Clare Short Backs Down Jubilee 2000 Coalition

 

Clare Short, UK Secretary for International Development, initially backed down after storms of protest greeted her comment that debt relief was “irrelevant” to Honduras and Nicaragua (link to Clare Short article) . Her comments, in a BBC interview on Friday 6th November, followed appeals from Jubilee 2000 debt campaigns in Honduras and Nicaragua to Western Governments to cancel the debts owed by Honduras and Nicaragua, amounting to $10.4 billion. She later retracted her comments in a joint statement with the British Chancellor calling for an immediate moratorium on interest payments and speeded up HIPC debt relief for Nicaragua and Honduras. On Monday 9th Ms Short reversed her position again arguing that those causing for debt relief did not understand the situation and were “silly.”

Following her interview on BBC radio on the 6th November, British MPs immediately received phone calls and letters complaining about her comments. Debt became the major news topic across the whole media over the weekend as the Coalition pointed out that promised British aid for Nicaragua and Honduras amounts to 29 hours of debt service. The Independent in a powerful cartoon on the 6th November showed the aid literally being drowned out by the floods of debt. An editorial in the Financial Times, on the 9th November appealed for debt relief to be added to the equation of emergency relief. Letters appeared throughout the mainstream press highlighting the immorality of giving aid with one hand and taking debt service with the other.

Gary Streeter, opposition spokesman for International Development, responded to the popular protest by putting down a motion criticising Clare Short's comments and calling for an immediate moratorium on Nicaragua and Honduras' debts. On Sunday, Gordon Brown, the UK Chancellor stepped into the debate and Clare Short was forced to reverse her position and reluctantly join the call for debt relief.

The need for debt relief

The floods have devastated Honduras. Entire villages in the north of Honduras are under water, and as many as a third of the houses in the Honduran capital, Tegucigalpa, where 1 million people live, have been badly damaged or swept away by the raging waters of the Choluteca River. The mayor, Cesar Castellanos, who has since been killed in a helicopter crash, said that “blocks and blocks of poor and middle-class neighbourhoods, shops, they have all been completely razed.” In Nicaragua over a thousand people were killed following a mud and rock landslide caused by the overflowing of a lake in a volcano crater.

Against this tragedy, is the huge burden of external debt. As the international Red Cross seeks to raise $7.4 million in emergency to meet the devastating impact of Hurricane Mitch, the countries' are paying $2.2million every day in debt service to rich creditors.

The natural disaster has highlighted the `unnatural' disaster imposed by creditor countries: every year Honduras pays about 80% of total government revenue in external debt repayments. Nicaragua is little better with a figure of 51%.

Director of Jubilee 2000 Coalition in the UK, Ann Pettifor, said:

“The huge debt burden is a strain on Nicaragua and Honduras at the best of times. Now, when they have been hit by disaster, it is a noose around their necks, slowly being pulled tighter. Rich creditors should lead the way by cancelling the debts owed by these countries instead of demanding their repayments, year after year.”

Honduras's total external debt has tripled since 1980 and stood at $ 4.5 billion in 1996. Nicaragua's total external debt is $5.9 billion, and until recently Nicaragua had the highest debt per capita of all countries in the developing world. Both countries are in the Heavily Indebted Poor Countries Initiative, but debt relief under the initiative is not due for many years. Nicaragua will have to wait until 1999 before a decision is made on how much debt relief it will receive. It will then have up to three years to wait before receiving anything. Honduras, however, will not reach a decision point within HIPC until 2001, and the IMF holds the view that Honduras does not need full HIPC debt relief.

This natural disaster throws a new and tragic perspective on the scandal of the international debt crisis, and the shame of creditor countries and banks who continue to demand payment. Government resources in Nicaragua and Honduras urgently need to go to the massive recovery programme. There is no room for the servicing of external debt in the current emergency, and Jubilee 2000 calls upon the creditor countries and institutions to recognise this reality and to cancel all due debt repayments from these two countries immediately.

UK Government in confusion over debt relief strategy

In weekend statements, the Chancellor said he would call on the IMF and World Bank to speed up the provision of debt relief already in the pipeline. At present, Nicaragua and Honduras together pay £1,300,000 per day in debt service (interest and principal repayments). Gordon Brown proposes to speed up the debt relief already in the pipeline under the Heavily Indebted Poor Countries Initiative (HIPC), as he has already suggested for post-conflict countries.

“This might reduce the debt payments of Honduras and Nicaragua to a still impossible £700,000 per day. But even under a speeded up timetable it would take at least a year to negotiate and another year to implement,” said Ann Pettifor, Director of Jubilee 2000 Coalition..

So far, Britain has promised aid of £1,550,000 – just enough to allow these two countries to pay 29 hours of debt service at the moment, and 53 hours of debt service if proposed debt relief were granted. This is simply not enough. Banana and coffee crops have been destroyed, so Nicaragua and Honduras will have no income to pay debt service, just at a time when they need an estimated £3 billion to rebuild.

“Not only is it inhuman to demand debt service payments now, it is economic nonsense – there is no way these countries can keep paying at this astronomic level for the next two years until they finally gain a tiny amount of debt relief,” Pettifor commented.

Various press reports suggest that Gordon Brown is also calling for a moratorium in interest payments. However in a response to an emergency question tabled by the Conservative opposition, Ms Short rejected a proposal to freeze debt service payments being made by hurricane-struck Honduras and Nicaragua, in an apparent breach of policy declared by the Chancellor, Gordon Brown. Ms Short told the House of Commons that it was “not in the power of the government to call for a moratorium” – despite the fact that Gordon Brown was reported to have called for a moratorium just hours earlier.

A moratorium on debt is, at the very least, the first step that the UK Government can take. However it will only help a little as it will only cover interest payments. For Honduras and Nicaragua it would only reduce debt service from £1,300,000 per day to £870,000 per day, and would mean that Britain's emergency aid would cover 43 hours of debt service.

“Why just a moratorium? Why not just cancel the debt? That would release nearly £500 million per year to be spent on rebuilding. The alternative is to give these countries more aid so they can pay their debts”, Pettifor said.

“Clare Short clearly prefers aid. She worries about debt relief because she fears that poor countries will not carry out what she considers to be `sound policies'. But these countries have elected governments, and the public will be watching closely to see that money for reconstruction is spent wisely. Despite the best will in the world, the people of Nicaragua and Honduras will be better monitors of reconstruction spending than the bureaucrats at DfID,” said the Jubilee 2000 Coalition director.

In angry exchanges in the House of Commons, Ms Short was challenged on Britain's reluctance to write off any debt independently of other creditors. She dismissed such action as “silly” – on the basis that it would simply mean other lenders would have to write off less. However, this technical problem has recently been solved with a new approach from the Norwegian government.

Ann Pettifor said: ”Clare Short told her critics they did not understand debt – and offered to give them a `seminar'. She would be well advised to call for a seminar from the finance minister of Norway, who has already found a way around the problem. Norway is preparing to write off debts independently of other creditors, and Britain could take a leaf out of their book.”

Clare Short also attacked the Central American countries for a “lack of preparedness”. Ann Pettifor said: “One reason for the lack of preparedness is that Nicaragua and Honduras have been paying £1.3 million each day in debt service. This is money that has been taken away from schools, health services and disaster planning. In effect, Clare Short is admitting that these countries are being punished for paying their debts instead of preparing for the worst hurricane in 200 years.”


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