Friday, May 19, 2006

The Weird Wild World of Debt Relief

For over a decade there has been a powerful international movement to provide debt relief to developing countries. This movement included religious leaders, heads of state, rock stars, a large coalition of US conservative religious organizations, and on and on. They had votes in the US congress. They had money and power and visibility. They had a strong argument: debt repayments from the south to the north are crippling the south. And in many cases very poor countries were being forced to pay back loans that in the US or Canada a court would declare illegitimate - because it was money borrowed by individuals that the IMF or World Bank turned into public debt, or because the debt was acquired by an unelected dictator who no-one should have been loaning money to.

Despite having all this on their side, the debt relief movement didn't get very far. Oh, a little program called Highly Indebted Poor Countries Initiative was started in which the indebted poor countries had to jump through hoops for three to six years in order to get some help on their interest payments, but no serious successes were achieved.

Then the US invaded Iraq.

As the occupiers of Iraq, the US had to deal with Iraqi international debt, which amounted to a staggering $120 billion. Only $4B of this amount was debt held by the US; most of the rest was owed to France, Germany, Russia and some Arab countries. Notice that all of those countries opposed the US invasion of Iraq. The US tried to declare that the debt was, in legal terms, "odious" and so did not need to be repaid, but that ploy failed. The US then tried to get the international community to give debt relief to Iraq, but that too was not accepted. In particular, French President Jacques Chirac spoke out against the US plan and said that if Iraqi debt should be forgiven, then so should the debt of all poor countries. It's not clear at all that Chirac meant what he said, but Bush & Co. called his bluff and said Well okay then: let's have a widespread program of debt relief.

Bush & Co. didn't actually fall on their noggins and start caring about the poor and dying of the world. They wanted to clear the Iraqi debt, and they thought they could manipulate the situation so that they could achieve a dual goal of crippling the IMF and World Bank. So they proposed that the debt of some poor countries should be forgiven, and the entire cost of the operation should be borne by the IMF and World Bank.

They almost won. They got some of the Iraqi debt written off, and the $55 billion cost of the debt relief program is falling almost completely on the IMF (the World Bank escaped relatively unscathed). Eighteen other countries also got some relief, including Benin, Bolivia, Burkina Faso, Ethiopia, Ghana, Guyana, Honduras, Madagascar, Mali, Mauritania, Mozambique, Nicaragua, Niger, Rwanda, Senegal, Tanzania, Uganda and Zambia.

It isn't all champagne corks and car horns though. The countries still have to abide by IMF/World Bank restructuring conditions - reductions in infrastructure spending which have long been an impediment to their development. Also, in some cases the debt relief is matched by a reduction in future loans, which means some countries might not actually get anything out of it. It's possible that Tanzania might even lose funding from having its debt forgiven.

Still, it's an interesting insight into the self-interest that drives humanitarian achievements.

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