Developing countries urgently need "deeper, faster debt relief " says new UN report

The United Nations has warned that the HIPC debt relief package in its current form will not provide adequate resources to comprehensively tackle poverty in the least developed countries. If further steps are not taken, aid effectiveness will stay at reduced levels, and within the next decade, a whole new attempt to tackle the debt crisis will be needed.

In its Least Developed Countries 2000, the UN agency UNCTAD states that almost two-thirds of the 48 least developed countries (LDCs) have an external debt burden which is unsustainable. The report states that past efforts to substantially decrease their debt service payments have failed, and the current Heavily Indebted Poor Countries (HIPC) initiative – even in its enhanced form – fails cancel enough debt to provide a lasting exit from the debt crisis.

"It is not just that debt relief is being supplied too late and too slowly, but that the magnitude of assistance is quite simply too little", the report said. In Prague, creditors took marginal steps to speed up HIPC, but did nothing to increase the debt cancellation on offer, or add other LDCs to the HIPC list.

Jubilee 2000 has always contended that the HIPC deal reached in Cologne would fail to deliver enough new resources to the poor. Most countries who go through the scheme will still end up paying more on debt service than on healthcare and education. The UNCTAD report confirms this, and criticises the scheme as being based on over-optimistic economic forecasts. Of all LDCs in Africa, only two, Lesotho and Sudan, are expect to see a significant rise in gross domestic product to bring them out of least developed country status.

The UNCTAD report said that when assessing the real costs of financing debt relief, creditors should also account for the positive impact of a reduced debt burden on the effectiveness of aid. Currently, official development assistance is often used to repay external debt. If the donor community steps up efforts to provide a truly sustainable exit from the debt trap, the UNCTAD report believes that LDCs may have a brighter future. But if it does not, the "most likely outcome at the end of the coming decade will be a new round of aid fatigue....and a new round of debt relief."

Ann Pettifor, Jubilee 2000 Director said: "The G7 should heed UNCTAD's warning. The current HIPC initiative once again faces justifiable criticism. This report comes after a year of inaction by creditors, despite increasing evidence that HIPC is hopelessly inadequate."

The report also urged rich countries to double their foreign aid - which has dropped by a third in the past decade - and to open their markets to exports from poor countries.