|Putting Life Before Debt (CI - CIDSE, 1998, 38 p.)|
CIDSE and Caritas Internationalis
International debt is a dangerous obstacle to human development, forcing the world's most impoverished countries to use scarce resources to pay their debt rather than invest in the well-being of their people. In this policy document two international networks of Catholic development organizations, CIDSE (International Co-operation for Development and Solidarity) and CI (Caritas Internationalis), together call for the cancellation of the unpayable debt of the most impoverished countries by the year 2000'. Our concern stems from our firsthand experience of the impact of debt on the poor and years of our advocacy work for debt relief.
The severity of today's crisis facing the poorest countries in the world, combined with the upcoming Jubilee, have inspired us to work together to actively find solutions to the problem of international debt. The purpose of this document is to increase public awareness of international debt, outline a CIDSE/Caritas Internationalis position, and propose actions to bring about a lasting solution to the debt crisis.
We view international debt from the perspective of Catholic social teaching, which offers a set of principles and a framework to understand the issue and examine options to bring about change. International debt is a complex policy issue that carries with it a profound moral challenge. This challenge is based on how the international debt affects the human dignity, human rights, and human welfare of some of the most vulnerable women, men, and children in the global community. The moral dimensions of international debt extend to how it was contracted, who was involved in key decisions, which institutions are now primarily responsible for its resolution, and what moral criteria should be used to assess and structure the relationships of the individuals and institutions involved.
Photo: ©1997 Martin Lueders
The existence of debt has both social and financial costs. On the social side, debt repayments divert resources that could be used to fight poverty or invest in infrastructure such as roads, schools or health facilities. Sub-Saharan African governments transfer to Northern creditors four times more than they spend on the health of their people. On the financial side, high levels of debt indicate investment risk and thus deter investment. The impact of debt is made worse by structural adjustment and stabilization policies which seek to correct macroeconomic problems and improve the management of public resources, yet often have the effect of limiting social expenditures, slowing investment, reducing the competitiveness of domestic firms, and increasing unemployment.
Previous attempts by bilateral, multilateral, and commercial creditors have not been sufficient to reduce international debt in a way that benefits the most impoverished people. Recognizing the magnitude of the crisis, the World Bank and International Monetary Fund agreed in 1996 to a comprehensive debt reduction plan, the Heavily Indebted Poor Country (HIPC) Initiative. Its purpose is to reduce the external debt of heavily indebted poor countries to a sustainable level. Only a few of the 41 HIPCs are eligible, however, and those that qualify receive too little relief after too long a wait. Furthermore, sustainability is defined in narrow terms that do not take into account the impact of debt on people's lives.
CIDSE and CI call for cancellation of the unpayable debt of the most impoverished countries by the year 2000. To achieve this goal, we advocate:
1. Drastically improving the HIPC initiative;
2. Linking debt cancellation with investment in human development in ways that are appropriate within each country and determined after consultation between governments and civil society;
3. Ensuring decisions on debt relief are made in a transparent way. The international financial institutions, Paris Club, and governments should share planning documents with civil society organizations and actively incorporate the views of civil society on debt analyses, planning, and conditions placed on loans;
4. Changing the structure of international financial relations to ensure that debtors, people affected by debt, and creditors are equal parties in negotiations on debt. One possibility is to set up an international bankruptcy/insolvency procedure.
These objectives can only be reached with the strong mobilization of public opinion, both in creditor and debtor countries. CIDSE and CI urge their constituencies to learn more about debt, to build awareness at the grassroots level, to launch or join public opinion campaigns, and to lobby decision-makers. On the basis of shared Catholic social teaching, CIDSE and CI believe that organizations associated with the Church have the responsibility to work with decision-makers on this issue. In the spirit of solidarity among nations and peoples, CIDSE and CI believe they have an obligation to work together to promote an authentic and substantial solution to the debt problem now and in the coming years.
This guide was initiated by a working group of CIDSE (International Cooperation for Development and Solidarity), a network which brings together sixteen Catholic development organizations located in Europe, North America, and New Zealand, along with CI (Caritas Internationalis), a network of 146 national relief, development, and social service organizations in 194 states and territories throughout the world.
The identity of CIDSE and CI members is rooted in the social mission of the Catholic Church. We derive our inspiration from scripture, tradition, Catholic social teaching, and the daily lived experience of the poor. At the heart of our Christian faith is compassion for all humanity, which Jesus Christ taught in saying, whatever you did for one of these least brothers of mine, you did for me. (Matthew 25:40). Solidarity with the poor on whom the debt burden falls heaviest is our primary motivation in this endeavor. As Church-based organizations, we help to illuminate the conscience of decision-makers. As organizations which work with and for people at the grassroots level, we experience the effects of debt on the daily lives of the poor. It is from our Catholic, Christian, and cultural background that we offer this position paper and advocacy guide.
This paper follows our previous policy statements on debt, notably the joint CIDSE/CI statement at the UN World Summit for Social Development held in Copenhagen in March 1995 and the CIDSE position paper, Third World Debt, published in 1988.
While rooted in the Catholic church, our identity is also a function of our collaboration with many individuals and organizations, both religious and secular, who join the struggle against poverty and injustice. The document owes a great deal to the contribution of our partner agencies in Latin America, Africa, and Asia, to academics and activists around the world, and in particular to several non-governmental organizations (NGOs) with long and outstanding knowledge and experience on the debt issue, the Center of Concern, the European Network on Debt and Development, and Oxfam International. It is intended to be used as a tool by people who want to understand the basics of international debt for the purpose of organizing campaigns and advocating change.
The first section of the position paper looks at debt in the context of Jubilee: What it is, a Catholic perspective, why debt is important to us now, how the debt crisis came about, and its impact in debtor countries. The second section looks at early attempts to reduce the debt and a current debt relief initiative. The third section outlines policies for debt relief supported by CIDSE and CI.
Many people have borrowed money to buy supplies, equipment, or a house. Countries do the same. They borrow money from private capital markets, international financial institutions, and governments to pay for infrastructure such as roads, public services, and health clinics; to run a government ministry; or to purchase weapons. Like individuals, countries pay back the principal and interest on the loans they take out. But there are important differences. If a person borrows money, he or she receives the money directly and pays it back according to the terms and conditions of the loan. But if a country borrows money, the citizens are not necessarily notified or informed of the purpose of the loan or its terms and conditions. In practice, many governments have used loans for projects that do not meet minimum standards of social, ecological, or even economic viability. At times, these loans have been used to enrich a small group of people or have been transferred out of the country to the private bank accounts of government officials.
A second difference is that a business or person who cannot meet his financial obligations over time goes bankrupt. A court is appointed to assess the debtor's situation and banks acknowledge that the debtor cannot fully pay his or her debts. But countries cannot file for bankruptcy - there is no such procedure, no arbitrator. At the international level, the creditors, not a court, decide whether and under what conditions to require the debtor country to pay its debt.
Catholic social teaching offers a compelling way of understanding the complexities of the debt crisis and its impact on the human community. Our tradition draws from a large body of work that, in part, addresses the moral dimensions of economic activities. We believe that ethical analysis, rooted in human dignity, is as fundamental as any economic analysis to solving the debt crisis. Catholic social teaching offers a set of principles, outlined below, for action in a world longing for greater justice and peace. It calls us to examine the situation of international debt and discern the options and commitments necessary to bring about urgently needed economic changes.
The foundation of Catholic social teaching, and the starting point for our work on international debt is the belief that each individual is sacred. All people are created in the image of God and are the clearest reflection of God that exists in this world. The Holy Scriptures state in Genesis that God created humans in his image, in the divine image he created them (Genesis 1:27). Each person has a basic dignity that stems from our very creation rather than from any action on our own part. The dignity of the human person is a criterion against which all economic, political, and social systems are to be judged and all aspects of the debt situation must be measured.
Rights and Duties
Human rights are moral claims to goods which are necessary to protect and promote human dignity. Rights and duties are complementary; every person possesses both. They specify the minimum conditions necessary to protect and promote human dignity in the political, social, and economic order. In Catholic social teaching, rights and duties also extend to relationships among states. States have responsibilities to each other and to the international common good.
The Common Good/Solidarity
Dignity, rights, and duties are protected or eroded by the social communities in which people live. Individual and communal duties are fulfilled in three essential communities that express the social nature of each person: the family, civil society, and the wider human community. All individuals have the duty, as members of society, to contribute to and to further the achievement of the common good. The common good is defined as the sum total of those conditions in society that make it possible for all people to achieve their full human development.
The common good has both national and international dimensions. There is currently no entity, however, which carries the responsibility and power to promote the international common good. In the absence of such an international authority, additional demands fall upon states, international institutions and private actors to accept their responsibility to promote the international common good. This responsibility demands that these bodies promote policies that increase the ability of marginalized people to participate in global economic and social systems. Such participation is implied in the principle which Catholic Social Teaching calls the universal destination of the goods of creation. This principle calls us all to see that the goods of creation are destined by God for the welfare of the whole human community. Pope John Paul II has called for the virtue of solidarity to guide our responsibilities toward others and toward the requirements of the universal common good. He speaks of solidarity as ... a firm and persevering determination to commit oneself to the common good; that is to say, to the good of all and of each individual because we are all really responsible for all. (Sollicitudo Rei Socialis, 38)
The Church views the current debt situation as a factor contributing to the erosion of the international common good and calls for governments and institutions to actively seek solutions that assure human dignity, protect human rights, and accomplish the international common good.
Preferential Option for the Poor
The preferential option for the poor calls each individual to give a weighted concern to the needs of the poor in all economic, political, and social decisions because it is the most impoverished people whose rights and dignity are most often violated. The preferential option for the poor is a principle that enters the universal social teaching with Pope John Paul II but reflects a moral demand as ancient as the Hebrew prophets. It is clearly conveyed in Jesus' words that whatever we do unto the least of our brothers and sisters we do unto Him, and it has more recently come to light in liberation theology. Those members of society with the greatest needs require the greatest attention and response. By assisting those who are most vulnerable, an option for the poor strengthens the entire community, for the deprivation and powerlessness of the poor wounds the whole human community. Such wounds are healed only by a greater solidarity with the poor and marginalized.
Archbishop Renato R. Martino, Vatican nuncio to the United Nations, explained this principle in a 1997 statement to the UN: If the process of globalization which is taking place in our world is to be truly human, it requires the construction of a truly global community. In such a community, he said, there must be concern for all and especially for the weakest.
Catholic social teaching sees the international debt of poor countries as both a complex policy issue and a profound moral challenge. In moving toward resolution of the problem, neither its complexity nor its moral character can be ignored. International debt is complex in size and scope. It affects the welfare of millions of people, scores of countries, international financial institutions, and private sources of funding. International debt also presents a moral challenge - the particular concern of the Church in addressing this problem - in how it affects the human dignity, human rights, and human welfare of some of the most vulnerable men, women and children in the global community. But the moral structure of international debt also includes the proper definition of the duties, responsibilities, and rights of a complex fabric of individuals and institutions. The moral dimensions of the international debt problem extend to how it was contracted, who was involved in key decisions, which institutions are now primarily responsible for its resolution, and what moral criteria should be used to articulate, structure and adjudicate this fabric of relationships.
In Catholic teaching, lending money is a legitimate moral enterprise if key conditions of justice are met on the part of the lender and borrower. This principle applies to both individuals and states, although the latter problem is much more complicated in its definition of responsibilities. It is this latter issue which today occupies the concern of many in the international community. The key principles to evaluate the moral problem in Catholic teaching are those of justice (commutative and social justice) and the option for the poor.
Commutative justice governs the kind of contractual obligations which are incurred in international lending and borrowing. But this contractual justice must be located within the broader context of social justice, since the problem of international debt is today a moral challenge not only for lenders and borrowers, but for the international community as a whole. To focus only on the terms of the loan and the nations or institutions involved rather than the conditions under which the loans were contracted, the purposes for which they were used, the impact on individuals today as the terms of repayment are set, is to isolate commutative justice from its social context.
The principles of social justice focus in this instance on the broad range of institutions which must be mobilized if the moral dimensions of the debt are to be addressed. Hence, responsibilities exist not only for the debtor countries and their creditors, but for international institutions (some of which hold debts), for the more significant states with major economic roles in the world, and for nongovernmental organizations, some of which are deeply involved in the lives of debtor nations.
Photo: ©1997 Martin Lueders
Interpreting the norms of social justice will require attending to the principle of the option for the poor. This principle calls attention to the condition of those in debtor nations who had no voice in the contracting of debts but whose lives are deeply affected by the choices made in resolving the debt problem. It is this principle, in combination with the requirements of social justice, which have led many in the Church to follow the leadership of Pope John Paul II in addressing the problem of the international debt which so seriously threatens the future of poor countries and their populations.
Cardinal Roger Etchegaray stated in his introduction to the 1987 Vatican document, At the Service of the Human Community: An Ethical Approach to the International Debt Question, Debt servicing cannot be met at the price of the asphyxiation of a country's economy, and no government can morally demand of its people privations incompatible with human dignity. He says further that, in a world of increased interdependence among nations, an ethic of expanded solidarity will help to transform economic relations (commercial, financial and monetary) into relations of justice and mutual service, while at present they are often relations based on positions of strength and vested interests. Due to their greater economic power, the industrialized countries bear a heavier responsibility which they must acknowledge and accept... the time is over when (the industrialized countries) can act without regard for the effects of their own policies on other countries.
We are approaching the great celebrations around the new Millennium. The Jubilee is both a time of repentance when injustices are put right as well as the symbolic beginning of a new era. Jubilee symbolizes a fresh start for the poor, an opportunity to reestablish justice and equity throughout the world. In the Hebrew Scriptures, the Jubilee was to have occurred every fifty years. It was a time to free slaves, return land to its rightful owners, and forgive debts. Linking this biblical concept to the coming millennium, Pope John Paul II states: Christians will have to raise their voice on behalf of all the poor of the world, proposing the Jubilee as an appropriate time to give thought.. .to reducing substantially, if not canceling outright, the international debt which seriously threatens the future of many nations (Tertio Millennio Adveniente, 51). We see the Jubilee in the Year 2000 as the time for a new beginning for impoverished nations, an opportunity for justice and the solution to the problem of international debt.
It is not only the approach of the Third Millennium that makes this a time ripe for change. Within the last decade, old animosities between East and West have broken down and new, stronger, and wider allegiances between rich nations have developed. The time is right to rectify relations between North and South. Shared economic growth, fairer trading links, increasingly stable political relationships, sustaining the environment - these goals benefit North and South. Development is an expression of the common good.
The international debt remains a serious obstacle to human development. Many impoverished countries are forced to use their scarce resources, including bilateral aid2, to pay their creditors rather than to invest in the health and education of their people. However, through continuous pressure and long-term commitment, civil society organizations and some concerned governments have attempted to reduce the debt of the world's poorest countries. These have made a helpful, yet marginal difference in the lives of people.
In 1996, another possibility for debt relief emerged. The major creditors3 of the world agreed to reduce some debt of the most impoverished countries through the Heavily Indebted Poor Country (HIPC) Initiative. In doing so, they both acknowledged that debt is a severe obstacle to development and responded to advocacy efforts from civil society organizations. Despite its historic importance, first experiences of the HIPC Initiative reveal that it is far from sufficient.
The upcoming Jubilee, combined with devastating poverty of the least developed countries, the widening gap between rich and poor worldwide, the relative failure of past efforts at debt reduction, and a new opportunity for debt relief, present a challenge we cannot ignore. In the spirit of solidarity among nations and people of the North and South, we have an obligation to promote an authentic and substantial solution to the debt problem.
The international debt crisis became apparent in 1982 when Mexico announced it could not pay its foreign debt, sending shock waves throughout the international financial community as creditors feared that other countries would do the same. The immediate cause of the crisis occurred in 1973 when the members of the Organization of Petroleum Exporting Countries (OPEC) quadrupled the price of oil and invested their excess money in commercial banks. The banks, seeking investments for their new funds, made loans to developing countries, often without appropriately evaluating the loan requests or monitoring how the loans were used. In fact, due to irresponsible practices of creditor as well as debtor governments, much of the money borrowed was spent on programs that did not benefit the poor - armaments, large scale development projects, and private projects benefiting government officials and a small elite. The 1973 oil price increase also had the effect of triggering inflation in the United States and other industrialized countries.
In 1979, OPEC raised the price of oil a second time. Meanwhile, the US adopted extremely tight monetary policies to reduce inflation, producing a domestic recession. The combined impact of the rising price of fuel and rising interest rates led to a worldwide recession. Developing countries were hurt the most. Their exports declined as the domestic cost of production rose and the major importers reduced their purchase of goods from overseas. Latin American governments which had taken out loans from commercial banks at floating interest rates (rates that vary according to the current market interest rate) saw the interest on their debt skyrocket. African governments, reacting to the worldwide collapse in commodity prices, borrowed heavily from other governments and multilateral banks at both market interest rates and concessional (very low) rates. When Mexico finally announced that it could not pay its foreign debt, the international financial system appeared on the brink of collapse. The world's major creditors acted to save the commercial banks and the world economy.
The existence of debt has both social and financial costs. Heavily indebted poor countries have higher rates of infant mortality, disease, illiteracy, and malnutrition than other countries in the developing world, according to the UN Development Program (UNDP). Six out of seven heavily indebted poor countries in Africa pay more in debt service (i.e., interest) than the total amount of money needed to achieve major progress against malnutrition, preventable disease, illiteracy, and child mortality before the year 2000. If governments invested in human development rather than debt repayments, an estimated three million children would live beyond their fifth birthday and a million cases of malnutrition would be avoided4. The UNDP estimates that sub-Saharan African governments transfer to Northern creditors four times what they spend on the health of their people. (Human Development Report, 1997)
On the financial side, heavy indebtedness is a signal to the world financial community that the country is an investment risk, that it is unwilling or unable to pay its debt. As a result, impoverished countries are either cut off from the international financial markets or pay more for credit. The UNDP estimates that in the 1980s, the interest rates for poor countries were four times higher than for the rich countries due to inferior credit ratings and the expectation of national currency depreciations. Another cost of debt is the absence of infrastructure such as roads, schools, or health facilities that could both fight poverty and create the conditions for more economic growth. A different type of cost is associated with the time civil servants spend negotiating debt repayments. Oxfam International estimates there have been over 8,000 debt negotiations for Africa since 1980.
Heavily indebted countries face enormous pressure to generate foreign exchange in order to pay their debt service and purchase essential imports. The international financial institutions often offer financial assistance to countries in this situation and use their leverage to compel the countries to accept structural adjustment and stabilization policies. These structural adjustment policies (SAPs) and the austerity measures associated with them can have a strongly negative impact on the poor, both initially and for extended periods.
SAPs are designed to: I) Stabilize faltering economies by reducing inflation and correcting the balance of payments; and, 2) Increase growth by making economies more productive and efficient and by opening them to market forces. Major elements in structural adjustment programs typically include:
· Raising taxes to increase government revenue and balance the budget
· Eliminating price and interest rate controls
· Reducing the size and scope of government and privatizing state-owned enterprises
· Reducing tariffs and other restrictions on foreign trade
· Reducing regulations on businesses and on capital flows to encourage local and foreign investment.
Although SAPs may help a country become more competitive in the global arena, they can severely harm the poor. This happens when:
· Social expenditures (especially for health, education, and welfare) are cut back in order to meet targets for reducing fiscal deficits
· Public sector employees are dismissed in government down-sizings without retraining or other economic opportunities
· Local companies close in the face of competition from abroad
· New investment is slow and does not create jobs at the rate expected
SAPs can also create an environment which values global competition above all else, resulting in lower wages and worsening labor conditions for workers. Deregulation of labor markets can result in situations where workers cannot exercise their rights and local entrepreneurs and multinational corporations maximize their profits by operating sweatshops. Women and children, the majority of sweatshop workers, are hurt the most by starvation wages, long hours, and unsafe or unsanitary conditions.
STRUCTURAL ADJUSTMENT IN ZAMBIA5
Annual per capita income is US $350,80% of the population lives in absolute poverty, a recent drought has devastated the country, and HIV is a growing epidemic.
Positive aspects of SAPS:
· Reduced inflation from over 200% in 1992 to 35% in 1996
Negative aspects of SAPs:
· Unemployment. 80% unemployment due to the privatization of state-owned enterprises, reductions in the civil service, closing of many industries.
· Environmental Neglect. Long-term ecological issues such as deforestation are simply ignored.
SAPs are based on economic theories considered universally applicable and thus are often applied uniformly. Yet, the specifics of the timing and sequencing of SAPs may not adequately take into account a country's political and institutional culture or its ability to absorb the adjustments. Governments are then forced to decide which public sectors to cut and which to save. Unfortunately the poor and the vulnerable are the ones least able to protect themselves in this process.
Debt and structural adjustment policies can harm the environment. When countries need to generate more foreign exchange to service their debt, they increase exports. But because many developing countries depend on exports such as logging, mining, or a single agricultural crop, there is a serious risk that they will exploit these resources in a way that will cause major damage to the environment. Unless effective programs of environmental protection are put in place, export orientation can have a devastating impact on the land and its people.
Mexico's announcement of a unilateral moratorium on its debt repayments was a shock to the financial community. It galvanized citizen's groups - churches, NGOs, and others who experienced the impact of the debt crisis - to step up their advocacy on debt. In response, the major creditors - commercial banks, governments (also known as bilateral creditors,) and international financial institutions - sought new ways to address the problem.
Commercial banks: Through the Brady Plan of 1989, commercial banks reduced about twenty percent of the commercial debt owed by middle income debtor countries (commercial debt of Mexico, Brazil, Argentina, Costa Rica, Morocco, the Philippines, and Peru was reduced by about 35%). In the process, the banks were supported by guarantees from governments and international financial institutions, in effect shifting the credit risk from commercial to bilateral creditors.
Bilateral creditors: The bilateral creditors fall into two categories: Paris Club and non-Paris Club. The Paris Club is primarily the group of wealthy donor nations which also belong to the Organization for Economic Cooperation and Development (OECD). The non-Paris Club major donors include Eastern Europe, the former Soviet bloc (with the exception of Russia, a new member of the Paris Club since 1997), and the Arab states.
Bilateral creditors were the first to provide debt relief in the early 1980s. Today, the Paris Club provides qualifying countries with some reduction or rescheduling of debt. The criteria are strict, but if a country qualifies, it can get a 67% reduction of a portion of its outstanding debt, up to 80% under the Heavily Indebted Poor Country Initiative. The portion of the debt eligible for reduction is that which:
· has not previously been rescheduled
· is not concessional
· was incurred prior to the cut-off date - the date when the country first requested assistance from the Paris Club. For most countries, the cut-off date is in the early 1980s. The debt incurred since then is ineligible for relief.
Often, the net result is that debt relief is insignificant. (Note: non-Paris Club donor nations have on occasion provided relief on Paris Club terms.)
International Financial Institutions: The international financial institutions include the World Bank, International Monetary Fund (IMF), and regional development banks. They are governed by member nations, virtually every nation in the world. These institutions raise the majority of their capital on international financial markets at very favorable conditions because of their triple A rating - a rating received because their borrowing is guaranteed by all the member nations. Because the international financial institutions offer the best terms available and have been given a special role in the international financial system, they insist on preferred creditor status, which means that they must be paid back prior to other creditors. If the debtor country does not make payments on its loans on time, it is considered off track and will ordinarily not receive loans from other creditors.
Until the HIPC Initiative was approved in 1996, the international financial institutions would not allow rescheduling or cancellation of their loans - although in practice they did so by enabling countries to pay off old loans by taking out new ones at lower interest rates and longer terms.
In October 1996, the World Bank and IMF reached an agreement on the first ever comprehensive debt reduction plan to enable the debtor country to pay back its loans without compromising economic growth and without building up arrears again in the future. The initiative is designed to reduce the multilateral, bilateral, and commercial debt of HIPCs over a period of about six years to a sustainable level, a level at which the country is considered able to make debt payments.
As a condition of debt relief, the country has to implement SAPs approved by the World Bank and IMF. The HIPC Initiative allows some flexibility so that a country that exceeds the eligibility criteria established by the World Bank and IMF by having already demonstrated a record of reform, might get relief in a shorter time.
Under the initiative, after the eligible country has established a track record of economic reform over a period of three years, the Paris Club creditors provide a 67% reduction in eligible debt stock. This point is called the decision point. All other creditors (non-OECD bilateral creditors and commercial banks) are supposed to provide comparable reductions6. If these actions do not result in a sustainable debt, the country moves to the second three-year stage, during which time it might get support from the international financial institutions for economic reform and poverty reduction. At the end of six years, provided the country has established an acceptable track record by implementing required economic reforms, it will receive up to 80% reduction in eligible Paris Club debt stock. This point is called the completion point. The second period of three years might be shortened for countries which already have a track record of strong performance. At the completion point, the multilateral creditors provide debt relief only if all other reductions are not enough to reduce the country's debt to a sustainable level.
Too few countries eligible. There are 41 countries classified by the World Bank as HIPCs, yet only a few will get relief through the HIPC Initiative as it is currently designed. Like Paris Club debt relief, qualifying for HIPC is difficult and countries that do qualify will likely find its impact limited. For example, Nicaragua may not qualify for relief under the HIPC Initiative because of its poor track record in carrying out structural adjustment programs. To qualify, Nicaragua would have to start an economic reform program which would likely require drastic cuts in government expenditures. Such reductions in a country still recovering from civil war and considered the second poorest country in the hemisphere would be devastating for its people, far worse than the benefits that a small amount of debt relief would bring.
COUNTRIES ELIGIBLE FOR HEAVILY INDEBTED POOR COUNTRY INITIATIVE
Source World Bank IMF (through Eurodad)
QUALIFYING FOR HIPC INITIATIVE IS DIFFICULT AND RELIEF INADEQUATE
To qualify, countries must be:
IDA-only and heavily indebted. IDA-only means the average annual per capita income of the country must be less than US $900. Most highly indebted countries have average annual per capita incomes under US $400.
Have a strong track record of performance under an IMF-supported structural adjustment program. If the country strays, it has to wait longer for relief.
Exhaust all existing debt relief mechanisms without reaching a sustainable level of debt. Sustainable means: I) the Net Present Value of the country's debt does not exceed 200-250% of its annual export earnings; and 2) the country's annual debt service does not exceed 20-25% of its annual export earnings. Specific targets within these ranges are determined on a case by case basis.
Too little relief: Bilateral and multilateral creditors are not writing off debt, rather, they are raising money to pay for debt reduction. As a result, they want to minimize its cost. Some powerful G-7 countries, as well as some middle income countries that are unlikely to be eligible for HIPC debt relief, have not committed sufficient resources to bilateral debt relief. The IMF will provide multilateral relief only through an existing fund, the Enhanced Structural Adjustment Facility. The World Bank, on the other hand, has set aside $2 billion for debt relief - an important commitment - but will release it only after bilateral creditors show their financial commitment by contributing to a separate debt relief fund.
Narrow definition of debt sustainability: The HIPC Initiative is designed to restore the debtor country's ability to repay its loans. The amount of debt considered sustainable was decided by looking at what middle income Latin American countries actually paid to service their debt. The concept did not take into account the fact that many Latin American countries paid their debt at the expense of the welfare of their people, paying more than they should have. The percentage of exports that went to debt service then became the standard for what low income countries were considered able to pay.
Too long a wait: Eligible countries have to establish a track record of economic reform for at least three years before receiving bilateral relief and six years before receiving multilateral relief.
Connection with structural adjustment policies (SAPs): The HIPC Initiative requires countries that want debt relief to carry out SAPs. SAPs can reform economies in positive ways but can also contribute to poverty.
Arbitrary cut-off dates for Paris Club relief: The cut-off date is the date the country first requests assistance from the Paris Club. Debt that builds up after this date is not eligible for reduction under the HIPC Initiative.
CIDSE and Caritas Internationalis call for the cancellation of the unpayable debt of the most impoverished countries by the year 2000. In the short term, we call for significant improvements in the Heavily Indebted Poor Country Initiative. In addition, we call for debt cancellation to be linked with investment in human development and for decisions on debt relief to be made in a transparent way. In the long term, we will work to change the structure of international financial relations.
The principle of Jubilee calls for the cancellation of debts. Applied to the HIPCs, it is the most simple and direct of all the options for reducing the debt. Jubilee 2000 campaigns have emerged around the world to advocate debt cancellation (see Appendix 3.)
Despite the fact that many highly indebted countries have already repaid the principal - the amount they first borrowed - but not the interest, debt cancellation is a politically difficult option. Barring the complete cancellation of debt, it raises questions as to how debt cancellation should take place, which countries should benefit, what portion of debt should be canceled, and how to ensure that the country does not again become indebted.
There are several precedents for debt cancellation. After World War II, Germany's creditors reduced almost all its debt to a debt-service-to-export ratio of less than 5 percent. In contrast, creditors reduce the debt of eligible HIPC countries to a debt-service-to-export ratio between 20-25 percent. In 1990, the US canceled about fifty percent of Poland's debt. In 1991, both Egypt and Poland received a fifty percent reduction in their bilateral debts owed to the Paris Club. Since then, several countries have changed their approach to debt cancellation. In 1992, for example, the US Credit Reform Act prohibited future cancellations on the part of the US, requiring Congressional appropriations for any debt relief.
A limited yet timely option is to improve the HIPC Initiative. Several types of improvements are essential:
Shorten the time frame: Indebted countries need relief now, not three or six years in the future as the HIPC framework suggests. Most eligible countries will not receive debt relief under the HIPC Initiative before the year 2000. But each year of delay translates into less debt relief because the macroeconomic indicators are re-calculated and often adjusted to reflect higher expected growth. Uganda, which was eligible for accelerated relief due to its adherence to structural adjustment policies for over ten years, will have to wait one year, resulting in up to $200 million less in debt relief.
Uganda was the first country evaluated for relief through the HIPC Initiative in April 1997. Despite the fact that:
· Uganda successfully complied with strict economic reforms for more than ten years (four years more than required under the HIPC Initiative),
Uganda still only gets $338 million in debt relief out of a total debt burden of $1.7 billion.
Broaden eligibility: Of the 41 countries identified as heavily indebted by the World Bank and IMF, only 8-20 are expected to get relief. All 41 should be eligible.
Redefine debt sustainability: In their evaluations of the first countries eligible for relief, the World Bank and IMF used narrow criteria for defining the amount of debt a country could pay, based on the experience of Latin American middle income countries. They also used overly optimistic assumptions about the patterns of export growth, inflation, and availability of credit. These criteria do not take into account the sacrifices required of extremely poor countries to continue paying their debts. If human development, rather than ability to pay, was considered the goal of debt sustainability, then debt repayments would not take away from government resources needed for basic needs and productive activities. An alternative approach to debt sustainability would require measurable criteria to determine the effectiveness of spending for the poor and marginalized segments of the population.
Provide more relief: HIPCs need more multilateral debt relief than has been provided under the initiative. They also need more bilateral debt relief in addition to current levels of Official Development Aid (ODA.) If debt relief is offset by reductions in development aid, its impact could be limited. Even in times of domestic budgetary problems and growing isolationism, ODA levels among the OECD nations should rise to the target level of 0.7% of the Gross National Product (GNP) reaffirmed at the 1995 World Summit for Social Development in Copenhagen. ODA must be made more effective and better targeted to benefit poor people.
Remove Paris Club cut-off dates: The date after which the Paris Club will not consider a country for debt relief should be determined on a case-by-case basis with the goal of achieving real and substantial debt relief. The date should take into account factors such as the amount and type of debt, whether the country is recovering from civil war, natural disaster, or economic instability.
Consult civil society on conditions for relief: Because both macroeconomic and microeconomic conditions directly affect the well-being of people, organizations of civil society should be consulted on the scope, type, timing, sequence, and monitoring of conditions for debt relief.
We believe that just as the debt burden is felt most severely by the poor, so too should debt cancellation benefit the poor.
As CIDSE and Caritas member organizations, we believe that international debt is a major cause of poverty and threatens the development of people living in the most impoverished countries of the world. Thus, debt cancellation should free resources for investment in human development and productive capacity. This position is informed particularly by southern Caritas members who call for linking debt cancellation with increased spending on health and education.
Because not all governments can be counted on to use resources freed through debt relief to invest in the poor and marginalized sectors of society, there is a case for making a strong link between investment in human development and debt cancellation. However, such social conditionalities imposed in the framework of the existing international financial system can be counterproductive. On the one hand, a too-narrow definition of acceptable social spending could limit a country's investment in its productive capacity, such as small-scale agriculture, in favor of investment in health and education. On the other hand, creditor nations can misuse social conditionalities as an excuse to delay debt relief, as in the case of Uganda.
For these reasons, CIDSE and Caritas member organizations call for debt cancellation to be linked with investments in human development in ways that are appropriate within each country and determined after consultation between governments and civil society. Such consultation, however, presupposes an environment in which people are free to speak and are heard. As development agencies in the North and South, we are acutely aware of the crucial role that civil society plays in the successful planning and implementation of projects and policies. We have witnessed widespread failure when programs and policies are designed and carried out without dialogue and joint decision making by civil society7.
The use of counterpart funds by Switzerland is a concrete example on a small scale of how debt relief can be linked to investments in human development while at the same time facilitating dialogue within civil society.
Historically, international financial institutions and the Paris Club have been relatively closed institutions. In most cases, the specific conditions of loans are kept secret between the IMF and the country's Finance Ministry. Civil society organizations rarely have access to documents that outline planning goals and strategies for the country. Yet, they are the ones who experience the effects of projects, policies, and loans provided by the international financial institutions. In recent years, the World Bank has approved, at least in principle, the concept of participation by beneficiary groups in the project approval cycle. The IMF has not established a similar policy Both the IMF and World Bank should actively incorporate the views of government ministries, local churches, trade unions, and active NGOs to ensure that on-ground realities are appropriately reflected in debt analyses, in planning, and in conditions placed on loans. Citizen groups should help to define SAPs, their terms, and their implementation.
SWITZERLAND'S DEBT REDUCTION FACILITY
Debt relief has a direct effect on the national budget and on the balance of payments. Switzerland's Debt Reduction Facility was established with 400 million SFR and has set up eleven counterpart funds since 1993.
How they work: The debtor government sets aside a small part of the canceled (external) debt in local currency. This amount is deposited into a counterpart fund that is then used to finance domestic development activities, primarily projects and programs of NGOs. Representatives from the debtor and the creditor country as well as from civil society (generally national umbrella organizations or NGO-networks) administer the fund.
Counterpart funds should be financed by the money that would have gone to debt repayments but is now freed by debt cancellation. Otherwise, the government will finance the counterpart fund by printing more money (which has an inflationary effect) or by using other budgetary resources, most likely from existing social expenditures. If a country has no provision for debt repayment in its budget, establishing a counterpart fund would not be useful.
The Paris Club should be more transparent in its decision making processes which are both cumbersome and secretive. Currently, debtor countries meet with the Paris Club every 18 months - 3 years. First, they agree on the rules for negotiation, then the debtor travels separately to each Paris Club member to negotiate individual bilateral agreements. A simpler and more transparent mechanism for implementing Paris Club agreements would make more efficient use of time and resources and would more openly convey the terms and conditions of any agreements.
Borrower governments share responsibility for the debt and its solution. They, too, must be more transparent in their negotiations on debt vis-a-vis other government agencies, parliaments, and civil society organizations. They must share information on exactly how debt relief is used as well as the conditions for debt relief. Finance ministries should exchange information on debt with other government ministries and national parliaments whose programs will be affected by the level of debt repayment. We are encouraged by recent dialogue among citizen's groups and governments on national budget priorities, particularly military expenditures, education, and the environment. The Ugandan government, for example, recently adopted a requirement that the Parliament approve all foreign loans and repayments. In addition, the Ugandan Finance Ministry has a debt management unit to assess the budgetary requirements for debt repayments each year. These procedures may help Uganda avoid recurring debt.
The pattern of international financial relations must be reformulated fundamentally to establish a fair process between debtors and creditors. Current debt management practices are characterized by the creditors' double role as judge and plaintiff. They do not reflect the fact that the responsibility for today's unbearable burden of debt in many Southern countries rests not only with debtors but with debtors and creditors alike. Therefore, the current practice should be replaced by a fair and transparent procedure that provides a framework for fair and equal relationships between debtors and creditors.
The introduction of an international insolvency/bankruptcy procedure8 has been proposed as one possibility to achieve these fundamental changes. It could be modeled after experiences of local governments in the US which are entitled to legal protections from their creditors if they become insolvent/bankrupt. (A similar procedure was introduced in Hungary in 1996.) One major element of an international procedure would be to establish neutral courts of arbitration that allow those affected to voice their views and concerns regarding the impact of the proposed solution.
BANKRUPTCY PROTECTIONS FOR LOCAL GOVERNMENTS IN THE US
When a local government such as Orange County in California declares bankruptcy, neutral arbitrators - not creditors - preside over the hearings. The debtor is granted Chapter 9 protection, in which:
1. Government expenditures for basic services are maintained
6. The court cannot interfere with the municipal government's decisions regarding which services and benefits to provide citizens.
The members of CIDSE and Caritas Internationalis collaborate with thousands of partners throughout the developing world. Our call for the cancellation of the unpayable debt of the most impoverished countries by the year 2000 is rooted in our partnership with those who suffer the consequences of the debt burden.
In many countries, large external debt obligations prevent governments from investing sufficiently in those basic human needs that are the foundation for sustainable development and human security. CIDSE and Caritas Internationalis intend to mobilize official and public opinion in favor of putting development before debt.
The policy recommendations made in this booklet provide a framework for a just and lasting solution to the debt problem. CIDSE and Caritas Internationalis member organizations have committed themselves to advocate these joint policy options in various national and international fora through the use of the material contained herein.
We express our thanks to all, individuals and groups, who will use this document as a tool for putting life before debt. We would appreciate receiving a feed-back on initiatives taken through the use of this statement.
1. All members of the CIDSE/CI task group on debt contributed to this document. Barbara Kohnen, Christiane Overkamp, and Duncan MacLaren took primary responsibility for writing. Special thanks go to Fr.J. Bryan Hehir, CRS Counselor, for drafting a portion of A Catholic Framework on Debt, to Catholic Relief Services for layout and initial printing, and to the many readers around the globe who offered suggestions for improvement.
2. Bilateral aid is assistance given by one government to another. It is increasingly used to repay debt owed to the World Bank and International Monetary Fund.
3. Major creditors include governments and international financial institutions. Commercial banks are a less relevant creditor for heavily indebted poor countries.
4. Poor Country Debt Relief: false dawn or new hope for poverty reduction? April 1997, Oxfam International Position Paper. The study compares the external financing requirements needed to meet targets in health and education set by the 1990 World Summit for Children with debt service payments for 7 countries: Benin, Ethiopia, Mozambique, Burkina Faso, Mali, Zambia, and Niger. In all but one country, the cost of debt servicing represents more than the financial resources needed to achieve significant human development.
5. From Peter Henriot, SJ, Zambia: debt and structural adjustment, The Month, August 1997.
6. Commercial banks are major creditors for only a few HIPCs (notably, Cote d'Ivoire.)
7. Tony Killick, Principles, Agents, and the Failings of Conditionality, Overseas Development Institute, London, 1997.
8. In this context, the term bankruptcy is most commonly used in the US, while insolvency is used in Europe.
Duncan MacLaren · Luc Trouillard
16 Piazza San Calisto · 00153 Rome · Italy
Tel: (39) 6 698 871 97
Fax: (39) 6 698 872 37
BP 77 · 2340 AB Oegstgeest · The Netherlands
Tel: (31-71) 515 95 00
Fax: (31-71) 517 53 91
Huidevetterstraat, 165 · 1000 Brussels · Belgium
Tel: (322) 502 57 00
Fax: (322) 502 81 01
5 avenue Marie-Thse ·2132 Luxembourg
Grand Duchu Luxembourg
Tel: (352) 447 43 258
Fax: (352) 447 32 31
Betty East · Henry Northover
2 Romero Close · Stockwell Road
London SW9 9TY · U.K.
Tel: (44) 171 733 79 00
Fax: (44) 171 274 96 30
Caritas Aotearoa New Zealand*
P.O. Box 12-193 · Wellington · New Zealand
Tel: +64-4 496-1742
Fax: +64-4 499-2519
Catholic Relief Services*
209 West Fayette Street · Baltimore, MD 21201 · USA
Tel: (1) 410 625 22 20
Fax: (1) 410 685 16 35
4 rue Jean Lantier · 75001 Paris · France
Tel: (331) 44 82 80 00
Fax: (331) 44 82 81 43
Jacques Bertrand · Fabien Leboeuf
5633 Est, rue Sherbrooke · Montreal Quebec
HIN 1A3 · Canada
Tel: (1) 514 257 87 11
Fax: (1) 514 257 84 97
Entraide et FraternitR>32 rue du Gouvernement
1000 Brussels · Belgium
Tel: (322) 227 66 80
Fax: (322) 217 32 59
Habsburgerstrasse 44 · Postfach 2856
CH-6002 Luzern · Switzerland
Tel: (41) 41 -210.76.55
Fax: (41) 41 -210.13.62
FOCSIV - Voluntari nel Mondo*
Ezio Castelli · Riccardo Moro
Via S. Francesco di Sales, 18 · 00165 Roma · Italy
Tel: (39) 6 687 77 96 or (39) 6 687 78 67
Fax: (39) 6 687 23 73
Helmut Ornauer · Martina Neuwirth
Turkenstrasse 3 · 1090 Vienna · Austria
Tel: (43) 1 -3170321 or (43) 1 -3170322
Fax: (43) 1 -31703 21 85
Luis Arancibia · Maria Teresa de Febrer
Barquillo 38 - 2 · 28004 Madrid · Spain
Tel: (34) (1) 3082020
Fax: (34) (1) 3084208
Reinhard Hermle · Christiane Overkamp
Postfach 14 50 · 52015 Aachen · Germany
Tel: (49) 241 44 20
Fax: (49) 241 44 21 88
5 Oswald Street · Glasgow G1 4QR · Scotland
Tel: (44) 141 221 44 47
Fax: (44) 141 221 23 73
169 Booterstown Avenue · Blackrock Co. Dublin · Ireland
Tel: (353) I 288 53 85
Fax: (353) I 288 35 77
Jef Felix · Jean-Marie Fardeau
Rue Stevin 16 · 1000 Brussels · Belgium
Tel: (322) 230 77 22
Fax: (322) 230 70 82
Leader of the team that primarily authored this paper:
U.S. Catholic Conference*
3211 4th St., NE · Washington, DC 20017 · USA
Tel. (202) 541-3153
Fax (202) 541-3339
* Members of joint CIDSE/Caritas Internationalis Task group on Debt, Structural Adjustment, and World Bank Reform.
Sollicitudo Rei Socialis, Pope John Paul II, 1987. P. 19
An Ethical Approach to the International Debt Question, Pontifical Justice and Peace Commission, 1987
Third World Debt, CIDSE Position Paper, Brussels, 1988
Relieving Third World Debt: A Call for Co-responsibility, justice, and Solidarity, USCC Administrative Board, 1989
Centesimus Annus, Pope John Paul II, 1991. P. 35
Final document, IVth General Assembly of the Latin American Bishops, CELAM, Santo Domingo, 1992
Common Wealth for the Common Good, Australia Bishops' Conference, 1992
Hear the Cry of the Poor, Zambia Episcopal Conference, 1993
Tertio Millennio Adveniente: Apostolic Letter for the jubilee of the Year 2000, Pope John Paul II, 1994
Forgive us our Debts, letter from the African bishops to the bishops of Europe and North America, 1995
US Response to the African Bishops letter, 1995
Ecclesia in Africa, Apostolic Exhortation, Pope John Paul II, 1995
The Common Good, Bishops' Conference of England and Wales, 1996
The Struggle Against Poverty; a Sign of Hope in our World, Canadian Bishops' Conference, 1996
A New Beginning: Eradicating Poverty in Our World, Australian Bishops' Conference, 1996
World Debt and International Institutions, Statement of the Bishops' Conference of England and Wales, 1996
Declaration on the International Debt of the Poorest Countries in the Third World, Catholic Bishops Conference of Austria, November 1996
Note: This list is not exhaustive. There are many other organizations actively working on the issue of debt.
International networks and initiatives
Africa Europe Faith and Justice Network
174 Rue Joseph II · 1000 Brussels · Belgium,
Tel: (322) 230 41 73
Fax: (322) 231 14 13
The African Forum and Network on Debt and Development
P.O. Box MR38 · Marlborough · Harare · Zimbabwe
Tel: (263) 4702093
Fax: (263) 4702143 or (263) 4 722 363
Coordinator: Opa Kapijimpanga
Apartado Postal 2239 · Tegucigalpa · Honduras
Tel: (504) 30-7622
Fax (504) 30-3546
Rep: Alexis Pacheco
Caribbean Policy Development Centre (CPDC)
P.O. Box 35 · Brittons Hill · St. Michael · Barbados
Tel: 1 809 437 6055
Fax: 1 809 437 3381
Rep: Chris Sinckler
European Network on Debt and Development (Eurodad)
rue Dejoncker 46 · 1060 Bruxelles · Belgique
Tel: 32 2 5439060
Fax: 32 2 5440559.
Coordinator: Ted van Hees.
Institut Africain pour le Dloppement Economique et Social -
Centre Africain de Formation
08 B.P. 8 Abidjan 08 · Cote D'Ivoire
Tel: 225 44 31281 / 29 / 30
Fax: 225 44 0641
Rep: Rene M. Segbenou
Jubilee 2000 Coalition Afrika Campaign - Ghana
P.O. Box 12063 · Accra-North · Ghana
Rep: Esi Amoafo
Latin American Association of Development Organizations
c/o CAAP · P.O. Box 17-15173-B · Quito · Ecuador
Tel: 593 2 52 9591 / 2763 / 3262
Fax: 593 2 56 8452
Rep: Manuel Chiriboga
OIC Conference (International Catholic Organizations)
Rue Jaumain · 15 · 5330 Assesse · Belgium
Tel: 32-83 65 62 36
Fax: 32-83 65 61 41
Rep: Joseph Pirson
1511 K St., NW · Suite 640 · Washington, DC 20005
Tel: (202) 393 5333
Fax: (202) 783-8739
Contact: Veena Siddharth or Justin Forsyth.
SEDOS · Working Group on
Via dei Verbiti, 1 · 00154 Roma · Italy
Coordinator: Michael Seigel
Structural Adjustment Participatory Review Initiative
927 Fifteenth St., NW · 4th Floor
Washington DC 20005
Tel: (202) 898 1566
Fax: (202) 898 1612
Contact: Douglas Hellinger, The Development Gap.
National campaigns on debt
CIAM (Centre d'Information et d'Animation Missionnaire)
B.P. 724 · Limete-Kinshasa · Democratic Republic of the
IAG Ethiopia, (Inter-Africa Group)
P.O. Box 1631 · Addis Abbaba · Ethiopia
Tel: 251 151 8790/51 9582 (dir)
Fax: 251 I 51 7554.
Representative: Jalal Abdel Latif
Uganda Debt Network
P.O. Box 9863 Kampala
Tel: 256-41 -342987 / 321228 / 235532-3-4 / 223152
Fax: 256-413 or PTC Wandegeya 256-41 -530412
Contacts: Zie Gariyo and Maude Mugisha
Zambia Jesuit Centre for Theological Reflection,
St. Ignatius Church
P.O. Box 37774 · 10101 Lusaka · Zambia
Contact: Peter Henriot, SJ
Zambia Coalition on Debt and Development
P.O. Box 35264 · Lusaka 10101
Contact: David Musona
Box 545 Harare · Zimbabwe
Tel: 263 4 497204 /5
Fax: 263 4 495363
Contact: Brian McGarry, SJ and Zvashe Kujinga
Caritas India, C.B.C.I. Centre Ashok Place (Gole Dakhana)
110001 New Delhi · India
Tel: +9111 336 2735
Fax: +9111 371 5146
Society for Participatory Research in Asia (PRIA)
42 Tughlakabad · Institutional Area
New Delhi · 110 062, India
Tel: 91 11 698 5819/6451908
Fax: 91 11 698 0183/6471183
Rep: Rajesh Tandon
Freedom from Debt Coalition (FDC)
P.O. Box 2 · UP Diliman · Quezon City ·1101
Tel: 632 976061-69
Fax: 632 9214381
Rep: Teresa Diokno Pascual (President),
Lydia Nacpil Alejandro (Secretary General)
Erlassjahr 2000 c/o Initiative 96 Entschuldung
Turkenstrasse 3 · A-1090 Vienna · Austria
Tel: (43) 1 31703 21 77
Fax: (43) 1 31703 21 85
Coordinator: Martina Neuwirth
Erlassjahr 2000 c/o SUDWIND e.V.
Lindenstrasse 58-60 · 53721 Siegburg
Tel: (49) 22-41-5912-26
Fax: (49) 22-41-5912-27
Contact: Friedel Hams
German Debt Coalition
Initiativkreis Entwicklung braucht Entschuldung
Dusseldorfer Landstrasse 180 · 47249 · Duisburg
Tel: 0203 791728
Fax: 0203 7789118
Coordinator: Jurgen Kaiser
Irish Debt and Development Coalition
All Hallows College · Grace Park Road 9
Dublin · Ireland
Tel/Fax: (353) I 857 1828
Contact: Jean Somers
Swiss Coalition of Development Organizations
Monbijoustr. 31 · P.O. Box 6735 · CH-3001 Berne
Tel: (41) 31 381 17 11
Fax: (41) 31 381 17 18
Jubilee 2000 (UK Campaign)
P.O. Box 100 · London · SEI 7RT
Tel: (44) 171 620 4444, ext. 2169
Fax: (44) 171 620 0719
Contact: Ann Pettifor and Nick Buxton.
1 rue Nicholas St. · Suite 412
Ottawa · Ontario · KIN 7B7
Tel: (613) 235 1217
Fax: (613) 241 2292
Inter-Church Coalition on Africa (ICCAF)
129 St. Clair Avenue · Toronto · Ontario
M4V 1N5 · Canada
Tel: 1 416927 1124
Fax: 1 4169277554
E-mail: firstname.lastname@example.org or email@example.com
Rep: Ruth Rempel
Center of Concern
3700 13th St., NE. · Washington, DC 20017
Tel: (202) 635 2757, ext. 26
Fax: (202) 832 9494
Contact: Jo Marie Griesgraber
Jubilee 2000 USA
P.O. Box 29550 · Washington, DC 20017
Tel: (202) 783-3566
Coordinator: Religious Working Group on the World
Bank and IMF
Maryknoll Justice & Peace Office
P.O. Box 29132 · Washington, DC 20017.
Tel: (202) 832 1780
Fax: (202) 832 5195
Contact: Marie Dennis
LATIN AMERICA AND THE CARIBBEAN
SDS-BI.P-40 · s/410-414 Edificio Venancio III
70393-900 Brasilia · Brazil
Tel: 5561 2265008
Fax: 5561 2260701
Director: Odair Firmino
Brazil Network on Multilateral Financial
QD.06-VENANCIO 2000 · Bloco B-50, SLS
433/441 Brasilia DF · Brasil.
Tel: 550 61 2268093
Fax: 550 61 2268042
Rep: FatimaVianna Mello
Centro de Estudios y Promociel Desarrollo (DESCO),
Leon de la Fuente 110 · Lima 17 · Peru
Tel: 51 1 264 1316
Fax: 51 1 264 0128.
Rep: Abelardo Sanchez-Leon
If the goal of a significant debt relief is to be met, more people need to become involved in campaigning and lobbying. The purpose of the fourth section of the paper is to share ideas about how to design and implement initiatives in this area. For more detailed and country specific information, please refer to the contacts given in Appendix I. If you are new to the issues or to campaigning, first spend some time learning about international debt. Then, establish clear aims and objectives, build awareness at the grassroots level, and lobby decision makers.
If you have not worked on the debt issue before, you should spend some time learning the basic facts about debt in order to make the topic accessible for yourself and your constituency.
Before you start gathering information, find out what is already available. You could, for example, contact national or regional debt networks, your national episcopal conference, or your local CIDSE or CI partner (see Appendices 1&3). In the South, you can also get information from local or regional offices of the NGO liaison unit of the World Bank and the United Nations Development Program.
Examine the economic condition of your country: What is the country's annual income, known as Gross Domestic Product? What is the level of inflation in the country, and is it falling or rising? What types of products does the country produce for export, and how much money does it earn each year from exports? Is export income falling or rising?
Beyond these standard macroeconomic indicators, look at other questions. What percentage of the population lives in poverty? How unequal is the distribution of income, land, and other forms of wealth in your country? What percentage of the population cannot read? How many people do not have access to potable water? Are literacy rates and health care coverage different for women and men? What percentage of the government's public expenditure goes to health, education, or agricultural programs? Are the services financed through these expenditures accessible to the poor? Do women and children fare worse in these areas? Again, you can request this data from the World Bank, the UN Development Program, your local CIDSE/Caritas Internationalis partner, or other NGOs.
Examine the debt situation of your country: How much debt does the government owe? What is the structure of the debt? How were the loans used? Was the money used for productive investments, for paying back older loans, or for balance of payments support? Find out the amount owed to each type of creditor: commercial bank, bilateral government, or international financial institution. Within the international financial institutions, the government may owe more to a regional development bank, such as the African Development Bank or the Inter-American Development Bank, than to the World Bank or IMF. If this is the case, you might consider focusing your campaign on a regional development bank rather than the World Bank or IMF. Some of a government's debt may be short-term and some long-term. Which type of debt does the government pay regularly? Which type does it pay occasionally or not at all?
Assess the information: What do the numbers mean to you? The World Bank and IMF look at the overall amount of debt in a country as a percentage of exports (the average level of exports over a three-year period.) They say that a country is heavily indebted if the debt-to-export ratio is over 200 -250 percent. Another common measure is the debt service-to-export ratio, which compares the country's annual debt repayments to its annual exports. The international financial institutions say that a country is heavily indebted if this ratio is over 20-25 percent. We argue that these thresholds do not adequately take into account critical measures such as the impact of debt service on poverty levels.
To illustrate the burden of debt, divide the total amount of government spending on health by the population of your country. How does that relate to the real cost of health care as you know it? Compare the amount of money the government spends in a year on debt repayments to the amount it invests in health and education. Oxfam International, for example, estimates that Tanzania spends four times more on debt servicing than it does on health and education combined. (Poor Country Debt Relief, April 1997.) Or think about alternative uses for the money the government spends on debt repayments. How many children could get textbooks, or immunizations, or school meals with that money?
In Creditor Countries
Your country's role as a creditor: Find out the number and value of loans made by your government. Which countries are the major debtors to your government? How is the debt burden affecting the population in those countries? Look at the total value of loans made by the European Union (EU) and find out more about debt owed to the EU by groups such as the Africa, Pacific, and Caribbean States (ACP). If you work closely with a debtor country, follow the steps outlined above, for debtor countries.
Your country's policy on debt: What is the policy of your government on debt? Does it have a position document on debt and structural adjustment policies? (In Ireland, an NGO coalition has asked the government to develop a policy paper on debt.) Has your country canceled debt in the past? If so, of which countries? Is your government planning any new cancellations or reschedulings? You can get this information from some of the organizations listed in the appendices.
Focus on one piece of the problem. If you narrow your focus to one section of the debt, then the campaign will be manageable. Decide which aspect of debt is most crucial. The following possible focal points are interlinked:
The HIPC Initiative: Since only a few countries are likely to be eligible, and they will be evaluated one by one, you could campaign to: I) Insure your country will be considered for HIPC relief; 2) Encourage creditors to shorten the time frame; or 3) Increase the amount of debt relief for that particular country. Alternatively, you could try to get the maximum relief possible from one creditor institution, such as the African Development Bank or the Inter-American Development Bank. Check with your representatives, known as Executive Directors, at the World Bank, IMF, or the other international financial institutions, to find out their position on the HIPC Initiative.
Structural Adjustment Policies: If you prefer to focus your attention on the social and environmental consequences of structural adjustment policies, you may be aware of another initiative, the Structural Adjustment Review Initiative (SAPRI), which is gaining support from civil society organizations around the world. The Initiative is a joint government-World Bank-civil society effort to review the impact of World Bank supported structural adjustment policies in seven countries - Ghana, Mali, Zimbabwe, Uganda, Bangladesh, Ecuador, and Hungary. Is your country one of the seven? If not, consider starting a study of structural adjustment in your country. CIDSE can provide you with information on how to launch such an exercise in your country, based on experiences of member organizations. The Catholic Fund for Overseas Development (CAFOD) in the UK, for example, has supported such projects in Zambia and Zimbabwe.
Monitoring Government Spending: It is important to ensure that new resources made available to the government through debt relief are spent in a way that benefits the people, especially the poor, in your country. Civil society organizations can play an important role in monitoring and lobbying for change, for example, to eliminate corruption.
A useful monitoring tool is the 20:20 initiative agreed upon at the World Summit for Social Development in Copenhagen in 1995. This initiative states that countries of the North and South should enter into an agreement in which countries of the South would allocate on average, twenty percent of their public budgets to basic social services (education, health, housing, food, safe water, etc.) and the countries of the North would allocate on average twenty percent of their aid to such services.
In Debtor Countries
Find out whether your government is willing to commit to the 20:20 initiative. Beyond that, try to find out current budget allocations on the national, regional, and local levels. For example, how many girl children receive primary education? What percentage of the agricultural budget goes to support small scale farmers?
In Creditor Countries
Find out whether your government is committed to the 20:20 initiative. If so, have any concrete steps been taken since the Copenhagen summit? Have patterns of allocation been changed accordingly in the foreign aid budget? Is there any quantified data on foreign aid for basic social services? Do any recent aid agreements between your country and debtor countries refer to the 20:20 initiative?
National or local level
Consider joining or launching a campaign to change public opinion. Several campaigns for debt cancellation are gathering momentum (Appendix 3), and you can draw on their work. Being part of an international movement strengthens work at the national level. If there is not already a campaign in your country, you can launch one by bringing together parishes, civic associations, and social movements in a coalition to raise awareness and pressure the policy makers in your country.
Consider the following ideas for action at the local level. Talk with people in your church or organize a discussion about debt after mass and invite your church officials to participate. Talk with people in other churches and from different denominations. Work with popular education materials that national Jubilee Campaigns or other initiatives provide so that more people can learn about the issue. Ask people you know in debtor countries to gather and document information on the concrete impact of debt on their lives (health services, education, etc.) These testimonies can be used in your lobbying and advocacy.
You can use this information to let local media know about the problem. Write a letter to the editor or try to get an editorial placed in your local newspaper. Organize an event and invite the press.
Support Southern/Northern partnerships. Both Southern and Northern groups can help each other by sharing information, supporting policy changes (e.g., anti-corruption laws), and designing common strategies for debt relief. If your parish has a relationship with a parish in a creditor or debtor country, ask them whether they are also interested in the debt issue.
Identify the decision makers
In Debtor Countries: First, identify local decision makers. Who are the politicians, local government officials, bankers or business people who play a role in decision making? Then, identify the decision makers in the North. Who makes the decision to reschedule existing debt? Who decides whether a country should qualify for debt relief? Which commercial banks hold the country's debt? Which creditor countries?
In Creditor Countries: Who decides the government's policy on debt? Which ministries are involved and which committee of the Parliament or Congress is in charge of the issue? Who represents your country at the international financial institutions? To whom does this representative report?
Influence decision makers
To change the minds of decision makers, you need to have a strategy and clear goals that take into consideration the position and interest of the people you want to address. Before taking any of the suggested steps ask yourself: What do I want to accomplish? What are my most important arguments? What arguments will the decision maker make? You will need to be persistent over the long term. You may find that officials promise change but do not follow up. In your meetings, try to get concrete answers on what they are going to do and then closely monitor whether they do what they promise.
A useful place to start your meetings is with the NGO liaison offices of the World Bank. These are located in nearly every country. You should also contact your local CIDSE or Caritas Internationalis partner.
In Debtor Countries
Consider meeting with your representatives in the legislative and executive branches of government to find out their policy regarding the debt issue. Ask them to gather international support for debt relief. Also, consider meeting with your Finance Minister or other officials at the Finance Ministry, because they are the official representatives to the World Bank and IMF. You can also try to meet with visiting delegations from the World Bank and IMF or from the Resident Representatives based in-country. Representatives of these institutions do not often meet with people representing church groups, development organizations, or other civil society organizations, and you can provide them with the information they do not have: what poverty means on the ground.
In Creditor Countries
Meet with your finance minister, country representatives at the World Bank and IMF, legislative representatives, and European Community representatives. Encourage them to visit a highly indebted country. Urge Congressional or parliamentary members to sponsor debates or presentations. Try to get the government to develop a policy statement on international debt and structural adjustment.
Meet with church leaders and NGOs in other countries. If you or your bishop or another church leader visits a creditor or debtor nation, encourage them to meet with representatives of episcopal conferences and NGOs. In some creditor countries, the episcopal conference communicates regularly with legislative and executive branches of government to express concern about certain issues. You could encourage them to communicate the reality of poverty to their representatives at the World Bank, IMF, the legislature, or the European Union.
Consider organizing a public event together with other churches or NGOs or making a joint statement on debt, particularly around the time of key international meetings such as the G-7/8 Summit or the annual meetings of the World Bank and IMF.
African Development Bank:
An international financial institution owned by 76 member governments; 51 regional members from Africa and 25 non-regional, mostly industrialized nations. The Bank was created in 1963 by African governments and is headquartered in Abidjan, Cote d'Ivoire.
Asian Development Bank:
An international financial institution owned by 52 member governments; 19 industrialized nations in Europe, North America, Asia and the Pacific, and 33 developing nations. It was created in 1966 to accelerate economic development in the developing countries for Asia and is headquartered in Manila.
Debt owed by one government to another government.
Bretton Woods Institutions:
The institutions founded at the conference of Bretton Woods in 1944 - the World Bank and the International Monetary Fund (IMF).
Private or state-owned banks which provide loans at a commercial rate of interest.
Repayments of both principal and interest on external debt.
Executive Directors (EDs):
The official representatives of member governments in the World Bank, the IMF, and regional development banks.
The sum of public, publicly guaranteed and private non-guaranteed long-term external debt obligations, short-term debt, and use of IMF credit. Data on debt come from the World Bank Debtor Reporting System, supplemented by World Bank estimates. US dollar figures for debt are converted at official exchange rates.
Floating interest rates:
Interest rates which vary according to international financial markets.
G-7/8 (Group of Seven; now 8):
Group of wealthy industrialized nations including the U.S., U.K., Germany, France, Japan, Italy, Canada, and Russia.
G-24 (Group of 24):
Formed at the 1972 Lima meeting to represent the interests of the developing countries in negotiations on international monetary affairs. Members include: Algeria, Argentina, Brazil, Columbia, Congo (Kinshasa), Cote d'Ivoire, Egypt, Ethiopia, Gabon, Ghana, Guatemala, India, Iran, Lebanon, Mexico, Nigeria, Pakistan, Peru, the Philippines, Sri Lanka, Syria, Trinidad and Tobago and Venezuela. China attends as an invitee.
Gross Domestic Product (GDP):
The value of all final goods and services produced in the country within a given period. Does not include depreciation of physical capital or depletion and degradation of natural resources.
Gross National Product (GNP):
GDP plus the income residents receive from abroad for factor services (labor and capital), less similar payments made to non-residents who contribute to the domestic economy.
Inter-American Development Bank:
An international financial institution created in 1959 to help accelerate the economic and social development of its member countries in Latin America and the Caribbean. The Bank is owned by 46 member countries, including 28 regional members from the Western Hemisphere and 18 non-regional members from Europe, Asia and the Middle East. The Bank's headquarters are in Washington, DC.
International Development Association (IDA):
An institution within the World Bank Group, established in 1960 to provide low-interest loans at long repayment periods for the world's poorest countries.
International Financial Institutions (IFIs):
Include the World Bank, International Monetary Fund (IMF) and the regional development banks (Inter-American Development Bank, African Development Bank, Asian Development Bank, European Bank for Reconstruction and Development.)
Long Term Debt:
Composed of public debt, publicly guaranteed debt and private non-guaranteed external debt. Long term debt is linked to loans with an original or extended maturity of more than one year.
Middle Income Debtor Country:
In 1994, defined as countries with a GNP per capita between US $726 and US $8,955.
Multilateral Creditors: see IFIs.
Terms for debt reduction and rescheduling in the Paris Club for the poorest and most indebted countries. Naples Terms currently provide a 50% or a 67% reduction in the Net Present Value of some bilateral debt of 27 countries. The reduction is applied either to interest and principal or to the stock of debt.
Net Present Value (NPV):
The amount of money which would need to be invested at a commercial interest rate at the beginning of the period of debt repayments such that, with accumulated interest, it would be just adequate to meet all the payments as they fall due.
Official Development Assistance (ODA):
Financial assistance in the form of grants or low-interest loans for developing countries and multilateral institutions provided by official public agencies, including state and local governments. Excludes assistance for military expenditures.
Wealthy creditor nations which also belong to the Organization for Economic Cooperation and Development (OECD). The Paris Club meets on an ad-hoc basis to negotiate debt owed or guaranteed on a bilateral basis by official debtors to official creditors. The Paris Club secretariat was set up by the French Ministry of Finance.
Short Term Debt:
Loans which come due in one year or less.
Structural Adjustment Programs (SAPs):
Policies of the World Bank and other IFIs designed to stabilize and restructure faltering economies. Stabilization policies include both monetary policies (e.g., devaluing the currency, increasing interest rates, reducing credit supply) and budgetary policies (e.g., reducing public services, cutting civil service, and privatizing state owned enterprises.) Restructuring policies include market policies (e.g., lifting wage and price controls, removing subsidies) and trade policies (e.g., removing barriers to trade, promoting export growth, and inviting outside investment.)
Toronto Terms, Enhanced:
A menu of options for reducing official debt in low-income, debt-distressed countries. The terms, agreed upon at the 1988 G-7 summit include lower interest rates, a longer period before payments must begin, longer repayment periods, and partial write-offs of debt-service obligations.
United Nations Development Program (UNDP):
Created in 1966, the UNDP is responsible for administering and co-ordinating development projects and technical assistance provided under the auspices of or in liaison with the UN system of development agencies and organizations.
Putting Life Before Debt is published by CIDSE (International Cooperation for Development and Solidarity) and CI (Caritas Internationalis). The document is a result of the two groups' research and advocacy on debt and development issues. It is presented as a Catholic contribution to a reflection on values, opinion formation, policy making and action in light of both networks' continuing concern about the human and social burden of debt on the poor.
Putting Life Before Debt calls for the cancellation of the unpayable debt of the most impoverished countries by the year 2000. It also recommends improving the Highly Indebted Poor Countries (HIPC) initiative, linking debt cancellation with investment in human development, ensuring that debt relief decisions are made in a transparent manner, and establishing a fair process for negotiation between debtors and creditors.
The recommendations, which provide a framework for a just and lasting solution to the debt problem, are also a powerful reminder of the need to recognize the suffering imposed by the debt and to respond appropriately. As Pope John Paul II has stated, Thus, in the spirit of the Book of Leviticus (25:8-12), Christians will have to raise their voice on behalf of all the poor of the world, proposing the Jubilee as an appropriate time to give thought ... to reducing substantially, if not cancelling outright, the international debt which seriously threatens the future of many nations (Tertio Millennio Adveniente #51).
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©1998 CIDSE, Caritas Internationalis, and United States Catholic Conference · Designed by: Catholic Relief Services