC in August
2005, has to comply with conditions requiring both privatisation
and trade liberalisation in order to complete the scheme and get
debt cancellation. We look to the UK to take a strong stance in
opposing such conditions.
4.4 In this context, we very much welcomed the Secretary
of State's statement that he will withhold £50 million from
the World Bank until there is evidence of reform of conditions.
We look forward to hearing more detail about the terms of this
decision, and hope he will use the negotiations over the IDA-15
replenishment as an opportunity to exert further pressure.
4.5 The UK MDRI (separate from the international MDRI)
offers debt relief to non-HIPC IDA-only countries with a PRSC,
which is taken as a measure of "robust financial expenditure
management". We have already expressed our concern to HMG
that a PRSC is not a suitable measure of public expenditure management,
as it also requires countries to comply with policy conditions
including privatisation.[64]
We have been informed that DFID shares this concern, and is looking
at alternatives such as the new PEFA (Public Expenditure Financial
Accountability) measure being developed by the World Bank and
others. However, the UK MDRI was introduced two years now without
progress on this: we are concerned at the continuing lack of a
measure of public expenditure management which has the agreement
of civil society in the relevant countries and which is not included
as part of a programme of policy conditions. We urge the UK to
pursue this urgently.
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Questions:
— What "evidence of reform" of conditionality will be sufficient for the UK to release the £50 million currently being withheld from the World Bank?
— How does the UK intend to use the IDA-15 replenishment to secure further progress towards ending economic policy conditionality?
— What is current progress with finding an alternative measure of public financial management to ensure that countries can benefit from the UK MDRI without the requirement to have in place a PRSC?
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October 2006
54
There is a chance that Afghanistan may be added once debt data
are reconciled. Back
55
The Guardian, 11 January 2006. Back
56
Select Committee on International Development, Third Report 1997-1998.
See for instance paragraph 7: http://www.publications.parliament.uk/pa/cm199798/cmselect/cmintdev/563iii/id0304.htma1 Back
57
Rt Hon Hilary Benn MP, 3rd white paper speech, Political Governance,
Corruption and the Role of Aid, http://www.dfid.gov.uk/News/files/Speeches/wp2006-speeches/governance020206.asp Back
58
See for instance Fifty years of orderly debt rescheduling,
Paris Club, June 2006. Back
59
See full details from the Norwegian Development Ministry at http://www.odin.dep.no/ud/english/news/news/032171-070886/dok-bn.html Back
60
Dr S Hawley, Turning a Blind Eye-corruption and the ECGD,
Cornerhouse, 2003. Back
61
Hearings in the Norwegian parliament, 10 May 2006. Back
62
Comments made by Dr Ngozi Okonjo-Iweala, former Finance Minister
of Nigeria, at a Paris Club event to mark the 50th anniversary
of the Paris Club, 14 June 2006. Back
63
See Cut the Strings: why the UK government must take action
now on the harmful conditions attached to debt cancellation,
Jubilee Debt Campaign, September 2006. Back
64
A Wood, World Bank Poverty Reduction Support Credit: continuity
or change? Debt and Development Coalition Ireland, July 2005. Back
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