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Drop the Debt

New World (Dis)Order

By Sasha Post

Your father was a drunk, an abusive tyrant who skipped town while you were still a kid. Now you’re grown, with children of your own, and times are tough. Your little girl is chronically ill and the drugs she needs don’t come cheap. Your son made it to college, but his financial aid only goes so far. To top it off, it turns out dad was also a compulsive gambler, and he managed to rack up a sizeable debt with the wrong bunch of guys. Now they expect you to pay up, or else. What choice do you have? Too bad for your boy though, he’s had to drop out of school and start working full time. And with those payments eating into your paycheck, it looks like your little girl won’t be getting her medicines any time soon.

Rough story, huh? Unfortunately, it’s the reality for poor countries throughout the world, struggling under the burden of international debt.

During the 1970s, creditors like the International Monetary Fund (IMF) and the World Bank were flush with “petrol dollars,” profits generated by the OPEC oil monopoly. In a display of remarkable unrestraint, these creditors pushed questionable loans on developing countries. Prominent among the loan recipients were a cast of unscrupulous dictators who used the easy cash to pad their Swiss bank accounts and repress their own citizens. Selfless leaders like Mubutu of Zaire, Marcos of the Philippines, Suharto of Indonesia, and Idi Amin of Uganda may no longer be in power, but thanks to the debt they incurred their legacies live on.

Today, sub-Saharan Africa hemorrhages more money in debt payments each year than it spends on health and education combined. Nations that lack the resources to provide basic services for their citizens—less than one percent of HIV positive Africans have access to treatment—must allocate large portions of their budgets to debt payments. Around the globe, poor nations struggling toward growth are finding their efforts stymied by debilitating debt burdens. Even in those cases where countries incurred debt under legitimate regimes, it hardly seems fair to put the interests of rich creditors before the satisfaction of basic human needs.

But there is some hope. In recent years, international pressure has yielded critical concessions from rich country creditors. The first and most important came in 1996, when the IMF and the World Bank—the largest lenders to poor nations—announced the creation of the Heavily Indebted Poor Countries (HIPC) Initiative. The HIPC Initiative identified 42 eligible countries with “unsustainable” debt burdens that were then given the opportunity to have their debt burdens reduced to more “sustainable” levels.

Unfortunately, the HIPC initiative is flawed. To begin with, it measures “debt sustainability” as the ratio of a country’s annual exports to its debt burden, a problematic metric which renders impoverished nations such as Haiti, Bangladesh, and Nigeria ineligible for assistance. If a country receives HIPC status it must then agree to strict macroeconomic conditions—such as limits on government spending—which are intended to keep deficits low and inflation down. In practice, however, these constraints often force indebted nations to impose user fees on health and education services, making them inaccessible for many citizens. Perhaps the most glaring failure of the HIPC Initiative is that HIPC nations will still end up paying 2/3 of their original debt service.

Despite these problems, HIPC’s limited and conditional debt assistance has shown promise. Tanzania, for instance, has received three billion dollars in debt relief—money which has gone toward eliminating student fees for primary school education, thereby encouraging 1.6 million more students to enroll. Cameroon used a $113 million cut in debt service to fund their nascent AIDS program. Mozambique has put a portion of their debt service cuts toward a rural electrification effort.

These examples give us a glimpse of the enormous potential that more extensive debt relief holds for poor countries. Indeed, organizations like Jubilee are calling for full debt cancellation for all impoverished debtor nations. And experts argue that such a commitment is altogether feasible for the IMF and the World Bank. Debt cancellation is not ultimately a question of resources; it is a matter of political will.

The IMF and the World Bank often respond that full debt relief will hurt developing countries more than it will help them. It will spook lenders, dry up credit, and leave poor countries in worse straits than ever. The rebuttal—offered by economists such as Nobel Prize winner Joseph Stiglitz—is that creditors will actually be more inclined to lend to countries that, thanks to debt relief, are able to invest in health and education and situate themselves squarely on the path to future growth. An economically sound nation will be more likely to pay back its debt than a floundering nation with negative growth.

The time for excuses has past. In May, President Bush signed an authorization bill committing U.S. support for deeper, less conditioned debt relief for HIPC nations, especially for those suffering from AIDS crises. While it’s nothing visionary—it’s surely not a call for full debt cancellation—the bill promises practical steps in the right direction. But the language is not binding. The Bush administration must flex its considerable muscle within the IMF and the World Bank to push for adoption of the bill’s provisions. If you get a chance, give the Treasury Department a call (202-622-5500) and tell them as much.

Sasha Post ’05 is a social studies concentrator in Adams House. His column appears on alternate Thursdays.

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