Make Poverty History - Debt Relief

Debt Relief

Debt is a new form of slavery, as vicious as the slave trade, which robs people's control over their own futures. Despite grand statements from world leaders, the debt crisis is far from over. Debt relief is needed so that:

poor governments can spend more on reducing poverty - providing food, clean water, housing, health care, jobs, education and building economies for their communities – rather than repaying debts.
countries’ dependence on aid is diminished.

The Australian Government must act and advocate for debt relief to be extended to all countries requiring it in order to meet their Millennium Development Goal (MDG) targets.

Australia should either cancel or swap debt with bilateral, indebted countries such as Indonesia, the Philippines and Bangladesh, which are struggling to achieve their MDG targets.

Did you know?
Debt relief works
What is debt and who is in debt?
Why is debt cancellation important?
Will money disappear into the pockets of corrupt leaders?
What can be done?
What can Australia do?
What can you do?
Case study - Zambia: The Cost of Debt
Related Links

Did you know?

Between 1970 and 2002, the poorest African countries received $294 billion in loans, paid back $298 billion in interest and principal, but still owed more than $200 billion.
More than half of Africa’s nations spend more on debt repayments than on health for their citizens. African governments spend an average of $14 a year per person on debt repayments and just $5 on healthcare.
The HIV and AIDS crisis claims 7,000 lives a day. An annual commitment of $10 to $15 billion is needed to turn the situation around. Ironically, sub-Saharan African nations pay close to $15 billion a year in debt repayments.
If debt had been cancelled in 1997 for 20 of the world’s poorest countries, the funds available for healthcare could have saved the lives of about 21 million children in only three years - that’s 19,000 children saved every day.
In Uganda, debt relief of 25% would lead to a 27% increase in Gross National Income (GNI) by 2025. Think of what that money could provide in essential services like healthcare.

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Debt relief works

Debt relief has a major impact on the lives of those living in poverty.

In Mozambique, debt relief enabled $18.5 million to be spent on health. The country introduced free life-saving immunizations for children - half a million were subsequently immunised against tetanus, whooping cough and diphtheria.
In Tanzania in 2001, a partial debt write-off reduced the country’s debt burden by 54%, or more than $2 billion. As a result, funds were used on healthcare and education. The government abolished primary school fees. Enrolment increased by 50%. An extra 1,000 schools were built. Hundreds of new teachers trained. An amazing 1.6 million more children were able to go to school for the first time.
In March 2006 Zambia declared free access to health care in rural areas after 75% of its debt were cancelled by the G8 Multilateral Debt Relief Initiative (MDRI).
In Honduras debt relief added three more years of schooling for children.
In Benin, 53% of money saved through debt relief has been spent on health including rural primary health care and HIV programs.
In Uganda, debt relief led to 2.2 million people gaining access to clean water.

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What is debt and who is in debt?

Many of the poorest countries in the world are in billions of dollars of debt to international monetary institutions, like the International Monetary Fund and World Bank, as well as to wealthy nations across the globe. Much of the debt of poor countries is left over from the 1970s - and often arose through reckless lending by wealthy nations.

High interest rates, late penalties and harmful conditions attached to debt cancellation have meant the nations that can least afford it are repaying their loans double and many times triple the original loan amount. For example, according to the UK Jubilee Debt Campaign the poorest 54 countries have debts totalling between US$300 and US$400 billion, while the poorest 152 countries have debts more than US$2.5 trillion.

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Why is debt cancellation important?

The cancellation of debt, enables countries to spend money on health care, education, infrastructure and other areas that would allow nations to invest in their people and in their future.

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Will money disappear into the pockets of corrupt leaders?

All the evidence indicates that poor countries use the money they save from debt cancellation to reduce poverty, not to increase corruption. The World Bank conducted a study in 2005 of countries in Africa and Latin America that had received debt cancellation. The study found that government spending on poverty reduction programs rose in all cases.

In addition, withholding debt cancellation will only penalise ordinary citizens, not the corrupt leaders. Turning our backs on the people who live in countries where corruption is a problem will only make matters worse.

It is our responsibility to support the efforts of people’s movements towards greater democracy, respect for human rights and transparency that will ensure that resources available from debt relief are used for genuine social development.

The HIPC initiative has contributed to increased poverty-reducing expenditure for post-decision-point countries (ratio in percent).*
		Africa	Latin America	Total
Poverty-reducing expenditures to government revenue	1999	41.0	48.8	42.3
Poverty-reducing expenditures to government revenue	2005	56.7	53.1	56.1
Poverty-reducing expenditures to GDP	1999	6.0	11.9	7.0
Poverty-reducing expenditures to GDP	2005	9.8	14.2	10.5

Source: HIPC documents; IDA and IMG staff estimates.

*Does not include Burundi, DRC, Republic of Congo, Guinea-Bissau, Haiti and Sierra Leone (due to lack of data)

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What can be done?

In July 2005 the G8 Finance Ministers announced they would cancel the debt of 19 of the world’s poorest nations. This deal was ratified by the World Bank and the International Monetary Fund and became known as the Multilateral Debt Relief Initiative (MDRI) for Heavily Indebted Poor Countries (HIPC). The announcement was a significant step forward on debt relief.

However, while the MDRI was a welcome first step it is estimated by the UK Jubilee Debt Campaign that it cancelled just 10% of the debts of poor countries who will still struggle to reach the Millennium Development Goals. The G8’s $50 billion debt cancellation is spread over 40 years, making an average of about $1.25 billion a year. This is just 0.2 per cent of what the wealthy nations spend every year on defence. Much more work needs to be done to provide a lasting solution to countries crippled with debt. Rich countries and the institutions they control must act to cancel all the unpayable debt of the poorest countries.

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What can Australia do?

We welcomed announcements by the Australian Government in 2004 that it had fulfilled the promises made in 1999 to cancel the debts of Ethiopia (cancelled $7.9 million of debt) and Nicaragua (cancelled $5.4 million of debt). We also welcomed the Government's cancellation of 80 per cent of Iraq's bilateral debt, while urging for the cancellation of debts of other poor countries. Australia's participation in the 2005 Paris Club moratorium for tsunami affected countries - albeit reluctantly - is also welcome.

Having completed its original debt cancellation commitments, Australia is now in a position to consider other priorities for bilateral assistance, particularly in our region.

The Australian Government must act and advocate for debt relief to be extended to all countries requiring it in order to meet their Millennium Development Goal (MDG) targets – in such areas as poverty alleviation, schools, hospitals and other basic services. In our region alone none of the 22 developing countries are on target to meet all MDGs, with eight countries - including PNG, Laos, Cambodia and East Timor - needing priority assistance, particularly on child and maternal mortality.

The Government should either cancel or swap debt with bilateral, indebted countries such as Indonesia, the Philippines and Bangladesh, which are struggling to achieve their MDG targets. Indonesia is Australia's biggest sovereign debtor, and continues to grapple with a debt crisis. Massive debt payments severely compromise the ability of the Indonesian Government to provide basic services like health and education to its people. The Government of Indonesia has repeatedly asked Australia to follow the lead of other Paris Club creditors, including Germany and the UK, in negotiating a bilateral debt-for-development swap - both to ease the bilateral debt burden, and to channel much needed Government revenue into poverty reduction priorities.

The Australian Labor Party has agreed to implement a debt swap with Indonesia (and direct the money saved into programs to fight TB there) if it is elected. The Government has yet to make this commitment.

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What can you do?

Join Us and help make poverty history.

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Case study - Zambia: The Cost of Debt

Zambia, formerly one of sub-Saharan Africa’s wealthiest countries, is now one of its poorest and least developed. The living standards of Zambians are in free-fall and Zambia is now lower on the Human Development Index (HDI) than it was in 1975.

With a life expectancy of just 33 years, Zambians die earlier than people anywhere else in the world. The Zambian Ministry of Health has said that it expects that half the population will die of AIDS, and roughly half the teachers trained every year die of the disease. The Zambian government is crippled by the massive debt recalled by international financial institutions. Debt repayments are making it impossible to respond to the health, educational and economic challenges facing Zambians.

In 2004, Zambia used 7.35 per cent of its Gross Domestic Product (GDP) ($377 million) repaying its debt. It spends twice as much repaying its debt as it does on education. Zambian students struggle to learn in classes containing on average, 70 pupils. Zambia has endeavoured to meet the stringent conditions imposed by HIPC.

At the behest of foreign governments over several years it privatised public utilities, removed subsidies, deregulated its markets and opened its doors to foreign imports. In spite of these efforts, by 2003 Zambia’s debt had been reduced by only 5 per cent of the levels promised under the HIPC initiative.

The failure to cancel Zambia’s debt in full is having catastrophic consequences for Zambian people. Current trends suggest not only that Zambia will be unable to meet most of the Millennium Development Goals (MDGs), but also that it gets further from them as time goes on.

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