Debt relief a fraud and a trap for poor countries

It is common knowledge that the pledge recently made by "richer nations" to help relieve the crushing debt-burden on poor countries has not been honoured, since the funds promised for the purpose (under the new debt-relief programme being managed by the International Monetary Fund and the World Bank) have not been handed over. As if that were not enough, secret IMF documents obtained by a British charity reveal that whatever assistance is eventually received by the poorest countries, such as Zambia, will leave them worse off. Zambia, for instance, will be paying out more in debt-service after the process than before, Oxfam said in a statement on August 20.

Zambia will start receiving ‘relief’ under the Highly Indebted Poor Countries (HIPC) initiative after agreement by the IMF and World Bank, which is expected to happen in November. But the IMF confidential papers obtained by Oxfam show that Zambia’s interest-payments are set to rise from $136 million in 1999 to $235 million in 2002. The increase comes from payments falling due on a large IMF loan. Oxfam calls on the IMF to write off all the money that Zambia owes it, instead of offering the country limited debt-relief. According to David Bryer, the director of Oxfam, the "ultimate yardstick" for measuring debt-sustainability must be "human need" and not abstract financial indicators during "creditor horse trading".

Oxfam’s criticism is not, however, confined to the issue of debts to the IMF or World Bank, and covers the criteria on which the entire debt-relief initiative is based. While conceding in theory that payments due from Zambia will rise much less sharply with the proposed debt-relief than without it, Oxfam argues that the narrow financial basis of the initiative neutralises any advantages achieved. According to Kevin Watkins, Oxfam’s senior policy advisor, the initiative is essentially geared towards "a narrow financial understanding" of debt-sustainability. It focuses on what governments are able to pay the creditors through the national budget, rather than what they can afford to pay in the light of pressing human development needs," he has said.

The debt-sustainability criteria, often criticised in the past as arbitrary and inflexible, are based on the ratio of debt to exports for the affected countries. Zambia, whose debt-relief package is described by Oxfam as "a fraud", is not the only HIPC country being taken for a ride by the G7 industrialized states and the financial institutions that they control. There are 20 countries scheduled to ëbenefit’ from the dubious debt-relief scheme.

It was in June last year that the G7 members, meeting in Cologne, first announced the much-trumpeted initiative to ‘help’ the world’s poorest countries. Leaders at the meeting promised that 25 countries would benefit from debt-relief by the end of 2000, and that $100 billion in third world debt would be written off. US president Bill Clinton said at the summit that it was "a historic step to help the world’s poorest nations achieve sustained growth and independence".

The US alone promised to give $600 million towards the debt-relief. But only four months are left before the deadline expires, yet no funds have been made available and only nine countries have qualified to receive relief-money under the scheme. When the G7 and Russia met again in July in Okinawa (Japan), they failed to make good their Cologne pledges despite being under great pressure to do so. In fact their only achievement at Okinawa was to cut the number of countries that qualify for relief from 25 to 20.

The US’s role in all this is typical of the fraud pulled off at Cologne and Okinawa. When Clinton promised to pay the $600 million, the Americans claimed to be the most generous people in the world and to have poor nations’ welfare at heart. But congress conveniently refused to pass the offer, and it fell by the way. But the effects of the rhetoric remained with the American people, and a recent poll has shown that half the population believes that the problem of poverty is solved.

Clinton is largely to blame for this false rhetoric, since he has been waxing lyrical for a year about what his country is doing for poverty- and AIDS-stricken Africa. One African country that has good reason to resent the fraud is Uganda, which has been singled out by the US and the European Union states as the most deserving qualifier.

The US and the EU have praised it for its sound economic and political reforms, and have conferred on president Museveni the title of "best African leader". But Uganda has so far received nothing, and its people are entitled to be angry, especially because they have been used by the west to fight Sudan’s Islamic regime.

Uganda (and others denied assistance) may, however, really be fortunate, as these debt-relief funds would have made them poorer. This debt-relief initiative should perhaps carry a financial health warning: "Beware: these funds will sink you even deeper into debt."