Ending the charade of unaffordable debt cancellation
7 July 2004

Jubilee Research has long called for 100 per cent cancellation of the unsustainable debts of poor countries, and we have always considered that the criterion of an ‘unsustainable’ debt is a country’s inability to discharge that debt without infringing the human rights of its population. Since the establishment of the United Nations’ Millennium Development Goals[i] nearly four years ago, it has also become clear that most of the heavily indebted poor countries (HIPCs) in Sub-Saharan Africa will be unable to reach these goals without a total cancellation of their debt and additional aid.[ii] As things stand they may well not achieve their MDGs for well over another century.

The aim of the World Bank’s 1996 HIPC initiative – to ensure a lasting exit from unsustainable debt burdens for 42 of the world’s poorest countries – has not been realised. So far only 27 of these countries have passed decision point (when they are deemed eligible for the initiative) and only 13 have reached completion point (at which committed debt relief is delivered). Worse still, only two of the HIPC have reached sustainability as a result of the scheme.

We entirely agree with Professor Jeffrey Sachs, special adviser to Kofi Annan, that this is a shocking situation, and that it is high time to end the charade of pretending that 100 per cent cancellation of these debts is ‘unaffordable’. However, while we sympathise with the frustration that caused him to urge the African leaders to‘do it themselves’, we cannot support him in this suggestion.[iii]

In the first place, it is inappropriate to shift the responsibility for this decision away from rich creditors and onto the shoulders of poor countries, who cannot unilaterally afford to default on their debts. Should they do so they would run the risk of being penalised by the multilateral institutions, with further grants being withheld, and of seeing their credit ratings fall to the point where their already fragile economies would be effectively ruined. This option can hardly be recommended, and there is no indication that the alternative – for heavily indebted African countries to form a cartel and default en masse – is a practical possibility.

What is needed, as Jubilee Research has repeatedly stressed, is a just, independent and accountable international framework to arbitrate unsustainable sovereign debt crises on a case by case basis. Such a framework would pre-empt default, and ensure the protection of human rights in debtor countries. The elimination of ‘debt overhang’ would both help the recovery of stressed economies, and enable the scarce resources currently diverted into debt repayments to be redirected into desperately needed social spending programmes.

In the absence of such a judicial process, a country’s ability to meet its MDGs must be taken as the criterion for debt sustainability, and 100 per cent debt cancellation should take place where this cannot be achieved.[iv]

There is no reason why this write-off should not be activated at all possible speed, and the delaying tactics used by the rich world to explain their failure to do so are becoming increasingly intolerable. Full cancellation should be delivered not only by bilateral donors but by the multilateral institutions, such as the IMF and the World Bank, and future aid should be extended in the form of grants, rather than as further debt-incurring loans. Despite their claims to the contrary, it is clear that these institutions can well afford to take such action without adversely affecting their operations.[v]

The rich creditor nations are also shareholders in the multinational institutions, and rather than shifting the decision to default onto impoverished debtor countries, we call upon them again to make good their pledge to relieve unsustainable debt burdens by cancelling 100 per cent of the debt in the poorest countries of the world.

Susanna Mitchell
Jubilee Research at nef