Press release

The CADTM declares G8 countries’ debt cancellation projects a sham

9 June 2005 by CADTM


Far from the geopolitical strategies and the mean-minded calculations of the major powers, the CADTM (Committee for the Abolition of Third World Debt) affirms that total cancellation of the external public debt for all developing countries, while in fact easy to bring about, is diametrically opposed to what the G8 G8 Group composed of the most powerful countries of the planet: Canada, France, Germany, Italy, Japan, the UK and the USA, with Russia a full member since June 2002. Their heads of state meet annually, usually in June or July. countries have in mind for the upcoming summit in Scotland at the beginning of July.

Despite statements by leaders of the world’s wealthiest nations, financing the development of third world countries has been the subject of long debate, without a single firm and satisfactory decision being taken so far. Yet it would be very easy to ask the countries of the South to put an immediate stop to repayment of their external public debt in order to use this money for internal development, under the control of their own people and parliaments.

Today’s situation is a complete fiasco. And the various projects being lined up for the next G8 summit are nothing but smokescreens.

First, the projects concern only the debt held by the World Bank World Bank
WB
The World Bank was founded as part of the new international monetary system set up at Bretton Woods in 1944. Its capital is provided by member states’ contributions and loans on the international money markets. It financed public and private projects in Third World and East European countries.

It consists of several closely associated institutions, among which :

1. The International Bank for Reconstruction and Development (IBRD, 189 members in 2017), which provides loans in productive sectors such as farming or energy ;

2. The International Development Association (IDA, 159 members in 1997), which provides less advanced countries with long-term loans (35-40 years) at very low interest (1%) ;

3. The International Finance Corporation (IFC), which provides both loan and equity finance for business ventures in developing countries.

As Third World Debt gets worse, the World Bank (along with the IMF) tends to adopt a macro-economic perspective. For instance, it enforces adjustment policies that are intended to balance heavily indebted countries’ payments. The World Bank advises those countries that have to undergo the IMF’s therapy on such matters as how to reduce budget deficits, round up savings, enduce foreign investors to settle within their borders, or free prices and exchange rates.

and the African Development Bank. In addition, the British proposal only intends to take over repayments between now and 2015 - a far cry from a 100% cancellation of the debt. Whatever the proposals, they boil down to very partial debt relief - given the name of « cancellation » for propaganda purposes. In other words, it is a sham.

Second, these debt relief measures are always conditioned by the progressive opening of Southern economies to the interests of Northern transnational corporations. The lender countries demand the continued privatisation of the public services and natural resources of indebted countries - a logic that admits no hope of improved living standards for the populations concerned.

Third, the countries that are to « benefit » from the G8’s so-called generosity are only a handful - 27 in all - representing less than 10% of the total population of developing countries. The initiative for heavily indebted poor countries Heavily Indebted Poor Countries
HIPC
In 1996 the IMF and the World Bank launched an initiative aimed at reducing the debt burden for some 41 heavily indebted poor countries (HIPC), whose total debts amount to about 10% of the Third World Debt. The list includes 33 countries in Sub-Saharan Africa.

The idea at the back of the initiative is as follows: a country on the HIPC list can start an SAP programme of twice three years. At the end of the first stage (first three years) IMF experts assess the ’sustainability’ of the country’s debt (from medium term projections of the country’s balance of payments and of the net present value (NPV) of debt to exports ratio.
If the country’s debt is considered “unsustainable”, it is eligible for a second stage of reforms at the end of which its debt is made ’sustainable’ (that it it is given the financial means necessary to pay back the amounts due). Three years after the beginning of the initiative, only four countries had been deemed eligible for a very slight debt relief (Uganda, Bolivia, Burkina Faso, and Mozambique). Confronted with such poor results and with the Jubilee 2000 campaign (which brought in a petition with over 17 million signatures to the G7 meeting in Cologne in June 1999), the G7 (group of 7 most industrialised countries) and international financial institutions launched an enhanced initiative: “sustainability” criteria have been revised (for instance the value of the debt must only amount to 150% of export revenues instead of 200-250% as was the case before), the second stage in the reforms is not fixed any more: an assiduous pupil can anticipate and be granted debt relief earlier, and thirdly some interim relief can be granted after the first three years of reform.

Simultaneously the IMF and the World Bank change their vocabulary : their loans, which so far had been called, “enhanced structural adjustment facilities” (ESAF), are now called “Growth and Poverty Reduction Facilities” (GPRF) while “Structural Adjustment Policies” are now called “Poverty Reduction Strategy Paper”. This paper is drafted by the country requesting assistance with the help of the IMF and the World Bank and the participation of representatives from the civil society.
This enhanced initiative has been largely publicised: the international media announced a 90%, even a 100% cancellation after the Euro-African summit in Cairo (April 2000). Yet on closer examination the HIPC initiative turns out to be yet another delusive manoeuvre which suggests but in no way implements a cancellation of the debt.

List of the 42 Heavily Indebted Poor Countries: Angola, Benin, Bolivia, Burkina Faso, Burundi, Cameroon, Central African Republic, Chad, Comoro Islands, Congo, Ivory Coast, Democratic Republic of Congo, Ethiopia, Gambia, Ghana, Guinea, Guinea-Bissau, Guyana, Honduras, Kenya, Laos, Liberia, Madagascar, Malawi, Mali, Mauritania, Mozambique, Myanmar, Nicaragua, Niger, Rwanda, Sao Tome and Principe, Senegal, Sierra Leone, Somalia, Sudan, Tanzania, Togo, Uganda, Vietnam, Zambia.
(HIPCs), highly publicised since it was launched in 1996, has failed, unable to relieve the burden of debt: according to the United Nations Conference for Trade and Development (UNCTAD UNCTAD
United Nations Conference on Trade and Development
This was established in 1964, after pressure from the developing countries, to offset the GATT effects.

), the 27 countries currently concerned will be making bigger debt repayments in 2005 than in 2003.

Fourth, the major development donors would have us believe they will be freeing up funds for Africa when in reality they are as tight-fisted as ever. Official Development Assistance ODA
Official Development Assistance
Official Development Assistance is the name given to loans granted in financially favourable conditions by the public bodies of the industrialized countries. A loan has only to be agreed at a lower rate of interest than going market rates (a concessionary loan) to be considered as aid, even if it is then repaid to the last cent by the borrowing country. Tied bilateral loans (which oblige the borrowing country to buy products or services from the lending country) and debt cancellation are also counted as part of ODA. Apart from food aid, there are three main ways of using these funds: rural development, infrastructures and non-project aid (financing budget deficits or the balance of payments). The latter increases continually. This aid is made “conditional” upon reduction of the public deficit, privatization, environmental “good behaviour”, care of the very poor, democratization, etc. These conditions are laid down by the main governments of the North, the World Bank and the IMF. The aid goes through three channels: multilateral aid, bilateral aid and the NGOs.
(ODA) remained below 80 billion dollars in 2004, with a large part of it never reaching the communities that need it. On the other hand, debt leads to a constant outflow of capital: developing countries service their external debt to the tune of more than 370 billions of dollars per year.

The CADTM remains extremely vigilant as regards the substance of announcements on debt, the G8 countries having gone back on their undertakings in the past. As of today, no evidence of a massive cancellation worthy of the name has been made public.



CADTM

COMMITTEE FOR THE ABOLITION OF ILLEGITIMATE DEBT

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info@cadtm.org

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