Drop the debt “ V” debt rescheduling

The world’s most impoverished countries are forced to pay over £30 million EVERY DAY to the rich world in debt repayments, while poverty kills millions of their people. Under pressure from campaigners, the leaders of the world’s richest countries have made promises to end the debt crisis – but so far they have taken very little action.

The world’s most impoverished countries are in a debt crisis. Even though they have already repaid far more than they originally borrowed, they are still forced to pay over £30 million EVERY DAY to the rich world in debt repayments, rather than spending the money on vital healthcare and education. The UN estimates that 7 million children die unnecessarily each year, from diseases that can be cured and from unclean water that could be made safe. If money which poor countries pay to the rich world in debt service was spent instead on tackling poverty, the lives of millions of

The numbers Original debt of the world’s 52 poorest and most indebted countries: $375 billion Amount of debt that the G7/8 promised to write off*: $100 billion Amount of debt actually written off so far: $46 billion Proportion of the debts of the 52 poorest/most indebted countries written off: 12% Amount of money the 52 poorest/most indebted countries still have to spend on debt repayments: over £30 million every day Number of countries eligible for the international Heavily Indebted Poor Countries initiative (HIPC): 42Heavily Indebted Poor Countries initiative Proportion of bilateral debt that the G7 countries have promised to cancel for the 42 HIPCs**: 100% Proportion of multilateral debt that the World Bank and International Monetary Fund will eventually cancel for the 42 HIPCs: 65% (approx) Total amount of multilateral debt owed by the 42 HIPCs that is NOT eligible for cancellation: $93 billion Cost to UK of cancelling our ‘share’ of the outstanding multilateral debt owed by the 42 HIPCs: £3 per person per year over 10 years

Debt hurts Zambia’s debt repayments to the IMF alone cost $25 million, more than the country’s education despite 40% of rural women being unable to read and write. Sub-Saharan Africa receives $10 billion in aid every year – but has to pay back at least this amount in debt repayments. Malawi spends more on servicing its debt than on health, despite nearly one in five Malawians being HIV positive. Despite being the second country to be granted debt cancellation (after Uganda) Bolivia still spends more on debt servicing than on health, even though its infant mortality rate is 10 times that of the UK.

Cancellation works In Benin, 54% of the money saved through debt relief has been spent on health, including on rural primary health care and HIV programmes. In Tanzania, debt relief enabled the government to abolish primary school fees, leading to a 66% increase in attendance. After Mozambique was granted debt relief, it was able to offer all children free immunisation. In Uganda, debt relief led to 2.2 million people gaining access to water.

Where did it come from? Poor countries were lent money in the 1960s and 1970s. Some was for useful purposes, but much went to projects that did not benefit the country’s people or that helped to prop up dictators. As interest rates shot up in the 1970s and 1980s, many countries ended up still owing more than the original loan, even after years of repayments. To make matters worse, lenders have attached damaging conditions to debt relief, for instance demanding privatisations which benefit big corporations in the rich world, or forcing cuts in public spending, meaning that some countries are prevented from employing teachers or buying basic medicines. People in the poor world are suffering both from repaying the debts and from these conditions.

Hasn’t all poor countries debt been cancelled? No! At the beginning of 2005, only $49 billion of debt has been cancelled. Low income countries still owe over $523 billion. Cancellation so far has happened through the Heavily Indebted Poor Countries (HIPC) initiative, the current - grossly inadequate - international debt relief scheme.

The UK The UK and a number of other rich governments have agreed to cancel the debts owed directly to them (bilateral debt) by the countries that have reached the first stage of the HIPC initiative. (This is 27 countries so far.) The other indebted countries eligible for HIPC will also receive this cancellation when - and if - they reach this stage. Until then they must continue repaying their debts and the money will be held in trust.

What more could the UK do now? Even if all G8 countries agree to cancel 100% of multilateral debt for a number of countries, there will still be more to do. The debt cancellation must be permanent – offering the fresh start demanded by the Jubilee movement – not just lasting until 2015 as the UK currently proposes. The UK government, and all other lenders, must put an absolute end to the destructive and unjust conditions imposed by HIPC. All creditors must agree to debt cancellation for all countries that need it, including those poor countries currently receiving no debt relief, such as Bangladesh and Nigeria.

Trade issue Poor countries need the opportunity to create wealth through fair access to trade. But they also need debt cancellation. If the debt is dropped, poor countries will have more money to spend on public services, including education and healthcare, as well as in infrastructure and equipment. Without this investment they will find it very hard to trade competitively in world markets. Debt cancellation and trade justice go hand in hand.

Isn’t increasing aid the answer? Poor countries need a lot of investment. Giving aid, whilst simultaneously enforcing debt repayments, is to give with one hand whilst taking with the other. In fact, debt cancellation is more reliable than aid, as it can't be switched off when the political climate changes. The reality is that poor countries need debt cancellation, increased aid and important improvements in how aid is delivered in order to meet the huge challenges they face

Heavily indebted countries The Heavily Indebted Poor Countries (HIPC) initiative was set up in 1996 by the World Bank and the IMF, to reduce poor countries' debts. Although it was reformed in 1999, it is still failing the world's poor. It is time to abandon HIPC, and ensure that there is 100% cancellation of unplayable debts for every country that needs it. HIPC takes too long. Only 18 countries have so far completed the HIPC Initiative, nearly ten years after it was launched. HIPC offers far too little. It is not designed to cancel 100% of debts but to reduce debts to a level which the creditors claim is 'sustainable'. But even countries which have completed the process struggle to meet their debt repayments, and have to divert money from vital public services. HIPC is too limited. Only 42 countries are 'eligible' - but only 27 of these have even qualified for eventual debt cancellation through the scheme. Some of the others are never likely to qualify for any debt relief at all. A number of others, such as Bangladesh, Nigeria and Peru, are equally poor and heavily indebted, but are not eligible. Debt cancellation should be available for all countries that need it.

News February 2005 President of Tanzania calls for 100% debt cancellationPresident of Tanzania calls for 100% debt cancellation, 26 February 2005 G7 open door to 100% debt cancellation - but don't deliver yetG7 open door to 100% debt cancellation - but don't deliver yet, 04 February 2005 Mandela tells G7 to MAKE POVERTY HISTORYMandela tells G7 to MAKE POVERTY HISTORY, 03 February 2005 Canada promises 100% debt reliefCanada promises 100% debt relief, 02 February 2005 January 2005 'Bury the debt' is part of international calls for action'Bury the debt' is part of international calls for action, 18 January 2005 Debt moratorium for tsunami countries not enoughDebt moratorium for tsunami countries not enough, 12 January 2005 Marshall Plan for Africa a 'pipedream' unless debt wiped outMarshall Plan for Africa a 'pipedream' unless debt wiped out, 06 January 2005 MAKEPOVERTYHISTORY in 2005MAKEPOVERTYHISTORY in 2005, 01 January 2005 December 2004

Zambia Zambia, formerly one of sub-Saharan Africa’s wealthiest countries, is now one of its poorest and least developed. The living standards of Zambians are in free-fall and Zambia is now lower placed on the human development index (HDI) than in With a life expectancy of just 33 years, Zambians die earlier than people anywhere else in the world. The Zambian Ministry of Health has said that it expects that half the population will die of AIDS, and roughly half the teachers trained every year die of the disease.

The debt The Zambian government is crippled by the massive debt recalled by international financial institutions. Debt repayments are making it impossible to respond to the health, educational and economic challenges facing Zambians. In 2004, Zambia used 7.35% of its Gross Domestic Product (GDP) ($377 million) repaying its debt. It spends twice as much repaying its debt as it does on education. Zambian students struggle to learn in classes containing 70 pupils on average. Zambia has endeavoured to meet the stringent conditions imposed by HIPC. At the behest of foreign governments it has privatised public utilities, removed subsidies, deregulated its markets and opened its doors to foreign imports. In spite of these efforts, by 2003 Zambia’s debt had been reduced by only 5% of the levels promised under the HIPC initiative. The failure to cancel Zambia’s debt in full is having catastrophic consequences for poor Zambians. Current trends suggest not only that Zambia will be unable to meet most of the Millennium Development Goals (MDGs), but also that it gets further from them as time goes on.

Paris Club The Paris Club, which bills itself as "an informal group of official creditors," is studying ways to reduce Iraq's debt loadstudying ways The club traces its roots back nearly half a century, to an Argentinean financial crisis during the "Peronist Unrest" of Teetering on the brink of default, the troubled country met with several of its sovereign creditors in Paris to arrange a rescheduling of its debt payments. The negotiations helped stave off an economic catastrophe and convinced the creditor nations that—with multilateral cooperation—they could prevent future Third World implosions. By meeting to come up with less onerous payment plans, which would typically include at least partial debt forgiveness, creditor nations could ensure that everyone got paid in a timely fashion. (If only a few creditors played nice, the debtors would have to pay off the less forgiving nations first.)Peronist Unrest