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Groups Urge 100% Debt Relief for World’s Poorest Nations - 2004-06-22

By the 1990’s it was clear that many of the world’s poorest nations were unable to meet their enormous international debt repayments. In 1996 the world’s rich countries launched the Heavily Indebted Poor Countries Initiative which aimed to reduce the debt burden to a sustainable level. Now, debt relief advocates are urging the rich nations to write off the entire debt of the world’s poorest countries. VOA’s Serena Parker reports.

Bono is best known as the lead singer of the Irish rock band U2. In recent years he has taken up the cause of debt relief for the poorest African nations. In May he told a U.S. Senate subcommittee how 27 countries have spent their money after the United States canceled their debt.

“And with that money there has been astonishing results,” he says. “Three times the amount of children in Uganda are going to school (than before debt relief) - what an astonishing thing. We’ve had water holes built by monies freed up by debt cancellation. When others said the money was going down a rat hole, in fact it was going down a water hole.”

The debt relief program Bono was describing is known as HIPC, or the Heavily Indebted Poor Countries Initiative, under which 27 of the world’s poorest countries have been relieved of billions of dollars of debt. This freed up $1 billion a year in debt service that these countries are using for education and health care.

According to Marie Clarke, national coordinator of the Jubilee USA Network, an organization dedicated to debt relief for the world’s poorest countries, these nations have shown they can wisely use the money they would otherwise spend on servicing their debt.

“And in fact, we’ve seen that over a period that a nation receives more access to their own resources, we see health care and education and other development funding on the rise in the nation, but we don’t see a rise in military spending,” she says.

The British government is urging the industrialized nations to consider a 100% debt cancellation for some of the world’s poorest nations, a plan Americans reportedly favor. However, they failed to persuade the other industrialized nations when they met at the G8 Summit this June in Sea Island, Georgia. Instead, the G8 extended HIPC by two years and instructed their finance ministers to consider further change.

According to Marie Clarke, these countries need 100% debt relief now. “It’s especially important for this to go from something that is now being talked about into reality,” she says. “To move away from the rhetoric and into the actual process and plans because we are at a critical moment now, not only in terms of the issue of debt but also in light of the health crises that nations are facing.”

But others argue that efforts to write off 100% of poor countries’ debt are misguided. Martin Gilman, assistant director in the policy department at the International Monetary Fund, says 100% debt relief is not a good idea because it creates deeper problems for poor countries.

“If you simply wipe off debt, then you are sending a signal that contracts don’t really mean very much when you can’t pay,” he says. “This is not a way to encourage entrepreneurs and investors in those economies.”

Without private investment, Martin Gilman says poor countries will remain dependent on foreign aid and government loans. This is how they got into trouble in the first place.

“If you cancel all the debt now -- assuming that politically it could be done -- then what happens next month, next year, three years, five years from now?” he asks. “What are going to be the new resource flows to these countries? Where is it going to come from? If creditors don’t get repaid, what is going to be their incentive to provide new resources?”

John Williamson, senior fellow of the Institute for International Economics, says debt relief as currently practiced, may discourage reform. Countries pursuing sound economic policies do not benefit.

“Countries which handle their debt responsibly, say Bangladesh which is just as poor as many of the African countries that are getting debt relief, but it’s not in the HIPC program because it never got itself into the sort of mess that made it necessary to have a HIPC program,” he notes. “But all of a sudden, instead of putting these other countries on a level playing field with Bangladesh, you’re going to make those countries better off than Bangladesh, and that seems to me to be terribly unjust.”

Singer Bono and groups like Jubilee USA say the real danger is complacency. Countries struggling under a huge foreign debt burden have less to spend on social programs, and their impoverished citizens are more likely to turn to extremism. The world’s wealthiest nations ignore this fact at their peril.