Despite the debt reduction measures for the world's poorest countries promised by the richest seven countries and international financial institutions, the amounts to be repaid by the former will not decrease in the future. Worse still, some countries will have to repay more than before.

By Eric Toussaint

July 1999

On the occasion of the G7 summit held in Cologne, a petition of approximately 17 million signatures collected all over the world asking for the cancellation of poor countries' debts was handed to the heads of state of the seven richest countries. The latter announced on 18 June 1999 that the problem of the poor countries'debt burden had been solved. Ninety per cent of the debt would be written off. This is untrue.

What is the real situation?

The true amount of the announced cancellations comes to a maximum of US$25 billion, that is, about 1% of the total Third World debt (US$2,030 billion, not including the former Eastern bloc, according to the latest World Bank report - Global Development Finance, April 1999). A drop of reduction in an ocean of debts. Seen against the total debt of the 41 poorest countries*, the measures announced represent no more than 12% of their debts, which come to US$205 billion. The majority of the world's poor live in India, Indonesia, Brazil, Bangladesh, Pakistan, and Mexico - none of which are concerned by debt reduction measures.

Furthermore, at best it will take three to six years for the announced sums to be reached. In the short term, to 'benefit' from the measures, the poor countries will have to fulfil draconian conditions (aggravated structural adjustment plans). Probably only 20 of the 41 countries which could benefit from the reductions will qualify for them. (The Democratic Republic of Congo, Sudan, Liberia, Sierra Leone, Angola, will not...) Candidate countries will have to apply harsh austerity measures for three or even six years: reduced purchasing power for the poorest citizens due to increased taxation combined with rising costs of basic commodities, ever more limited access to health care and education, etc. Yet in these countries, 50% or more of the population already live below the threshold of absolute poverty (in cases such as Mozambique and Rwanda, over 70% do).

The measures announced constitute an extension of the initiative taken in 1996 by the World Bank, the International Monetary Fund and the G7 (HIPC or Highly Indebted Poor Countries initiative). Have those measures improved the circumstances of the populations concerned? They have not. The World Bank itself admits this and advocates patience... if the standard of living hasn't improved, has there at least been an improvement of the economic situation of those countries? Are they paying out less in annual debt repayments? No again... On the contrary, those countries have to repay more than they receive.

In 1997, the rich countries lent $8 billion to the poorest countries, while these countries repaid $8.2 billion, that is, $200 million more. The IBRD (the International Bank for Reconstruction and Development of the World Bank group) and the IMF get more from the poor countries in repayments than they lend! For the future, the World Bank has just announced that despite the promised debt reduction measures, the amounts to be repaid will not decrease. Worse still, some countries will have to repay more than before (for example Mali and Burkina Faso).

The G7 has put the IMF and World Bank in charge of overseeing the implementation of adjustment policies. According to the G7 communique, these plans should bring about improved health care and education. Yet how can such improvements be envisaged within the narrow framework of austerity budgets? After debt reduction, Mozambique will still have to devote over 40% of its budget to debt repayments. In such conditions, how can there possibly be improvements in the provision of health care for the population?

It is time to stop plundering these countries.

Public Development Aid has reached an all-time low. It has dropped by 33% since 1990 while the amounts repaid by the entire Third World have not ceased to increase. In 1998, the Third World taken as a whole repaid $250 billion whereas Public Development Aid barely scraped past the $30 billion mark. This means that the Third World transferred eight times as much to the rich countries as it received from the so-called generous Public Development Aid.

The results are there.

According to the World Bank, between 1987 and 1998, worldwide, the number of people living below the absolute poverty line (less than $1 per day) increased from 1,200 to 1,500 million. In fact, as is shown annually by the World Report on Human Development produced by the United Nations Development Programme, it is not the North that is helping the South. It is the population of the South which transfers considerable wealth to the holders of capital in the North, at the cost of intolerable suffering and sacrifices. This transfer is effected through two basic mechanisms: debt repayment, and unfair trading.

At the time of writing, a new debt crisis has erupted, as prices of products sold by the Third World on the world market have dropped considerably while the interest rates applied to service debts have risen. In other words, the Third World countries are earning less and repaying more. On the other hand, the leading industrialised countries are making savings on the cost of importing raw materials from the Third World and the interest rates on their own public debts have dropped since the Asian crisis.

The Third World populations have already repaid more than enough. The external public debts of the Third World countries must be totally written off. To prevent corrupt and dictatorial regimes in the South from taking advantage of this cancellation, their holdings in rich countries must be frozen, and after due investigation, returned to the populations of the Third World countries via development funds run democratically in each country. Other complementary measures must be taken: cessation of structural adjustment plans, introduction of taxation of financial transactions (Tobin's tax)...

To prevent the mechanisms leading to indebtedness from resuming after debt cancellation, further steps must be taken, by laying the foundations of a new, fairer economic and human order. Can't the refusal to cancel the external debt and the continued imposition of demonstrably damaging adjustment policies be considered as a refusal to come to the assistance of endangered populations? - Third World Network Features

* The 41 most highly indebted poor countries by World Bank criteria are: Angola, Benin, Burma, Bolivia, Burkina Faso, Burundi, Cameroon, Central African Republic, Chad, Congo, Democratic Republic of Congo, Equatorial Guinea, Ethiopia, Ghana, Guinea, Guinea-Bissau, Guyana, Honduras, Ivory Coast, Kenya, Laos, Liberia, Madagascar, Mali, Mauritania, Mozambique, Nicaragua, Niger, Nigeria, Rwanda, Sao Tome and Principe, Senegal, Sierra Leone, Somalia, Sudan, Tanzania, Togo, Uganda, Vietnam, Yemen, and Zambia.

About the writer: Eric Toussaint is President of the Committee for the Cancellation of the Third World Debt (COCAD), and author of Your Money or Your Life, published in English by Pluto Press, London, 1999 and Vak, Bombay, 1999.