In search of a heart at Bretton Woods

by Charlotte Bagorogoza

Charlotte Bagorogoza, 36, comes from a large family of nine children rooted deeply in the Christian faith with a passion for love, fairness and justice. As a single mother of three children, she does a perfect balancing act of juggling her maternal responsibilities with the demands of leading one of the most vibrant African debt campaign groups, Jubilee Plus Uganda and working as an accountant and micro finance project officer for the Uganda Boys and Girls Brigade. You can reach her at: bbgbu@infocom.co.ug or charlobiJ2000@yahoo.com

Global Jubilee campaigners need to prepare ground for all the parties in the debt arena to adopt sustainability as the main goal of all their efforts in the primary objective beyond advocating for debt cancellation.

The primary objective of the HIPC initiative was basically to cancel what the Bretton Woods institutions deemed to be un-payable debt in order to bring debt repayment to sustainable levels. IMF and World Bank economists defined and designed formulae for sustainability as that portion of export earnings that goes to repayment of principle and interest on debts. That portion was set at 20 to 25 percent!

Historically, levels of 10 to 20 percent were deemed unsustainable. Post war Germany, a defeated World War I aggressor, was ordered by victorious allied nations to pay massive compensation additional to 26 percent of the value of exports. This was considered too high and Germany failed or refused to make any payments at this level. Fifteen percent was felt to be too high and excessive. It is a historic fact that after World War II Germany refused to pay 10 percent of its export earnings to debt repayments because it felt that was unsustainable. Eventually they settled for 3.5 percent!

HIPC appears to have a very narrow perception of exports while past debt schemes contained additional measures that ensured sustainability. The World Bank itself said in 1995 that debt service ratios over 15 percent were high and debt to export ratios above 200 percent unsustainable. Today, the same World Bank and IMF insist on higher levels they considered unsustainable.

No European country including Britain, France and Italy is repaying its loans at levels higher than four percent. Why then do they insist poor African countries pay what they refuse to pay and consider unsustainable? We are forced to make sad assumptions in the absence of a plausible answer.

Civil society redefines sustainability as that status of economic performance that can maintain the well being of the people protecting their human rights irrespective of the ratios. If the IMF and World Bank are genuinely serious about sustainability, they must vigorously encourage growth and demand that debts are repaid only out of growth. This cannot be hard for the West to accept because Germany was allowed to defer payments when there was insufficient growth. I am sure African debtors can be allowed the same latitude. Let us stop this cruel nonsense of adjustment through contraction that forces poor countries to pay from severe austerity rather than growth.

Sustainability criteria based on government fiscal revenue could be a more acceptable option than the current one based on exports as it would be based on physical income actually in the hands of an indebted country. HIPC takes away such a huge amount of national revenue that social services have been virtually disabled or destroyed because debt service is given higher priority over spending on education and health. Poor countries should be given enough room to spend on development targets that were set by the development assistance committee of the OECD. A combination of human development and the government revenue- based criteria would lift development higher on the list of priorities of debt relief schemes or initiatives.

Sustainability must be based on how much a HIPC needs to develop than on how much it can pay. This would give such Western initiatives a more human and humane face that we have all needed to see. If they were compassionate to Germany after the damage, holocaust of World War II, surely it cannot be hard to extend the same kindness to us? The economic success of Europe after World War II is based on this very principle that places development and compassion above debt service.

Behind all the figures and statistics they are fond of tossing around are real human faces, most of which belong to children. It is a moral hazard to refuse to lend the needy and poor in fear of cancellation. The donor community must put this issue of sustainability ahead of everything as they gather for the Consultative Group meetings and the G8 summit meeting in Genoa, Italy in July this year.

Lives of millions of children in Africa, Latin America and South East Asia depend on what the West decides to do on this matter. It is cruel for Western donor countries to think only in terms of the maximum amount that can be squeezed out of impoverished countries. Time has really come for Bretton Woods to find its heart.