World's Poorest Countries Are Still Waiting for Real Debt Relief
Indianopolis News, June 24, 1999 Knight-Ridder/Tribune Media Services, June 22, 1999
New details are emerging each day about the G-7's latest debt relief initiative for poor countries, which was officially announced over the weekend. The leaders of the seven countries (the US, Japan, Germany, Britain, France, Italy and Canada) have presented the initiative as a bold step forward.
But one should always read the fine print in these matters, especially when dealing with loan sharks. Of the 36 countries that the G-7 claims will gain from the new debt relief, only about 16 will see their debt payments significantly reduced. And even these countries will still be spending more on debt service than on desperately needed health care and education.
The IMF and World Bank passed their Heavily Indebted Poor Countries (HIPC) initiative in 1996, but three years later, only two of the 41 HIPC countries have seen any reduction in their debt payments. The latest G-7 move constitutes a recognition, in response to continuing international protests by religious and anti-poverty groups, that the HIPC plan has failed.
Perhaps the worst feature of the new G-7 initiative is that it will actually increase the power of the International Monetary Fund over the indebted countries. Putting the IMF in charge of debt relief is like appointing Bill Gates to head up the anti-trust division at the Justice Department. To call it a conflict of interest is an understatement.
One of the IMF's most important functions for decades has been to act as a cartel organizer for the world's most powerful creditors, including not only international financial institutions like the Fund itself and the World Bank, but also private multinational banks. This was demonstrated most recently in the Asian economic crisis, where the IMF's major accomplishment was to force the governments of South Korea and Indonesia to guarantee the bad loans that foreign investors had made there.
In the poorest and most indebted countries, the IMF has been most concerned with shifting resources to the export sector, so these economies could earn the maximum foreign exchange with which to pay off their debts. The Fund has not been overly concerned when these policies have led to environmental destruction, reduced domestic investment, or cutbacks in desperately needed social services such as health care.
The IMF has used its enormous power to force impoverished and indebted countries to adopt its policies, which are written into "structural adjustment" agreements with the Fund. The G-7 initiative would allow the IMF to continue certifying which countries qualify for debt relief, on the basis of their adherence to the Fund's often destructive policies.
In order to qualify for debt relief under the new initiative, countries would have to undergo "structural adjustment" for three years; if they stray from IMF strictures during the following three years, the previous debt relief would be cancelled.
There are bi-partisan efforts underway in Congress to break the IMF's stranglehold over the world's poorest countries, and to promote real debt relief. The latest is a bill proposed by Congresswoman Cynthia McKinney, Democrat of Georgia, which would cancel the debts of the 41 HIPC countries (plus Haiti) to the United States. It would also deny U.S. funding to the IMF until it has cancelled the debts that these countries owe to the Fund, and until it stops making "structural adjustment" loans to poor countries.
It is worth noting that two of the countries that are not expected to see any debt service reduction from the latest G-7 initiative are Congo (Democratic Republic) and Nicaragua. Congo (formerly Zaire), a war-ravaged and desperately poor country, has an enormous $13 billion foreign debt. Most of this was borrowed by the late dictator Mobutu, who seized power in 1965 with the help of the U.S. Central Intelligence Agency, and was backed by the United States for most of his 32-year rule. The money went right out of the country into Swiss bank accounts, yet Congo's poor are expected to shoulder the burden of this borrowing.
Nicaragua is one of the most indebted countries in Latin America, with a debt that is three and a half times its annual income. The United States government still owes Nicaragua more than $17 billion from a 1986 judgement by the World Court-- the same court we went to when American hostages were taken in Iran. The judgment was for part of the damages inflicted by illegal paramilitary actions, funded by the U.S. government in Nicaragua during the 1980s.
Maybe it's time we looked at both sides of the ledger when we total up the poor countries' debt.
Mark Weisbrot is co-director of the Center for Economic and Policy Research, in Washington, D.C. and president of Just Foreign Policy. He is also the author of the forthcoming book Failed: What the "Experts" Got Wrong About the Global Economy (Oxford University Press, 2015).