Civil Society Statement on Haiti’s Debt: Campaigners express dismay at IMF’s new debts to Haiti

We express our serious disappointment that the International Monetary Fund has extended $102million loan to Haiti, with no mention of debt cancellation. Haiti will now owe the IMF over $250million.

Hundreds of thousands of activists have called on their governments in recent days to ensure that substantial grant aid, rather than loans, is given to Haiti and that all of Haiti’s debts are wiped out.

Although IMF head Dominique Strauss-Kahn had given his support for efforts to “delete all the Haitian debt, including our new loan" last week, there were no signs of cancellation at the IMF meeting which took place in Washington DC last week. The World Bank (owed $39million) and Inter-American Development Bank (owed $447million) have also expressed support for debt cancellation, though have yet to formally agree a deal. Much of this money was lent at a time when Haiti had massive, odious debts recklessly and immorally lent to dictatorial regimes.    

Only two days after a developing country – Venezuela – announced it’s intention to cancel Haiti’s debt outright, we find in unconscionable that the IMF, run by the richest countries in the world, cannot do the same. We are concerned that the Haitian disaster – like the financial and economic crisis last year – has become another opportunity for the IMF to extend its operations. This is further proof of why the IMF should not be involved in development.

Moreover, the IMF communication is misleading in announcing loans as part of the relief effort that the international community has mobilised for Haiti. Actually the IMF loan will have to be spent as part of Haiti’s current programme with the Fund, which includes harmful economic and policy conditions which undemocratically force Haiti, amongst other things, to raise electricity tariffs and freeze public sector pay. We call on the IMF and its Board to lift them immediately.

We support the views of Haitian civil society groups like PAPDA: the Haitian Advocacy Platform for Development:

“The debts imposed by the IFIs and the major world powers have   contributed to destroying our country. It's the equivalent of an  earthquake which has lasted from late in 1983 when we signed the first   standby agreement with the IMF. These loans have caused earthquakes, aftershocks and tremors which have undermined our institutions and our capacity to respond to a crisis of   this magnitude."

We call on the IMF to immediately and unconditionally cancel all of Haiti’s debt, including its new loan, and for rich countries to make large grant aid available to Haiti as restitution for centuries of damage inflicted on that country. 

Signed:

Jubilee Debt Campaign, UK

Debt and Development Coalition Ireland

11.11.11- Coalition of the Flemish North-South Movement

Plate-forme Dette & Développement

CCFD-Terre Solidaire

Jubilee Scotland

Campagna per la Riforma della Banca Mondiale

Observatorio de la Deuda en la Globalización

European Network on Debt and Development

Both ENDS

Share the World’s Resources

Ekvilib Institute

Diakonia

Committee for the Abolition of Third World Debt

The Norwegian Coalition for Debt Cancellation

Norwegian Church Aid

Attac Norway

The Norwegian Solidarity Committee for Latin America

Latin American Solidarity Centre

KOO- Koordinierungsstelle der Österr. Bischofskonferenz  f. internationale Entwicklung und Mission

World Development Movement UK

Aktion Finanzplatz Schweiz

new economics foundation uk

Forum Syd

Ecologistas en Acción (Spain)

CNCD (Belgium)

Attac España

erlassjahr.de

Freedom From Debt Coalition

The Development Research Center  (Bulgaria)

Vision du Monde

Christianaid (UK)

Berne Declaration (Switzerland)

Broederlijk Delen (Belgium)

Campaña ¿Quien debe a Quien?

Manuel zaguirre, President SOTERMUN (Spain)

Santiago González, Inrernational Dep. USO (Spain)

COEH: Coordination Europe-Haïti (a platform of 65 European NGO’s and solidarity groups in Europe working with Haïti)

Jubilee Debt Campaign: European campaigners demand G7 cancel Haiti’s debts

Campaigners from across Europe joined with Haitian civil society groups today in condemning the failure of the International Monetary Fund to cancel Haiti’s debts, and the Fund’s extension of new loans to Haiti. As G7 finance ministers prepare to meet in the far North of Canada tomorrow, campaigners released a statement demanding the immediate and unconditional cancellation of Haiti’s entire debt.

Camille Chalmers of the Haitian Advocacy Platform for Development (PAPDA) said:

“The debts imposed by the IFIs and the major world powers have contributed to destroying our country. It's the equivalent of an earthquake which has lasted from late in 1983 when we signed the first  standby agreement with the IMF. These loans have caused earthquakes, aftershocks and tremors which have undermined our institutions and our capacity to respond to a crisis of this magnitude."

A cross-party group of British Parliamentarians (1) led by Sally Keeble MP also signed a letter to Chancellor of the Exchequer, Alistair Darling, to support debt cancellation and calling the situation faced by Haiti “completely unacceptable”.

In addition, the European Network on Debt and Development released a briefing outlining Haiti’s debts which show that Haiti owes as much debt now as was cancelled by the international community only 9 months ago: $1.2 billion. It also shows that in the coming 9 years the IMF will expect Haiti to repay at least $104 million – and over $500million will be expected in that time by all of Haiti’s creditors combined.

-- ENDS

Notes:

(1) Other Parliamentarians: Peter Bottomley MP, Ben Chapman MP,  Andy Reed MP,  Baroness Tonge and Diana Abbott MP

Below:

Civil Society Statement

For more information contact:

Nick Dearden, Jubilee Debt Campaign

020 7324 4724; 07932 335 464

Debt Policy Update, November 2009

“While it has taken world leaders 15 years to cancel 100 billion dollars in debt for 40 countries… the International Monetary Fund (IMF) has estimated that 10 trillion dollars have been spent on government intervention in response to the financial crisis so far.”

Wipe Out Illegitimate Debt

Summary:

1.         The State of Debt Relief

The World Bank/ IMF report into how debt relief is proceeding. It finds: 

-    $92.7billion of debt cancellation has now been given under HIPC and MDRI;

-    In the last year three countries have qualified for full cancellation: Burundi, CAR and Haiti;

-    Afghanistan, Liberia and the Republic of Congo may reach full debt cancellation next year;

-    New litigation brought by non-participating creditors against DRC, Sierra Leone, Sudan and Zambia;           

-    Warning of debt vulnerability: Afghanistan, Ethiopia, Malawi, Mauritania, Nicaragua and Sierra Leone.

2.         Vulture Funds Update

The government’s consultation on vulture funds has now closed and the Treasury are deciding how to take this forward. There are several possible ways we can get legislation before the General Election. The government is believed to be extremely sympathetic to legislation (though probably without our amendments).

3.         A New Debt Crisis?

European network EuroDad have written a new paper examining figures which indicate serious debt problems for dozens of countries. They report that the debt-to-GDP ratios of 28 low-income countries exceeded 60%, twice the threshold the IMF considers sustainable.  The report makes the case for a moratorium on external debt service payments for the least developed countries releasing US$30.5 billion in non-debt creating funds.

4.         Cancelling Unjust Debts – Update

The World Bank has issued an incomprehensible article turning illegitimate debt into a formula. We hope it will be more serious in its report on debt work-out mechanisms to the African Development Bank in Tunisia next March. Meanwhile, a new paper by Norwegian Church Aid reports on a high level seminar on illegitimate debt.

5.         The IFI Meetings

World Bank and IMF annual meetings in Istanbul agreed on the ‘flexibalisation’ of the Debt Sustainability Framework, which guides the lending of poor countries. On the instructions of the April G20 summit, the DSF now ‘allows’ poor countries to borrow more. We are worried that it also lets international donors ‘off the hook’ in terms of providing grants to fight poverty.

6.         Climate Change and Debt

A sneak preview into our new report on the connections between debt injustice and climate change – due out next week. 

In detail:

1. The State of Debt Relief

Every year the IMF and World Bank produce a Status of Implementation Report on HIPC and MDRI – the two pillars of debt relief agreed to date. This is a key document in understanding how effective or otherwise debt relief has been to date and what change there are likely to be in the coming year.

The full paper for the paper, released in September 2009, can be found here:

http://www.imf.org/external/pp/longres.aspx?id=4365

but what follows is highlights.

Debt relief to date:

-          In total there are 40 potential HIPC-eligible countries (hereafter known as HIPCs) of which 35 have reached decision point (i.e. have received some interim relief and need to stay ‘on track’ to reach completion point) and 26 have past completion point (i.e. received full debt relief). On average this cancellation represents 40% of affected countries GDPs. The good news is that poverty-reducing expenditure in these countries has increased by 2% of GDP, on average, between 2001 and 2008. The bad news is that progress towards MDGs has been uneven, with more than half of post-completion point HIPCs unlikely to meet their MDGs.       

-          The total amount of irrevocable debt cancellation to date stands at $92.7billion. An additional $24.1billion is not subject to servicing and together with $182million promised to non-HIPC poor countries, this makes $117.1billion in some sense covered by debt relief schemes to date. Of the $92.7billion, nearly $48billion is under HIPC (which makes debts sustainable for eligible countries) and $45billion is MDRI (in a sense a ‘top up’ scheme promised at Gleneagles in 2005 which cancels 100% of most debt owed by HIPCs).

-          In the last year three countries have reached completion point: Burundi, Central African Republic and Haiti. Two countries have reached decision point: Togo and Cote d’Ivoire. The IMF and World Bank stress that they have been flexible in the application of the rules to allow these countries to graduate.   

Debt relief over the next year/ ongoing obstacles:

-          Over the 12-18 months Afghanistan, Liberia and the Republic of Congo are well placed to reach full debt cancellation. Togo and Cote d’Ivoire are further back but ‘on track’. Guinea-Bissau, DRC and Chad have been at at interim stage for a long time (6-8 years) and have significant problems but show some signs of ‘hope’. Guinea, Somalia, Sudan and Eritrea face very significant difficulties, while the Kyrgyz Republic has only recently expressed interest in debt relief but might now not be eligible.

-          Large multilateral banks and Paris Club creditors have provided debt relief but some smaller creditors have still not ‘bought into’ the scheme. Non-Paris club creditors have only delivered about 35-40% of what they ‘owe’ (which accounts for 13% of total costs of debt relief). Some commercial creditors (which account for 6% of total costs to date) also account for large outstanding debts. It is from both sources that the possibility for vulture activity emerges – as  creditors sell their debts cheaply and the buyers sue the country concerned. The report notes that the number of known cases of litigation against HIPCs has decreased this year, and cites the World Bank’s ‘debt buyback’ scheme as a key reason for this. However, we would also note that the report only lists known vulture cases based on a questionnaire sent to HIPC countries, and that many out-of-court settlements which the report lists will have given vultures a pay-out – e.g. a mining concession – in return for dropping the legal case. Vultures still remain the winner in these cases. It also reports new cases launched by creditors against DRC, Sierra Leone, Sudan and Zambia showing the continued threat vultures pose.            

-          The HIPC/ MDRI process was always intended to make countries debt burdens sustainable. To this end a Debt Sustainability Framework (DSF) guides countries borrowing limits (and indeed punishes them if they exceed it) and is supposed to guide creditors as to where they should give grants and where loans.  Changes to the DSF are detailed in the report-back from the IFI meetings (see below). However, debt campaigners have always been critical that the DSF focuses too heavily on ‘payability’ (i.e. ‘does a country earn enough foreign currency to repay its debts’, regardless of other commitments that country has to fulfil – like education, healthcare, development). Even within these bounds, this report admits that “a few post-completion-point countries remain vulnerable to debt-related problems. Five are still characterised as being at a high risk of debt distress.” Five countries represent 20% of all completion-point countries. Moreover, this does not yet represent the impact of the financial crisis – we expect to see higher figures next year. 

-          Furthermore, the report warns of an increase in vulnerabilities for: Afghanistan (interim), Ethiopia, Malawi, Mauritania, Nicaragua and Sierra Leone (all completion point) and possibly Mali (also completion point). The report “does not indicate a risk of a major debt crisis in HIPCs” but admits there is a particular worry for post-completion point countries for whom we can only hope creditors will provide grants or highly concessional (low interest, long repayment) loans. This is especially problematic as the report points out that these resources will be drying up in rich countries as a result of recession. If such resources are not forthcoming and the financial crisis is prolonged, the report warns, it could “lead to the re-emergence of debt related problems in post-completion-point HIPCs who have exhausted all of the standard avenues of debt relief.”  This is precisely why debt campaigners argued that a once-and-for-all solution to debt that HIPC/ MDRI represent was not possible and why we now need international arbitration procedures. 

-          Sudan, Somalia and Zimbabwe (which might have an exception made and be judged on eligibility for relief in future) are all in protracted arrears to the IMF, with Sudan accounting for 75% of total arrears to the IMF. Sudan, and to a lesser extent Zimbabwe, have made small payments to the IMF in the last year. All three countries will be denied permission to use their SDR allocation (made after the G20) until their obligations to the fund are discharged. All countries must pay their arrears before they can receive debt relief (this has been a major problem in the past, and countries often have to receive new loans, not subject to debt relief, to repay their arrears – one reason why entering the debt relief scheme can lead to much larger debt servicing in the short-(or not so short) term).      

List of Heavily Indebted Poor Countries (as of end-July 2009)

2. Vulture Funds Update

JDC’s main campaign is focussed on prohibiting vulture activity through UK courts. Vultures are companies that buy-up developing country debt and sue the debtor country for full immediate repayment plus interest. They often make many hundreds of times what they paid for the debt when they finally receive payment. 

In July the British government launched a consultation around a proposal to deal with vulture funds. We supported the government’s proposal – which proposed forcing vultures to accept ‘HIPC treatment’ when trying to sue a country in the UK. This means an enforced discount of up to 90% of the amount claimed. In effect it would make vulture activity impossible against HIPC countries in the UK.

However, we also believed it was important to extend similar legislation to other developing countries, in the same way as suggested in a Ten-minute Rule Bill submitted by Labour MP Sally Keeble earlier this year. Our response to the consultation was, therefore:

-          a wider remit to protect more developing countries from being sued;

-          inclusion of debts contracted after countries start the HIPC scheme;

-          transparency requirements forcing companies who wish to bring cases to disclose information about themselves and their claim.

We’d like to thank all those organisations which took part. The Treasury are now deciding how to take this forward. There are several possible ways we can get legislation on this before the General Election:

-          if the government tables legislation and announces it in the Queen’s Speech

-          through a Private Members’ Bill

-          through an amendment to a government bill

The government is believed to be extremely sympathetic to legislation (though probably without the amendments we have suggested in our consultation submission) but are short on time.

The Conservative Party has not been so sympathetic and our chances of getting legislation if they form the next government is very slim. However, we are still trying to convince Tory MPs of the case and have got a handful to sign our EDM in the face of opposition from Party HQ. 

We have written a ‘business case’ for vulture prohibition which we hope will help: 

http://www.jubileedebtcampaign.org.uk/download.php?id=859

Essentially it says vultures are bad for business because:

-          Vulture activity inhibits ‘legitimate’ trade with, and investment in, countries which might be targeted;

-          Vultures by their nature prevent collective action and therefore predictability, undermining more realistic creditors in the process;

-          The very size of the profit vultures make is proof of dysfunction in the market, while vultures attempts to negotiate local ‘investment’ distorts the market and prevents countries concerned getting a fair price.  

We believe US and UK courts taken together account for half of the vulture cases heard internationally. US campaigners have also managed to get legislation tabled in Congress, and we hope to offer support to them in coming months.

At the IFI meeting (see below), Ministers from HIPC countries said: “lawsuits by rogue creditors remain a key problem” and “strongly welcome the efforts in Belgium, the UK and US to pass laws to restrict the possibilities for lawsuits”.

Action: Please talk up the importance of vulture legislation to all of your Parliamentary contacts and to government contacts – even if it’s tagged onto other important subjects. There is a real opportunity in the next 6 months to enact a law on vultures, after which the opportunity will probably be lost. Anyone who wants to help fund some research into vultures, as well as helping to fund hearings on vulture funds in the European Parliament, please do get in touch.

3. A New Debt Crisis?

EuroDad has released a new paper asking about the potential for the financial crisis to cause a new debt crisis in poor countries. We will produce a campaigner’s briefing based on this in the next few weeks. You can download the full report here: 

http://www.eurodad.org/debt/article.aspx?id=118&item=3831

and below are some highlights:

-          As a result of the financial crisis, demand, bank lending, investment, remittances, domestic currencies, and most commodity prices have fallen sharply. This endangers what debt sustainability has been achieved.

-          In March, the IMF reported that the debt-to-GDP ratios of 28 low-income countries exceeded 60%, twice the threshold the IMF considers sustainable for countries with weak governments. The United Nations Conference on Trade and Development (UNCTAD) went further; citing concerns in 49 least developed countries in a February report written by Yuefen Li, the head of the debt and development finance branch. In its LDC report, UNCTAD stated: “there is potential for a new debt crisis to emerge in poor countries. For many LDCs, the current debt crisis can jeopardise their hard-won debt sustainability”.

-          The G20 response to date has actually been typical ‘business as usual’: massive amounts of new lending courtesy of the IMF, of the US$ 500 billion of the IMF’s new resources it has provided US$170 billion in new loans to 32 countries to date. This has been helped along by ‘flexibalisation’ of the Debt Sustainability Framework. By simply re-writing the rules and without properly consulting developing countries and civil society organisations higher levels of indebtedness are now possible. The changes will basically allow many poor countries to borrow more without being deemed in ‘debt distress’. Yet more lending will only defer problems for indebted countries and add to years of heavy debt repayments.

-          This was the wrong direction. Rather than issuing new loans, campaigners have called for a moratorium, as a minimum, on external debt service payments for the least developed countries. That would release extra non-debt creating funds for investment in poverty reduction and infrastructure development – over US$30.5 billion in extra finance for 64 countries. The moratorium should be made available on demand to all those countries which are currently unable to achieve the MDGs by the target date of 2015. The call for a moratorium has been joined by UNCTAD Sec-Gen and HIPC Finance Ministers. It should also be additional to – and not substitute for – pledges to increase ODA.

-          But this would also represent only a starting point. We need structural solutions to break the indebtedness and dependency of developing countries:

o        First and foremost, an international debt tribunal empowered to write off unpayable and unjust debt burdens. There still exists no international procedure for the fair, predictable and transparent resolution of sovereign debt difficulties. The established initiatives, like the Highly Indebted Poor Country Initiative, are ad-hoc, creditor-designed and creditor-led. Key-features of a fair and transparent arbitration procedure at the international level should be: a neutral decision-making body which arbitrates to determine which debts need to be declared null and void, and which need to be repaid; the rights of both debtor and creditor to be heard by arbitrators; protection of the basic human rights of the citizens of the debtor country; the institution of automatic stay and transparency of process and decisions.

o        Much stronger action on tax havens to restore some $1trillion lost in tax evasion, capital flight and corruption;

o        An end to the imposition of financial liberalisation by the IMF, enabling developing countries more control over capital flows in and out of their economies

As something of a postscript, minister of poor countries have been reluctant to talk of a ‘debt crisis’, possibly because of the ramifications this would have on credit markets. However in a recent meeting with NGOs a UK representative admitted that for some poor countries the situation may become more critical if the effects of the global recession are prolonged. In that situation, he agreed that short-term financing from the IMF is not the right solution. We need more grants for these countries – but the IMF is not a grant making institution so can only encourage others.

4. Cancelling Unjust Debts – Update

JDC’s work over the next year will focus more centrally on the cancellation of debts we regard as ‘illegitimate’ – debts based on loans that should never have been lent and which the creditor should take responsibility for. Ultimately we believe this is the only way to ensure more responsible lending in future. This could be taken forward through a mixture of debt audits – examinations of past lending – and an international tribunal (or debt work-out mechanism) to arbitrate.   

1. Developments at the World Bank and UN

The World Bank has been examining the issue of odious debts, under pressure from civil society, for a couple of years – though not always with the seriousness it deserves. At this year’s IFI meetings, it produced a new book Debt Relief and Beyond (you can purchase the book here: http://tinyurl.com/y8v8wr9 or I might try and summarise in an upcoming policy update). The book contains an attempt to deal with odious debts as a matter of econometrics, which is dealt with in a very funny blog by EuroDad: http://www.eurodad.org/blog/index.aspx?id=3889&blogid=1758, whose conclusion is: “we are not too optimistic about the World Bank’s willingness to seriously tackle the issue of odious and illegitimate debt.”

We hope the next stop will be more fruitful – when the African Development Bank holds its Annual Meetings in Tunisia in March, the World Bank will prepare a paper on whether the issue of debt work-out mechanisms warrants further discussion. We will work with partners to better spell out what we would want to see as the details of any mechanism are as controversial as whether we should have one. Previously the British government has supported the establishment of a mechanism but within the IMF – something unacceptable to debt campaigners. Last week, the government told us that while “not diametrically opposed” to our position on a tribunal, it would have to be based within the IFI structure.

Meanwhile the United Nations Conference on Trade & Development (UNCTAD), with support from the Norwegian government, have embarked on a 3-year study on responsible lending and borrowing. They will meet for the first time at their Debt Management Conference in mid-November to draw up an agenda. More on the outcomes next time.

2. Wipe out Illegitimate Debt 

Norwegian Church Aid, the Church of Sweden and the Lutheran World Federation organised a seminar at the end of 2008, bringing together government and civil society representatives from across the world. Norway, which cancelled some of its developing world debts on the basis of ‘creditor co-responsibility’ recently, and Ecuador, which held the world’s first official debt audit to examine the legitimacy of its accumulated debts, were both leading participants. Ecuador’s subsequent default has led to a write-down on those debts by one-third of their value. Other governments including Bolivia and Paraguay are now proposing a debt audit and actions are also being taken by the parliaments of Brazil and the Philippines.

The report from the seminar can be downloaded from: http://www.eurodad.org/debt/article.aspx?id=114&item=3878

Action: The Brazilian Parliament would welcome a message of support from international civil society organisations explaining why you think illegitimate debt is important to address. If anyone is interested in sending a response, I’d be happy to forward more information and addresses for where to send your message.

5. The IFI Meetings

In October the World Bank and International Monetary Fund held their annual meetings in Istanbul. JDC attended. In terms of debt there was one important, albeit rather technical, discussion – the so-called flexibalisation of the Debt Sustainability Framework – and a number of other smaller discussions.

Crisis or not?

For the IFIs, there was a sense that the crisis is pretty much over, we’re not looking into the abyss anymore, but the recovery is hesitant and uncertain, and there are still problems for poor countries. The IMF wants people to believe it has really changed e.g. the design of its programmes are much more sensitive to the needs of countries, the quota shift, the new package for low income countries.

The possibility of a ‘new debt crisis’ was widely disputed, denied by officials, and even HIPC finance ministers. There was a fair bit of less rosy evidence though – for example:

-          Carlos Braga (World Bank) said that ‘only’ 5 post-HIPCs were at high risk of debt distress, and 7 non-HIPCs;

-          Aloysius Ordu from the African Development Bank commented that 45% of African low income countries were at, or approaching, high risk of debt distress;

-          Justin Lin (WB chief economist) said that 59 out of 98 developing countries may face an external financing gap in 2009;

-          Of course stats from the New Debt Crisis paper (see above).

Debt Sustainability Framework

What is the Debt Sustainability Framework?

The World Bank/ IMF’s Debt Sustainability Framework (DSF) was launched in 2005 to ensure low income countries did not become burdened with unsustainable debts again. In many ways it was a reaction to large amounts of lending by emerging market lenders like China. It guides/ controls whether a country should receive grants or loans or a mix of both.

The DSF has now been adopted by many international lenders. Although concerned for sustainability, debt campaigners have always expressed their concerns about the DSF because:

-          In calculating a ‘sustainable’ level of debt, poor countries are assessed in purely fiscal terms, with the aim of reducing or maintaining debts at a level that each country can just afford to repay. This takes no account of other demands on public funds, or of the poverty of the people. The aim is to protect the creditors, and to maintain some participation of the country within the global economy, providing an opportunity for international investment and trade.

-          Countries which take on what the DSF considers as excessive levels of new unconcessional debt may be punished by having their World Bank grants reduced or terms hardened, regardless of whether adequate grant funding was available. There is no punishment for lenders acting “imprudently”.

-          The DSF fails to reduce countries’ existing debt burdens, being a solely forward-looking tool for assessing new finance. This ignores the importance of debt reduction in freeing up resources to tackle poverty.

-          Debt Sustainability Analyses (DSA) are conducted by the IFIs with little input or ownership from the debtor nation who are bystanders in the process.

-          The DSF continues to focus exclusively on the behaviour of borrowing countries rather than accepting the shared responsibility of lenders.

What are the changes to the DSF?

The April G20 summit asked the World Bank and IMF to review the DSF with a view to giving a more flexible approach to borrowing. The review was adopted at the annual meetings. In general it raises the limits on the amounts of debt the poorest countries can take on before they are deemed to be ‘in debt distress’. To do this it will change the calculations in the following ways:

-          Including expected migrant remittances;

-          Excluding the debt owed by state-owned enterprises if companies are deemed financially viable;

-          Allowing governments to appeal to the IFIs for ‘leniency’ with respect to public investment projects, which are to be considered on a case-by-case basis.

It may well be the case that some counties ability to absorb debts has been increased as a result of careful debt management since 2005. However, debt campaigners are worried that these changes also lets international donors ‘off the hook’ at exactly the time when loans are being seen as a  key way to meet international commitments (i.e. on climate change and to meet aid obligations) and at a time when billions of dollars of loans have been authorised to assist countries recovering from the financial crisis.

As with our criticism of the DSF more generally, we disagree with the international institutions that more loans were the best answer to the crisis, and think debt cancellation, or at least a moratorium, should have been considered as a ‘guilt free’ way of freeing up low income country resources. Officials believed this was costly and not targeted – i.e. would be for those countries who have managed their debts worst, not necessarily those who need finance most.

In some ways the changes in the DSF have been a shock because we have always been told that the thresholds were sacrosanct, but as soon as circumstances have changed, this has gone out of the window. Rather, the changes undermine the whole framework, showing that actually it’s all about the IFIs (creditors) calling the shots and not about the actual thresholds. The changes to the DSF should be monitored closely to see how they impact on the quantity and quality of lending being given to the poorest countries.

Ministers from Highly Indebted Poor Countries regretted that the changes to the Bank/Fund debt sustainability framework has been made without any formal consultation of low-income countries. They complained that “funding provided by the MDBs to combat the global crisis has been frontloading existing financing, not additional financing” and therefore called for a “sharp increase in grants and concessional loans, especially for infrastructure and agriculture”.

Special Drawing Rights

JDC has been generally supportive of the issuance of ‘IMF currency’, despite its drawbacks (i.e. that most goes to richest countries, it isn’t assessed on the basis of need and it could potentially be expensive to use when interest rates rise). We had asked, as a minimum, for SDRs to be transferred from rich to low-income countries, interest-free. However, this has somewhat been knocked on the head by the decision of the UK and France to transfer its SDRs back to the IMF to re-lend to poor countries. This isn’t the same thing at all – itessentially transfers conditionality-free, debt-free currency into conditionality-laden IMF lending. More of the same in other words.  

6. Climate Change and Debt

JDC is working with World Development Movement to make the connections  between debt injustice and climate change clearer – in the hope this will inspire our activists to get involved with climate activities later in the year. There will be a full report in the next policy update, but for now a taster of what our report (to be released next week) will contain:

“The International Monetary Fund (IMF) and the World Bank have, over 30 years, applied a set of conditions to their aid, loans and debt cancellation, which have forced many southern countries to restructure their economies according to a neo-liberal economic model. This has meant privatising national assets, liberalising markets and moving to export raw materials, especially fossil fuels, to repay debts. This has locked in high carbon emissions and compromised the ability of the world’s poorest people to access electricity and fuel. Examples of how this happened include:

-          “More resource extraction. The link between climate change and extractive industries, such as oil, gas and coal, is indisputable. The export of extractable resources has been widely encouraged in poor countries by international financial institutions such as the World Bank and the IMF. A dependency on extractive industries can be highly problematic because prices for such raw materials can be very volatile, leaving countries at the whim of the market. At the same time extractive industries have caused devastation to local communities, through polluting water supplies and displacing people from their homes.

-          “More forests cut down. The IMF and World Bank’s policy of liberalisation has been a catalyst for deforestation. For example, since the liberalisation of investment regulations in Indonesia, state-run environmental protection measures have been reduced. The rate of deforestation for palm oil cultivation has massively increased, reducing the planet’s capacity to absorb harmful carbon emissions.

-          “More export agriculture. Over the last 30 years, World Bank and IMF policies have put pressure on the governments of developing countries to support the production of cash crops for export. These are often grown on large-scale ‘factory farms’ using intensive industrial production methods, at the expense of smallscale, diversified farming systems for domestic consumption. Whilst it is argued that export crops enable poor countries to earn money to repay their debts, the strategy has an unconvincing track record in reducing poverty. This was even admitted by the World Bank in a 2005 study which found that a “development strategy based on agricultural commodity exports is likely to be impoverishing in the current policy environment”. Moreover, such policies have made considerable contributions to climate change through, for instance, increased use of fossil-fuel intensive production methods and the disruption of natural soil processes that allow carbon to be stored in the soil.

-          “More dirty energy. Currently, most electricity generation produces high carbon emissions. To alleviate poverty and tackle climate change, a decentralised, renewable-energy model could be the best energy solution, giving people a greater degree of control over their own lives. However, the IMF and the World Bank have pushed the privatisation of electricity supplies in the south. This has left companies with no incentive to invest in infrastructure which would be beneficial to communities suffering from energy poverty. In a liberalised energy market, it has also been harder to develop renewable climate-friendly technologies such as solar, tidal and wind power, as their development often requires long-term public support.”

For any questions about anything in this update please contact:

Nick Dearden

Jubilee Debt Campaign

nick@jubileedebtcampaign.org.uk

0207 324 4722