Debt Cancellation Policy Recommendations

The recommendation below is an excerpt from a jointly crafted document by the Washington offices of 11 national faith communities and ecumenical institutions. The document offers in some detail a policy agenda for the new President on a U.S. response to global poverty and violent conflict in the world.

INTRODUCTION
As important as development assistance is to fighting poverty in the world, its effectiveness is hampered by the phenomenon of poor countries’ debt repayments to rich countries and international-lending institutions. Many Americans are shocked to learn that despite all of the monumental increases in poverty-and disease-focused foreign assistance by the U.S. and other industrialized countries over the past decade, recipient governments bleed out more money in debt repayments every year than they receive in foreign assistance, critically hampering their ability to address the health and wellbeing of their people. Over the past decade, limited debt-cancellation programs by industrialized nations and multilateral lending institutions have begun to turn the tide in a few dozen poor countries. Significantly expanded action is needed, however, and must be a priority in the next American president’s strategy to fight poverty and disease abroad.

BACKGROUND
For decades, many impoverished countries have been spending billions of dollars each year repaying debts to donor countries and international financial institutions. Many of these loans were given for political reasons during the Cold War to prop up particular governments and, in many cases, were wasted by corrupt and unaccountable regimes. These large debts became a serious impediment to poverty reduction and economic development. Countries began taking on new loans to repay old ones.

In the late 1990s, industrialized countries began taking action to address the debt crisis in the world. As a result of the global Jubilee 2000 campaign and subsequent activism around the world, rich nations and international-lending institutions have created two debt-cancellation programs in the past decade: the expanded Highly Indebted Poor Countries (HIPC) initiative, and the Multilateral Debt Relief Initiative (MDRI). Both initiatives target 40 of the most impoverished countries in the world, and have brought limited – but extraordinarily successful – debt cancellation to these countries. The processes used to grant debt cancellation are designed to ensure that savings from cancellation are directed toward country-owned poverty-alleviation priorities.

The success of these initiatives is clear: the 22 countries have completed the debt cancellation process are receiving approximately $81 billion in relief. If all 40 potentially eligible countries complete the process, the savings will total $147 billion. These savings have brought demonstrable gains:

Tanzania has used its savings from debt relief to increase education spending and eliminate school fees. Almost overnight, an estimated 1.6 million children enrolled in school. By 2003, 3.1 million additional children were attending school.

Mozambique used its debt service savings to vaccinate children against tetanus, whooping cough and diphtheria, as well as to install electricity in schools and to build new ones.

Nigeria is using $750 million in debt service savings from 2006 to train and recruit new teachers.

Cameroon used its debt savings to launch a national HIV/AIDS plan for education, testing and prevention, including of mother-to-child transmission.

CURRENT SITUATION AND A WAY FORWARD
In spite of these successes, experts estimate that at least 65 additional counties will need complete cancellation of their existing debts in order to meet the poverty-reduction targets of the Millennium Development Goals by 2015. For various reasons related to good governance and fiscal transparency, not all of these countries should qualify for debt cancellation now. But industrialized countries should create a process to allow these countries to begin qualifying when they demonstrate good governance, fiscal transparency, and willingness to invest savings in the health and wellbeing of their people. A bill currently pending in the U.S. Congress, the Jubilee Act for Responsible Lending and Debt Cancellation, would direct the Administration to begin such a process in negotiation with other members of the Group-of-Eight (G8) nations.

The next President of the United States should make a strategy for expanded debt cancellation a centerpiece of a foreign-policy initiative designed to fight poverty and disease in the world. The United States should cancel its own bilateral debt – and working with partners to cancel the multilateral debt – from poor and middle-income countries that demonstrate good governance, fiscal transparency, and a commitment to investing the health and wellbeing of their populaces.

Specifically, we urge the next Administration to:

Fully finance, by pressing for Congressional appropriations, the world’s existing debt cancellation mechanisms. This will allow countries currently in the cancellation process to move through it without delay;

Lead G8 donors in an expanded debt cancellation initiative for all remaining countries that require debt cancellation in order to meet the Millennium Development Goals. The initiative should include strong qualification criteria that ensure that savings go to countries that will use it transparently to invest in the human needs of its people;

Cancel the bilateral debts owed to the U.S. by all countries that qualify for multilateral cancellation under a new debt-relief initiative (a step the U.S. has taken toward countries that have already qualified under existing mechanisms); and

Ensure that the gains from debt cancellation are not lost by making future development-money flows available in the form of grants — not new loans — and without imposing harmful economic conditions.

Click here  to read the entire policy recommendations from communities of faith.