The Debt Issue: A Summary

From its origins in the 1970’s, the burden of debt of the world’s poorest countries has become one of the single largest causes of poverty and exclusion in the world, it has drawn to action a vast array of individuals, movements, organisations, and leaders in a campaign of unprecedented size and diversity and has been forced on to the agendas of a reluctant group of international financial institutions and creditor governments who preside over these debts.

The campaign has pushed the compelling moral case for debt cancellation. Many of the original loans are of dubious legitimacy and point to irresponsible lending on the part of creditors yet are being paid back in terms of lost health, education, and lives of some of the poorest people on the planet, who more often than not, never benefited from the original loan. The debts have also spiralled to unpayable levels due to many factors out of the control of debtor governments.

The Heavily Indebted Poor Countries Initiative (HIPC), was the first plan for debt relief to focus on the poorest countries and to attempt to address all debts in one package.

The HIPC has ended an era of ad hoc and partial responses which simply rescheduled, restructured and recycled debts in a vicious circle, has brought new financial resources to the table, and has achieved real debt relief and improvements in some countries.

But the HIPC is based on an arbitrary, IMF-defined, economic measure of sustainability which does not consider the basic needs of the people of poor countries and which will still leave poor countries with huge and unsustainable debts. After 6 years of implementation, the HIPC initiative has finalised debt relief for just 6 countries out of 42, is failing to achieve even its own measure of debt sustainability and will continue to leave the poorest countries in the world spending more on debt servicing than on basic health and education draining both domestic government revenue and aid contributions from donor countries away from where they are most needed.

The inability of governments to meet debt servicing has been used to impose a set of standard macro-economic policy prescriptions known as Structural Adjustment Programmes (SAPs)which have been discredited as having worsened poverty and inequality in already poor countries and which were a major reason behind the slow progress on debt relief. Despite the damage caused by structural adjustment, conditionality has continued in the form of Poverty Reduction Strategy Papers (PRSPs). These are promoted as nationally owned strategies designed to resolve the problems of SAPs but they continue to have an underlying macro-economic framework which is not open for negotiation.

The failure to achieve an acceptable resolution of the debt burden would be astonishing were it not for the fact that the very institutions which take decisions on debt relief are overwhelmingly dominated by the large creditor governments, have governance structures based on shareholding, wealth, and power, and exhibit a lack of transparency and an historical inability to learn from failure or listen to critique.

New Zealand is not a creditor nation, has cancelled any debts we were owed, and has contributed generously to the HIPC Trust Fund. But beyond that, the New Zealand Government has assigned a low priority to debt cancellation, has not used our vote or voice to advance a more fundamental solution to the issue, and has opposed any extension of the current HIPC initiative or any reduction in the conditionality of debt relief.

Jubilee Aotearoa believes that people must be put first in any economic equation and the rights of the citizens in indebted countries take precedence over debt repayment. The world’s governments have signed up to the UN Millennium Development Goals, designed to halve poverty by 2015 and to have any hope of achieving these goals, Jubilee finds that fully 100% of the debts of HIPC countries must be cancelled and it should be immediate.

New Zealand should support the clear linking of debt with the Millennium Development Goals and the rights of the people of indebted countries and should research and monitor the affects of debt repayments and International Finance Institutions (IFIs) dictated policies on “debt sustainability” in all countries covered by its aid programme on the basis of those country’s ability to achieve these goals.

New Zealand should also pursue reform of the International Monetary Fund and the World Bank, to provide for a voice for poor countries commensurate with their population, not their economic wealth and should actively promote a fair, transparent, and independent process for resolving debt issues, at once protecting the rights of indebted countries and removing from creditors the decision-making power they currently exercise over questions of debt and debt cancellation.