The G7’s Cologne summit in June 1999 announced debt relief of up to 90% for some of the poorest countries. One year later, in occasion of the G7’s Okinawa meeting (July 2000), the CADTM (Committee for the Abolition of Third World Debt) calculated that the concrete decisions which have been taken by the OECD governments and the IFI’s since June 99 represent something like $ 2.5 billion (which represents 1.2 % of the poorest countries external debt and 0.12% of the Third World debt).

We have already denounced the dishonest character of the G7’s and IFI’s declarations and the marginal nature of their impact on both the stock of debt of these countries and its servicing. As is usual after a G7 summit, the purpose of the autumn meeting of the International Monetary Fund (IMF) and World Bank (WB) in Washington in September 1999 was to orchestrate the intentions of G7. We thus had a media campaign orchestrated in a masterly fashion by the international financial institutions: "don’t worry, folks: the debt of the poor countries has been cancelled". The IMF and the WB were bold enough to replace Structural Adjustment Programmes (SAPs) with a new revolutionary terminology: the Strategic Framework of the Fight against Poverty (SFFP). This time, there would be simultaneously debt cancellation and reduction of poverty. Between June 1999 and March 2000 there was an accumulation of announcements. In June 1999, in Cologne, the G7 announced $100 billion in cancellation of debts. In July 1999, Canada (a member of G7) said that it would cancel 100%. In September 1999, in Washington, what had been decided in June was announced once again. A few days later Bill Clinton did better: he announced a 100% cancellation of debt for 36 poor countries. At the end of December 1999, Gordon Brown, the UK Chancellor of the Exchequer (Minister for Finance), also announced 100%. His French colleague, Sautter, did not want to be left behind and also announced 100% cancellation. At the end of February 2000 the Italian government joined Canada, the USA, the UK and France in announcing 100% cancellation. The Belgian government emerging from the June 1999 elections also declared its support for the decisions of June 1999.

Can one’s reaction be anything other than delight? Hasn’t the campaign for the cancellation of the Third World debt largely achieved its goal? No. Because the facts are obstinate: as of July 2000, that is thirteen months after the meeting of June 1999, only 4 out of 41 Heavily Indebted Poor Countries (HIPCs) had benefited from debt relief: Bolivia, Uganda, Mozambique and Mauritania. In the best of cases, for these three countries, the average reduction of the amounts they will have to repay will be about 35%. A long way from the 90% announced in June 1999. After cancellation, Mauritania, where 62 % of the population is illiterate, will still have to devote a larger sum to repaying its debt than it will spend on education! Mozambique and Guyana, two countries which in June 1999 were also supposed to profit from an immediate debt reduction, saw their cases deferred sine die. According to calculations carried out by Jubilee 2000 (Great Britain), among the Heavily Indebted Poor Countries likely to profit from debt cancellation in the years to come, 15 will have to repay each year after cancellation more than before cancellation.

How can we speak of improvement then? Only if we are thinking from the point of view of the creditors of the North rather than the peoples of the South. We must, then, relaunch the movement for the cancellation of the Third World Debt.

13 questions and answers on the debt relief granted by the G7, the Club of Paris, the IMF and the World Bank

1. Why will the debt reductions announced not allow an improvement in the situation of the poor of the Third World?

The creditors who plan to grant debt relief condition this on the continuation of the renamed structural adjustment programmes, "Poverty Reduction Strategy Paper" (PRSP). Many studies carried out by independent economic experts, UN institutions and social movements show that the effects of these policies are disastrous because they increase the fragility of the economies in the countries to which they are applied. Reports by UNCTAD (in particular the excellent section devoted to sub-Saharan Africa in the 1998 report on Trade and Development) on structural adjustment in sub-Saharan Africa show that the African countries have drawn no benefit from more than ten years of adjustment. A fall in household consumption, fall in production by local producers for the domestic market, an increase in food dependency, an acceleration of the fall in value of the products exported by Africa on the world market, an increase in the tax burden on those on low incomes: such are some of the negative consequences of the adjustment policies raised by UNCTAD.

2. Didn’t the World Bank and the IMF take account of these criticisms when announcing in 1999 the installation of a strategy for the reduction of poverty?

To avoid the increasing criticism they have had to endure from all corners, these institutions announced a rethink which is in fact a fake. The hard core of the adjustment policies will remain entirely in application; the only "improvement" consists in announcing an increase in expenditure on health and education and the taking into account of "civil society" in the drawing up of the "Poverty Reduction Strategy Paper". We have been able to analyze closely, on the ground and in the texts, the policies which African governments are committed to carrying out as from the year 2000. The increases in expenditure on health and education are microscopic. They essentially consist in increasing expenditure by 2% after having reduced it continuously for fifteen years (which is equivalent to a reduction of about 20 %). At this rate it will be 2010 before the level of expenditure of 1985 is reached. During this time, the health situation will continue to worsen, deaths due to respiratory, diarrhea and malarial related diseases will not fall, the deaths caused by the AIDS pandemic will increase, and several countries will see the life expectancy of their population reduced (see the recent reports of the World Health Organization for Africa). The growth of malnutrition will continue to weaken the population, especially women. In terms of education, the young population of school age will significantly increase without finding any adequate framework. The admirable efforts of African teachers and health workers and the few percent increase in expenditure after 15 years of austerity will not be enough to improve the situation. The proof that the World Bank has not really changed is in the area of education, where it has continued to advocate the recruitment as teachers of people with no qualifications on salaries of (according to the country) between 30 and 80 euros (or USD) per month, for temporary jobs.

3. What has been the attitude of the specialized economic press?

Shortly after the G7 summit in Cologne in June 1999, the Wall Street Journal said that the debt relief measures were a technique used by the World Bank and the IMF to balance some bad loans by replacing them with new ones. Which allows these two institutions to finance their recent errors at the expense of the Treasuries of the big industrialized countries. There is not the shade of any generosity here. The extremely pro-market English weekly The Economist states in its Christmas 1999 edition that the content of the "presents" recently announced by the United Kingdom, the United States and France in the area of debt relief amount to much less than their "packaging". The title of the leading article says it all: "Who believes in fairy tales?". In fact, the figures announced by the governments of the North in the area of debt relief, in spite of their impressive amount, refer to credits which correspond to nothing more concrete. Thus, the Economist reveals that two thirds of the debt incurred by sub-Saharan Africa since 1988 was generated by interest stemming from former loans. In total, for the rich countries to give up hope of recovering similar credits is not to offer millions of dollars to the poor countries. It is simply to stop claiming interest which accumulates in an irrational manner over the years and which keeps the weaker countries in an inextricable situation. "Taken as a group, the fifty poorest countries of the world spend more than twice on the servicing of their debt than they receive in aid. That does not make any sense", recognizes the leader-writer.

4. Which countries could possibly benefit from a reduction (cancellation) of debt?

The country must be very poor (approximately $760 annual income per capita) and heavily in debt (here ratios such as "stock of debt/export income" are applied). The criteria are so strict and arbitrary that very poor indebted countries are not regarded as "heavily indebted poor countries" (HIPCs). Not included in the category of HIPC for possible reductions are countries like Haiti, Bangladesh, Pakistan, Nigeria, Peru, and Ecuador, not to mention India or Indonesia. However 80% of the poorest people on the planet live in countries which are not regarded as HIPCs.

The country must be considered as offering political guarantees. Thus HIPCs like the Sudan, Liberia, the Democratic Republic of Congo and Somalia cannot imagine for one moment that they will enter the process of selection as long as they will not radically change their orientation

The countries must have successfully applied a structural adjustment policy laid down by the IMF and WB over 3 to 6 years. These are the two institutions which determine if the country has been successful.

In spite of this success attained after 3 or 6 years, the level of debt must be still regarded as insupportable by the IMF and WB. Let us imagine the following case: the performance is such that the country has seen its debt becoming relatively lighter, in particular because the value of its exports has increased (it happened in 1998 for Uganda where coffee is the principal export. The price of coffee had just gone up conjuncturally). As a consequence, the IMF and WB can consider that the level of debt has become bearable, so it is not necessary to reduce the debt burden. Conclusion: the authorities of a HIPC may find it beneficial to worsen the situation just before it is subjected to the examination of the IMF and WB. This seems to have been the case in October 1999 in Mali and November 1999 in Benin.

The country must turn up alone before the Paris Club (see below).

If the Club gives the green light the country must again visit the IMF and the WB to obtain relief on its repayments with regard to these two institutions.

Since September 1999, a new stage has been added: the authorities of the country must draw up a document entitled "Poverty Reduction Strategy Paper".

5. Does the debt relief come all at once?

The relief does not come all at once, the process takes years. The countries must have previously carried out budgetary economic reform and neoliberal austerity policies for 3-6 years. These policies must have received the approval of the IMF and the WB. After this probationary period, the applicant country must go before the IMF which gives (or does not give) the green light to pass to the following stage. This consists of the country in question presenting itself before its public creditors of the Paris Club. The Club may decide to grant a reduction, even a cancellation. Contrary to the declarations of the governments relayed by the majority of the media, it is impossible to cancel 90% or 100% of the debt owed to the public creditors. Why? Because this reduction (cancellation) relates only to the amount of bilateral debt going back to the so-called "pre cut off date" of payment. For the following countries, this is equivalent to the amount of the bilateral debt prior to the year 1983 (!): the Central African Republic, Senegal, Togo, Ivory Coast, Madagascar, and Niger. The bulk of the bilateral debt in the year 2000 has been accumulated after the cut off date and is largely made up of arrears.

An additional stage: if the Paris Club gives its green light to apply the Cologne terms to the country in question, the country returns to the IMF and WB in order to demand a reduction in the amounts to be repaid to them.

6. What does the relief granted by the World Bank and the IMF amount to?

The IMF and the World Bank can, if they judge that the debt of a country remains insupportable and if it satisfies the conditions of the Paris Club, decide to reduce the amount that the country must repay to them. Theoretical example: a country must repay $52 million to the WB and the IMF over ten years. The WB and the IMF decide to reduce this amount by $20 million. The country will thus repay $32 million instead of 52. Have the IMF and WB forgotten about the $20 million? No, not at all. In order to ensure that they are repaid, the IMF and WB create a trust fund on which they will draw for ten years until the recovery of the $20 million. How is this fund paid for? By contributions from the member states of the IMF and WB, mainly but not solely the most industrialized countries. These contributions are invested by the WB and the IMF on the international financial markets. It is the return from these investments (interest or appreciation) which is used to repay the WB and the IMF. The WB and the IMF thus succeed in making the Treasuries of the member states finance what should be their contribution to the relief. To talk about cancellation in this case thus constitutes a true abuse of language and to add that the IMF and WB are showing generosity is genuinely fraudulent. As the Wall Street Journal correctly puts it, through the HIPC initiative and the mechanism of the trust funds, the IMF and WB have succeeded in making the Treasuries of the member states finance the transformation of old irrecoverable loans. Indeed, the WB and the IMF grant new loans to the HIPCs so that they are henceforth capable of paying on time the remainder of their repayments, in particular to the WB and the IMF. Better than to speaking of a policy of stabilization of the portfolios of the WB and the IMF. And what to make of the fact that the IMF and the WB contribute to the stock market bubble by financing the cost of the operation through new investments on the financial markets!

7. What is the "Poverty Reduction Strategy Paper"?

Criticized for twenty years for their policies leading to the increase in poverty on a planetary scale, the WB, IMF and G7 have decided to link the HIPC initiative to the implementation of policies seeking (once more!) to reduce poverty.

Since the September 1999 meeting of the IMF and WB, the HIPC must submit to the international community a program entitled "Poverty Reduction Strategy Paper".

This program must be elaborated through a dialogue with the civil society of the country concerned. Let us note beforehand that here again there is an additional condition to be fulfilled so as to benefit from the relief.

The contents of such programmes and the procedure to be followed are fairly ill-defined. Indeed, on the level of content, how can one maintain the coherence of the macro-economic framework of structural adjustment by integrating into it a genuine fight against poverty, which requires a redistribution of wealth, a policy favorable to food security, a reinforcement of the state and public services (health, education, infrastructure). It amounts to squaring of the circle. Unless we are talking about cosmetic operations of the type mentioned in answer 2.
Another ill-defined zone: what is meant exactly by "the participation of civil society" in the development of the programme? Up to now there is no answer to this question. One can consequently not base oneself on the concrete experience of the last few months. The case of Mozambique is however eloquent. It was to benefit from "relief /cancellation" of the debt in January 2000. This date had been defined before the meetings in Cologne in June 1999 and Washington in September 1999. In October 1999, the IMF and WB demanded that Mozambique draw up a programme. The government correctly responded that it was unable to draw up such a document within the framework of a dialogue with civil society in 2 or 3 months.

Consequence : the relief/cancellation" was put off sine die. What to conclude? Democratic governments which do not have the capacity to really carry out the exercise in the given time are penalized whereas authoritarian governments, with the help of some civic associations under their heels, could receive merit points allowing them to gain relief? We will see.

The case of Guyana is also eloquent. It was supposed to benefit from relief/cancellation" in December 1999. On the home straight, a complication arose. Faced with popular discontent, the government envisaged conceding a small wage increase of 3.5 % (whereas real wages had fallen by more than 40 %). Consulted on this question, the WB and IMF said that if the government took such a decision, the "relief/cancellation" would be put off. They advised that the case be put to the law courts. Which was done. The decision of the tribunal was a surprise: it awarded a wage increase of 20 %. Consequence: the relief/cancellation" of the Guyanese debt has been put off sine die.

8. What does the Third World debt represent compared to other debts?

According to the World Bank, in 1999 the debt of the Third World countries was equal to $2,060 billion (6 % of the world debt) without counting the former Eastern bloc ($465 billion). These should be placed against the population figures.

The debt of the 41 HIPC countries is $200 billion. The debt of sub-Saharan Africa is $235 billion. The public debt of Belgium rises to $250 billion. Sub-Saharan Africa with 600 million inhabitants is sixty times more than Belgium which has 10 million.

The total debt on a world level is $37,000 billion. The national debt of the United States is $5,000 billion, the debt of households in the United States is $6,000 billion (figures for 1999). The national debt of Japan is $2,000 billion.

9. What do the measurements of relief already carried out since 1996 represent?

The reductions obtained by the HIPCs to date represent at maximum a quarter of one hundredth of the Third World debt (0.25 %) or, in terms of the debt of the HIPCs, 5% of their 1996 debt. The reductions granted certain HIPCs hardly compensated for the increase in the debt of some others.

10. At the end of September 1999, Bill Clinton announced that he would increase to 100% the cancellation of the debt which the HIPCs owe to the USA What does this represents in terms of US budgetary in 2000?

The sum allocated by Congress towards the reduction of the debt owed by the HIPCs tothe United States represents less than 0.05% of annual expenditure on national defense. It is absolutely ridiculous.

11. What do the measures announced by Gordon Brown in the United Kingdom on December 29, 1999 amount to?

It amounts to 635 million pounds over a 20-23 year period. This sum is equivalent to approximately two thousandths of the UK defence budget.

12. Is it true that part of the debt relief granted by the industrialized countries to the HIPCs will be reflected in reductions in their aid budgets?

Yes, very much so. Part of the debt that the governments of the North are cancelling is made up of debts held by the countries of the South with the companies of the North. These debts are assured by organizations like the Office of Ducroire in Belgium, the COFACE in France, the EXIMBANK in the USA.

For example, imagine that the Belgian government announces that it is cancelling $ 4 million dollars of Guinea Conakry’s debt. What does this amount to? It can mean that the budget of the Belgian Co-operation "will compensate" the office of the Guarantee commission with credits of a value of $4 million held by Guinea Conakry with Belgian companies which are insured with the Guarantee Commission. The money will come out of the coffers of the Development Co-operation in Belgium and will pass into the coffers of Ducroire. Ducroire will compensate the Belgian companies concerned. If it has already compensated them, it will use the money received to cancel the credit which it holds on Guinea.

13. In the imaginary case mentioned, Belgium announced that it cancelled a debt of $4 million, how much does this represent for Belgium?

In reality it amounts to much less because the four million represents the value of the debt at the time when it was contracted. In fact the debt is not worth more than 15% of its initial value, i.e. $600,000. For this reason the $100 billion cancellation of debt announced in June 1999 by G7 represents in reality a good deal less. This also goes for the cancellation measures announced by Clinton and Gordon Brown (see questions 10 and 11).