Written evidence submitted by the Jubilee
Debt Campaign
INTRODUCTION
1. Jubilee Debt Campaign is part of a global
movement working for full cancellation of unpayable and unjust
poor country debts, by fair and transparent means. Jubilee Debt
Campaign is a UK coalition of about 200 national organisations
and local groups, supported by thousands of individuals. It is
a company limited by guarantee (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 outcomes of the
Doha Follow-Up International Conference on Financing for Development.
In particular we would like to raise:
— The role of debt cancellation in finance
for development
— Additionality of debt cancellation
— Extending debt cancellation to more countries
— Creditor responsibility and debt legitimacy
— Debt resolution mechanisms
The opportunity that Doha presented
3. The UN Finance for Development review
conference in Doha was an important opportunity to assess progress
made since the Monterrey Consensus: to ascertain how far we are
towards reaching the goals; reaffirm the commitments; identify
constraints and obstacles; and identify measures for further implementation.
However, the final text of the Doha Outcome Document (DOD) covers
little new ground and is less progressive than the Monterrey Consensus
in some areas, while reaffirming it in general terms.
4. In particular, Jubilee Debt Campaign
would like to highlight the outcomes relating to external debt,
which is considered in the DOD as one of the key factors in mobilising
"much-needed resources for poverty reduction, as part of
wider efforts to mobilise financial resources for development"
(para 56). Yet, while there have been some significant results
in achieving deeper debt cancellation since Monterrey, there has
been little progress on several major areas of concern.
5. As the DOD recognises, the current financial
and economic crises "carry the possibility of undoing years
of hard work and gains made in relation to the debt of developing
countries". The lack of ambition expressed in the External
Debt section (paras 56-67) is therefore extremely disappointing,
especially as the impact of the crisis will seriously exacerbate
the debt unsustainability that many developing nations already
face.
The role of debt cancellation in finance for development
6. As stated in paragraph 56 of the
DOD, debt cancellation is recognised as a crucial element of securing
sufficient resources for impoverished countries. Development economists
and DFID have long pointed to the strengths of debt cancellation
as a form of poverty reduction in terms of predictability, flexibility,
being non-cyclical and creating low transaction costs.
7. The DOD rightly points to the progress
that there has been in debt cancellation initiatives in recent
years. The Multilateral Debt Relief Initiative, which has so far
cancelled $42 billion for 25 countries and could eventually
cancel up to $50 billion for 42 countries, was designed
and proposed at the G7 Finance Ministers' meetings hosted
by the UK during its 2005 presidency of the G8.[54]
This support has been crucial to securing and delivering existing
debt cancellation initiatives.
8. The debt cancellation that has been agreed
for low-income countries, almost entirely for countries that have
gone through the Heavily Indebted Poor Countries (HIPC) initiative,
has been extremely valuable. Governments and civil society organisations
in qualifying countries have pointed to the use of funds released
through debt cancellation for education, health, housing, and
infrastructure, for example.
9. Of course, none of these outcomes can
be directly attributable to debt cancellation without taking into
account overall spending levels, and whether this spending is
simply displacing other spending. Here, too, the evidence is unequivocal
that debt relief increases overall spending on priority areas
for poverty reduction. An IMF working paper from 2006 found
that, for low-income countries, reducing debt service had a "significant"
impact on social spending.[55]
A 2006 report from the World Bank Independent Evaluation
Group found that social spending had increased in countries that
had completed HIPC, particularly spending on education.[56]
Thus, the statistical evidence is clear that debt relief does
have a substantial impact in terms of increasing spending on priority
areas, whilst reports from civil society organisations confirm
that this is making a difference in terms of actual results for
poor people in these countries.
Additionality of debt cancellation
10. The Monterrey Consensus recognised the
importance of ensuring that resources provided for debt relief
do not detract from the aid resources intended to be available
for developing countries (para 51). Debt cancellation must be
counted separately from donors' progress towards meeting their
commitments to give 0.7% of national income as aid.
11. We are pleased that the Monterrey commitment
of "additionality" is re-stated in the Doha Outcomes;
that is to say that debt relief should not detract from ODA resources
(para 57). Yet donors have almost all ignored this point, and
have counted debt relief towards the 0.7% target. Effectively
the value of debt relief is being offset by a reduction in the
non-debt relief aid that would otherwise be delivered in order
to meet the target. Both increasing aid volumes and substantial
debt cancellation are required to sufficiently finance development.
Extending debt cancellation to more countries
12. The DOD acknowledges that important
challenges remain and that debt service remains unsustainable
in a number of developing countries (para 60). Jubilee Debt Campaign,
its members and supporters, believe that such challenges must
be addressed urgently, and that debt cancellation needs to go
much further. Low income countries still have a debt burden of
$375 billion, and while developing countries received $106.8 billion
in ODA in 2005, they paid almost five times that—$513.8 billion—in
debt service in the same year.[57]
13. The Secretary of State for International
Development reiterated in a statement to the House of Commons
in May 2008 that, "We continue to believe that many
poor countries, not just HIPCs, require additional support with
their debt payments in order to achieve the Millennium Development
Goals".[58]
We are therefore disappointed at the lack of ambition in the DOD
for an extension of multilateral and bilateral debt cancellation
to all IDA-only countries.
14. Indeed, eligibility for debt cancellation
should be based on a measure of debt sustainability connected
to human development, which would mean much greater debt cancellation
for many more countries. In particular, we are alarmed at the
reference to the debt relief needs of middle income countries,
that this should be "based on current debt mechanisms and
debt swap mechanisms on a voluntary basis" (para 59). Many
middle income countries have unsustainable debts which have been
largely ignored by the international community to date. New mechanisms
are required if these countries are to mobilise sufficient resources
for development.
Creditor responsibility and debt legitimacy
15. Moreover, many developing countries'
debts have arisen through irresponsible lending practices and
there is a growing debate on the need to assess and cancel these
debts based on their illegitimacy. We believe that a significant
proportion of developing country debt burden did little or nothing
to benefit the people of those countries; because it was primarily
used to boost creditor exports, was lent to dictatorial regimes,
was siphoned off into personal bank accounts or was given at extortionate
rates of interest.
16. Debt cancellation must take into account
any irresponsible lending decisions and practices that have contributed
to debt burdens. However there is no mention of legitimacy of
debt claims in the DOD: Norway's amendment in this regard was
not accepted and this represents a failure to properly acknowledge
the co-responsibility of creditors. This is underlined by the
fact that although the DOD states that all debtors and creditors
share responsibility for "debt resolution" (para 61)
it does not reiterate the important aspect that "creditors
and debtors share responsibility for unsustainable debt burdens"
as was stated in the Monterrey Consensus. This is a key issue
for debt campaigners across the world, and there is particular
disappointment that Doha failed to recognise this agenda.
Conditionality
17. The UK Government's policy on conditions,
set out in 2005, is that it does not believe it is right to use
conditions to impose specific policy choices on partner countries.[59]
However conditions attached to the HIPC debt relief initiative
have caused considerable delays in delivering further debt cancellation,
as well as being unfair, undemocratic and often detrimental to
long-term development. In the twelve years since HIPC was established,
only 23 countries have completed it and had debts cancelled.
The most recent country to complete HIPC, Gambia, took seven years
to do so.
18. Little progress has been made on reducing
the conditions attached to debt relief. And yet the language of
the DOD on conditionality is weaker than at Monterrey: where the
Monterrey Consensus was very clear that "Debt relief arrangements
should seek to avoid imposing any unfair burdens on other developing
countries," the language from Doha stresses only "the
importance of taking into account debtors' national policies and
strategies linked to attaining the internationally agreed development
goals".
Debt resolution mechanisms
19. The DOD urges "continued flexibility"
with regards to eligibility criteria for debt relief (para 57)
and a shared responsibility for resolving unsustainable debt situations.
However the current initiatives are inflexible, entirely creditor-controlled,
and wholly inadequate to meet the challenge of the continuing
debt crisis. There needs instead to be an open, impartial and
transparent debt work-out mechanism for resolving debt crises
and disputes.
20. Such a process would take account of
both the origin and the impact of the debts, and would give equal
treatment to both debtors and creditors, acknowledging the co-responsibility
that creditors share for the creation of these debts and giving
scope to assess debts on the basis of illegitimacy as well as
sustainability. The current processes, such as HIPC, which is
designed, implemented, monitored and controlled entirely by creditors,
are clearly not appropriate for dealing with debts for which these
creditors share responsibility.
21. This debt work-out process would also
place the same moral and legal obligations on companies as it
does on governments, thus tackling the current lack of participation
by commercial creditors, and at the extreme end, the actions of
so-called "vulture funds" who buy up debts at a discount
and pursue the debtor country for the full amount, and regarding
which the DOD expresses deep concern (para 60).
22. The Monterrey Consensus was clear on
the need to explore "mechanisms to comprehensively address
debt problems of developing countries, including middle-income
countries" (para 60). We believe this is more urgent then
ever, and could be achieved through a debt work-out mechanism.
This was strongly supported by the G77 group of developing
countries at Doha, and the first draft outcome document had reasonably
good language on this issue: "to consider inter alia,
a sovereign debt workout mechanism, enhancing the transparency
and accountability of procedures of existing mechanisms, and the
possibility of crafting more permanent mediation or arbitration
mechanisms."
23. However, the final outcome document
replaces this and only considers exploring enhanced "sovereign
debt restructuring mechanisms" based on existing frameworks
and principles (para 67). We regard this to be a serious step
backwards. It is narrower and excludes any mention of mediation
or arbitration, as well as giving a central role to the Bretton
Woods institutions, which civil society has long criticised for
having failed to properly address the debt problems of developing
countries in a meaningful and balanced way.
24. In conclusion, the debt section is probably
one of the most disappointing in the DOD, which overall has not
taken the development debate forward and is deeply insufficient
at a moment of global crisis. International development efforts
must be stepped up in 2009, not only to protect financial resources
for development in the current downturn, but also crucially to
prevent a debt crisis from engulfing many developing countries
once more.
December 2008
54 G8 Finance Ministers' Conclusions on Development,
London, 10-11 June 2005, http://www.hm-treasury.gov.uk/otherhmtsites/g7/news/conclusions_on_development_110605.cfm Back
55
A. Thomas, Do debt-service savings and grants boost social expenditures,
IMF working paper, July 2006 Back
56
Debt relief for the poorest: an evaluation update of the HIPC
Initiative, World Bank Independent Evaluation Group, 2006 Back
57
Figures from World Bank Global Development Finance, 2007-08, and
OECD. Back
58
House of Commons Hansard, Written Ministerial Statements, Wednesday
21 May 2008 Back
59
Partnerships for poverty reduction: rethinking conditionality,
A UK policy paper, DFID, March 2005, http://www.dfid.gov.uk/pubs/files/conditionality.pdf Back
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