The burden of unpayable debt was lifted in Mozambique among others

Credits: Caritas

In July 2005, world leaders at the G8 Gleneagles summit proudly announced, “100% cancellation of debt”. This acknowledgement that poor countries need cancellation of 100% of debts was a huge step forward, and it would not have happened without the tireless efforts of campaigners over many years.
The Catholic Church played a key role in the Jubilee Campaign. The Vatican’s strong position in favour of debt cancellation for poor countries was a major force behind the successes of the campaign. 
However it is not the end of the story.

What was promised?
Leaders promised 'full' cancellation of debts owed to the World Bank, International Monetary Fund (IMF) and African Development Fund, but only for those countries that complete the Heavily Indebted Poor Countries (HIPC) initiative, which can require poor countries’ governments to change their economic policies in line with conditions decreed by the World Bank and IMF.

What will this debt relief mean for poor countries?
The amount being cancelled per country varies from US$340 million for Guyana to US$3.9billion for Uganda. The total actual benefit each year - that is, the combined money that poor countries will save by not paying debt service each year - should be US$600m to US$1 billion. This is far short of what is needed - but substantial enough to make a huge difference for those countries that do benefit.

Why isn’t this ‘100%’ debt cancellation?  This deal…

Only applies to some countries. Countries that are not allowed to enter HIPC are being offered no debt cancellation. Caritas calculates that at least 60 low-income countries need total debt cancellation immediately if they are to stand any chance of meeting the Millennium Development Goals by 2015.

Only cancels some of their debts. Only debts owed to the World Bank, IMF and the African Development Bank will be cancelled. Many countries still owe to other lenders. For instance, the four Latin American countries included at this stage are paying huge debts to the Inter-American Development Bank. Payments from these four will total US$1.4 billion over the next five years.

Only cancels debts from before a cut-off date. Even the 19 qualifying countries will only get  94% of their IMF, World Bank and African Development Bank debts cancelled. Debts acquired after 2003 from the World Bank, and after 2004 from the IMF will not be included in the deal. Any debts accrued after that time must still be paid back. The cut-off date at the World Bank was deliberately put back from 2004 to 2003 to save creditors – and cost poor countries – US$5 billion.

Why are economic conditions on debt and aid hurtful to the poor?
The G8 promised that poor countries should be able to choose their own economic policies, but they have broken this promise. Conditions attached to debt relief and loans are devastating poor countries’ economies and undermining their governments’ economic choices as sovereign nations.
Tanzania was forced to privatize water provision, leading to a worse service and higher prices. Ghana had to abolish a trade policy that would have prevented poor farmers competing with imports from rich countries.
Zambia had to cut much-needed spending on education, leaving it unable to employ thousands of teachers in a country where 40% of women are illiterate.

What else is needed?
Caritas is calling for total cancellation of all unjust and unpayable debts, for all countries that need it, by fair and transparent means. This includes an end to the damaging and unfair conditions that are part of the HIPC process.

Source: CAFOD