Memorandum submitted by the Jubilee Debt
Campaign
INTRODUCTION
1. Jubilee Debt Campaign works to alleviate
extreme poverty through the cancellation of unpayable and unjust
poor country debts. Jubilee Debt Campaign is a UK coalition of
about 200 national organisations and local groups, supported by
thousands of individuals. It is a registered company (number 3201959)
and a charity registered in England and Wales (number 1055675).
See www.jubileedebtcampaign.org.uk for more details.
2. Jubilee Debt Campaign welcomes this opportunity
to highlight some issues regarding the relationship between DFID
and the World Bank. In particular we would like to raise:
— processes and conditions of
debt relief; and
— co-responsibility in past lending.
EXTENDING DEBT
RELIEF TO
ALL OF
THE POOREST
COUNTRIES
3. The UK has been at the forefront of driving
through major debt cancellation initiatives in recent years which,
whilst limited and unfairly controlled by creditors, have released
extremely valuable funds for some low-income countries. Funds
from debt cancellation have been spent on health, education, water
and other essential services, as well as increasing overall spending
on priority areas for poverty reduction. However, debt cancellation
needs to go further. Only 22 countries have so far completed the
Highly Indebted Poor Country Initiative (HIPC), which qualifies
them for the Multilateral Debt Relief Initiative (MDRI) agreed
at the G8 in Gleneagles in 2005. A country qualifies for the HIPC
scheme based on an arbitrary measure of its debt-to-export ratio
rather than any assessment of whether it can meet its people's
basic needs.
4. The Prime Minister has stated that "A
post-Gleneagles agenda should as a matter of urgency include full
debt relief for not 38 [then HIPCs] but all the world's poorest
countries ... In Britain's view, all 67 of the poorest countries
should secure debt relief."[94]
This welcome statement is being translated into the UK's own MDRI,
which DFID is implementing and which offers 10-year relief on
the UK "share" of IMF, World Bank and African Development
Bank debts to IDA-only countries outside HIPC, if they meet certain
criteria.
5. We have some concerns about these criteria
(which requires countries to have a World Bank Poverty Reduction
Support Credit, a programme that involves unacceptable economic
policy conditions). We understand that DFID is about to change
its governance criterion for UK MDRI; we would strongly welcome
a criterion that does not include externally imposed economic
policy conditions, but focuses on transparency and accountability
in public finance management.
6. However, this UK MDRI does at least extend
debt relief to more countries. Currently eight non-HIPCs qualify
for the UK MDRI. The World Bank and IMF HIPC and MDRI debt relief
schemes in contrast remain extremely limited in the number of
countries that qualify.
Recommendation: DFID should argue strongly at
international fora for the extension of multilateral and bilateral
debt cancellation to all IDA-only countries that satisfy basic
transparency and accountability financial management conditions
PROCESSES AND
CONDITIONS OF
DEBT CANCELLATION
7. Moreover, the World Bank's debt relief
processes are dependent on countries spending many years complying
with conditions including many economic policy conditions of the
kind which the UK officially opposes. For instance of the eight
countries going through HIPC now, three have had to carry out
privatisations in order to qualify for debt relief. Clearly such
policy imposition undermines country ownership and can skew accountability
relations towards donors and away from citizens. There is also
considerable concern that World Bank-led policies, with their
focus on privatisation, deregulation and free trade, have often
had a negative impact on those in greatest need. Furthermore,
such conditions are causing considerable delays in delivering
debt cancellation, which the UK Government has described as a
"matter of urgency".
8. DFID's policy on conditionality, adopted
in 2005, states that the UK will not make its own aid conditional
on specific policy choices from partner governments. This move
was widely welcomed by British NGOs and has helped to maintain
the UK's reputation as a leading donor when it comes to respecting
country ownership and country driven processes.
9. Unfortunately, progress in reforming
World Bank conditionality has not mirrored that of the UK. The
Bank reviewed its conditionality in 2005 and adopted a new set
of `Good Practice Principles', but the Principles remain weak
and implementation has been patchy. This is particularly concerning
given the large and growing share of UK aid being channelled through
World Bank programmes.
Recommendation: We hope that DFID will use all
possible avenues to put pressure on to the World Bank not to make
debt relief conditional upon a country adhering to particular
economic policies
10. The conditions attached to World Bank
debt cancellation relate to the wider question of debt cancellation
processes. Current processes for debt cancellation, such as HIPC
and MDRI, 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.
Recommendation: Jubilee Debt Campaign is calling
on DFID to engage in substantial multilateral discussions about
establishing impartial arbitration processes to resolve debt disputes;
these would allow for a fair hearing of both debtor and creditor,
and would take into account the development situation and needs
of the debtor, as well as the origins and legitimacy of the debts
CO -RESPONSIBILITY
FOR POOR LENDING
11. The legitimacy of debts is currently
not taken into account in granting debt cancellation. Many low
and lower-middle income countries are still servicing debts that
have resulted from the irresponsible or self-interested lending
decisions of their creditors. The expense of these should not
now be borne by the people of the debtor countries. These include,
for instance, debts arising from original loans knowingly made
to oppressive former regimes; 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.
12. The International Development Select
Committee has in the past 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.[95]
Officials at the World Bank and IMF continue to acknowledge the
fact of "reckless lending" or "Cold War lending"
in the past.
13. This awareness of past reckless and
irresponsible lending has not yet been translated into an acceptance
of creditor co-responsibility for poor lending, and action to
cancel the resultant debts. However, last year saw 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 would cancel debts being
paid by five countries, on the grounds that they were incurred
through Norway's own "development policy failure". The
debts relate to Norway's ship-building industry, and served the
industry far better than the recipient countries. The Norwegian
government has concluded that "Norway shares part of the
responsibility for the resulting debts" and so has cancelled
them unilaterally.
14. The Norwegian Government also commissioned
a World Bank discussion paper on the issue, in order to move the
debate forward. This paper, "The Concept of Odious Debt:
Some Considerations", was published on 7 September 2007.
However, many NGOs are extremely disappointed with the current
draft of this paper. It contains significant shortcomings and
omissions and misses the opportunity to make a significant contribution
to improving the international debt architecture. The Bank has
formally requested inputs from interested parties since the paper
represents a work in progress by the institution, but Jubilee
Debt Campaign and our partners do not have confidence in the consultation
process that the Bank has initiated. We believe that a formal
external peer review process is the only way that the paper can
be taken forward properly.
Recommendations
We would urge DFID to take this matter up with
the World Bank to ensure that a transparent and meaningful process
is established to take this issue forward.
The UK should also call for an audit of World
Bank lending, as well as conducting an audit into its own outstanding
claims on developing countries, in order both to see which debts
should be cancelled on the basis of illegitimacy, and also to
inform policies on responsible future lending.
October 2007
94 The Guardian, 11 January 2006. Back
95
Select Committee on International Development, Third Report 1997-98.
See for instance paragraph 7: http://www.publications.parliament.uk/pa/cm199798/cmselect/cmintdev/563iii/id0304.htm£a1 Back
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