Poverty Alleviation
About The Debt Crisis

The world’s most impoverished countries are in a debt crisis. Even though they have already repaid far more than they originally borrowed, poor countries are still forced to pay $100 million EVERY DAY to the rich world in debt repayments, rather than spending the money on vital healthcare and education.

The UN estimates that 7 million children die unnecessarily each year, from diseases that can be cured and from unclean water that could be made safe. If money which poor countries pay to the rich world in debt service was spent instead on tackling poverty, the lives of millions of children in poor countries would be saved. Debt kills.

Making the situation even worse are the damaging and unfair conditions attached to debt cancellation. These make the poor poorer and undermine democracy, making debt itself into a tool of rich world control over poor countries. This must end.

Frequently Asked Questions
Our answers to some of the most frequently asked questions about where poor country debt came from and why we should cancel it.

Where Did The Debt Come From?
Poor countries were lent money in the 1960s and 1970s. Some was for useful purposes, but much went to projects that did not benefit the country’s people or that helped to prop up dictators. As interest rates shot up in the 1970s and 1980s, many countries ended up still owing more than the original usury loan, even after years of repayments. To make matters worse, lenders have attached damaging conditions to debt relief, for instance demanding privatisations which benefit big corporations in the rich world, or forcing cuts in public spending, meaning that some countries are prevented from employing teachers or buying basic medicines. People in the poor world are suffering both from repaying the debts and from these conditions.

Hasn't All Poor Country Debt Been Cancelled?
No! At the beginning of 2005, low income countries still owe more than $500 billion. Most cancellation so far has happened through the Heavily Indebted Poor Countries initiative (HIPC) initiative, the current - grossly inadequate - international debt relief scheme. Around $30 billion has so far been cancelled through HIPC since it started in 1996. The agreements made by the 2005 G8 meeting at Gleneagles should increase this by another $40 billion by the end of 2006. But this still falls short of what is demanded by justice - and what is possible.

Hasn't The UK Cancelled All The Debts Owed To Us?
The UK and a number of other rich governments have agreed to cancel the debts owed directly to them (bilateral debt) by the countries that complete the HIPC initiative. (This is 18 countries so far.) Ahead of this final debt cancellation, the UK also stops receiving debt payments from countries at the first stage of HIPC (a further 11 countries so far), and puts payments in trust (to be returned later) from countries eligible for HIPC but not yet qualified.

The UK currently holds £954 million of debt on which it is not collecting payments, from countries that have entered or are eligible to enter HIPC (although given that some of these countries are almost certainly never going to enter HIPC, only about £320 million of this is likely to be cancelled in the end). It also holds around £2.4 billion of debt from other low-income and middle-income countries which are not eligible for HIPC. This includes countries like Angola, Pakistan, Peru and Ecuador.

What About Debts Being Paid To The World Bank & IMF?
Thanks to an unprecedented level of global campaigning - there have been breakthroughs on multilateral debt. Rich countries agreed that some countries need 100% cancellation of their debts to the IMF, World Bank and one other multilateral lender, the African Development Fund - something campaigners have been demanding for years. So far, this is only being offered to countries that complete HIPC. More countries - and more debts, such as those to the Inter-American Development Bank - need to be included. But it sets an important precedent for the future. The UK government also offers relief on its share of debt payments to the World Bank, IMF and African Development Fund for countries outside HIPC - but only 4 of around 30 eligible countries have qualified so far.

What More Must Be Done Now?
The UK government, and all other lenders, must put an absolute end to the destructive and unjust conditions attached to debt cancellation. All creditors must agree to cancellation of all unpayable and unjust debts, including for those countries currently excluded from debt relief initiatives. In recognition of the responsibility of lenders for creating and perpetuating the debt crisis - through reckless lending, unfair usury loan terms and imposing harmful conditions - creditors should submit to impartial, open assessment of which debts are illegitimate or unjust and agree to cancel these. The definition of 'unpayable' debt must also be based on what countries can afford after meeting their own development needs - not what creditors think they can squeeze out of them. In more immediate terms, the UK and other creditors should return the huge debt payments they are currently receiving from Nigeria.

Doesn't Corruption Make Debt Cancellation Pointless?
There is ample evidence to show that debt cancellation is an effective way to get money where it is needed. Tanzania and Uganda, for instance, have set up separate funds to channel money freed by debt relief towards poverty reduction. Mozambique has introduced a free immunisation programme for children. School fees for primary education have been abolished in Uganda, Malawi, Zambia and Tanzania. There is no evidence to suggest that debt cancellation is being used to fuel military expenditures.

A number of poor countries do have problems with corruption - or have had in the past. There need to be measures in place to ensure that money is accounted for openly, so that the people in that country can see what is happening to their money and be sure it will benefit them. Where possible, this should be done by strengthening local monitoring initiatives. The danger is that at the moment this call for 'accountability' is used to make poor country governments more accountable to outsiders in the World Bank or other governments than their own people (so undermining peoples power) and becomes an excuse to impose harmful economic policy conditions. This is not the same as preventing corruption, and must end.

How Can We Prevent Another Debt Crisis In The Long Term?
In the longer term, governments must take action to ensure that we never return to a debt crisis like the one which has now been crushing poor countries for decades. It must be recognised that ‘odious’ debts, incurred by oppressive regimes, should not be repaid. Debt audits or an open, just and impartial arbitration process is needed to judge which debts countries cannot and should not pay. The rich world should ensure that poor countries have sustainable financing to meet their needs, through an increase in aid and a bias towards giving grants not usury loans.

What Can I Do?
Plenty! Campaigning over the last 10 or more years has taken debt cancellation from being something that governments routinely dismissed to a reality that is benefiting millions in poor countries. The power of public pressure - and public scrutiny - is immense. Every letter or email you send, every demonstration you attend, every conversation you have about the debt crisis makes a difference.

Visit our website for further details or email us.