2 - 1999

The Debts of poor Countries

International Debt -An Ethical Challenge

Joint statement of of the Council of the Evangelical Church in Germany and the German Bishops’ Conference

The leading bodies of both protestant and catholic Churches in Germany share the Campaign’s concerns but acknowledge that some of its demands may be problematic. In a joint statement, the Council of the Evangelical Church in Germany and the catholic German Bishop’s Conference have in October 1998 stressed that there is no moral obligation to service debt at the price of unbearable suffering.

On the threshold to the third millennium it is the task of the international community to give a political shape to globalisation. Last year in our joint Statement on the Economic and Social Situation in Germany, "For a future founded on solidarity and justice", we expressly emphasised that "globalisation does not operate like a force of nature, but needs to be regulated by economic and financial policies" (no.33).

Against this background we see international debt as an ethical challenge. Poor countries must use up a large proportion of their means to pay foreign debt. As a result they are often not in a position to secure their citizens a life in human dignity with enough food, adequate housing, education and work. We should not forget: One particular responsibility of richer countries in solving the international debt problem is based on the fact that in years gone by creditors - countries and banks - frequently granted loans to developing countries much too thoughtlessly.

Christians and churches throughout the world are taking the year 2000 as a prompt to renew their call to reduce indebtedness and to strengthen awareness of the Old Testament Jubilee Year (Lv 25, 8 - 28). In this spirit, in his Apostolic letter Tertio millennio adveniente Pope John Paul II expressly calls for reduction of indebtedness for the poorest countries of the world. This call has its deepest reason in the prime option for the poor that was impressively justified by Jesus Christ by identifying himself with the poor (Mt 25, 35-40).

As in many other countries throughout the world, campaigns for the reduction of indebtedness have been started in the countries of the European Union. These campaigns fight for the reduction of indebtedness in poor countries vis-à-vis the international finance institutions and the governments of the creditor countries. Some people find a policy of consistent reduction of indebtedness to be a difficult, if not utopian, undertaking. Nevertheless, experience right up to the recent past shows that it is possible to reduce indebtedness if there is a serious political will to do so. Although the present situation cannot be compared with that of 1953, it has to be considered that the debts of the Federal Republic of Germany were cancelled to a large extent under the London Agreement on German External Debts. This created an important prerequisite for the reconstruction of Germany. We want to help implement the corresponding political will particularly with regard to today’s indebted poor countries.

We gratefully recognise that the on-going initiative of the World Bank and the International Monetary Fund for the highly indebted poor countries is real progress in an international policy for the reduction of indebtedness. Although these agreements are still not satisfactory and need improvement and although so far only a small number of countries have profited from them, they are a suitable starting point for further-reaching efforts.

Excessive debt is still one of the most important obstacles to development for many poor countries. However, it must not be seen as an isolated problem. Excessive debt is part of a vicious circle from which many countries can barely escape. Strong population growth, low savings rates, low levels of real capital, a low level of general education and vocational training and unsuitable political and social institutions lead to a low production result that in turn does not allow the so-important capital to be formed. High inflation rates, wrong exchange rates, the lack of an institutional framework for economic activity, excessive government intervention and foreign debt keep the vicious circle in motion that has to be broken if economic development is to succeed.

It is therefore essential that the debtor countries use debt relief to effectively combat the real causes of economic instability and social misery. The conditions imposed upon the debtor countries should not just take into account national economic data (e.g. balance of trade and budget deficits or inflation rates), they should also consider the social and ecological consequences. The policy of structural adaptation must aim at the permanent improvement of the social, and increasingly the ecological, conditions in the poor countries. Thus, for example, cancellation of debts could be linked to reducing illiteracy rates, improving the education or health system. In any case it must be ensured that health and education systems that are already unsatisfactory are not made even worse by terms and conditions. It is important that these internal reforms can be monitored and rewarded by debt relief following cancellation of the debts.

Countries where indebtedness has been reduced that do not carry out any internal reforms have no credit worthiness on international capital markets. An unconditional programme to reduce indebtedness can barely be justified to those countries that have embarked upon internal efforts. Countries that are offered a reduction in indebtedness must actively use this scope in the interest of sustainable economic and social development.

Above all, this includes the demand for constitutional and democratic structures as called for by Pope John Paul II in Sollicitudo rei socialis (no. 44-45). Above and beyond this, a reduction in corruption and capital flight, a social market economy order in conjunction with opening up to the world market, high investments in education for broad groups of the population, restriction in expenditure on armaments, monopoly controls and agricultural reform are all required. It is especially important and urgent to reduce corruption that leads to a distortion of the economic exchange and runs counter to a reliable market order and to a political orientation towards poverty alleviation.

However, the principle of solidarity includes an obligation for immediate assistance if human life is directly endangered. "The principle that debts must be paid is certainly just. However, it is not right to demand or expect payment when the effect would be the imposition of political choices leading to hunger and despair for entire peoples. It cannot be expected that the debts which have been contracted should be paid at the price of unbearable sacrifices" (Centesimus annus no. 35). The introduction of an international insolvency law might help to prevent countries from being excessively indebted and allow the interests of international creditors and debtors to be levelled out by a transparent and fair procedure.

In order to break the vicious circle of the marginalisation of poor countries, a new practice in the economic and social policy of the rich countries is also required in conjunction with debt relief alongside internal reforms in these countries. Protectionism in its various guises, especially the practice of subsidising weaker sectors of the economy, which is escalating in many industrialised countries, impair the development opportunities of the poor countries. The deterioration of competitive opportunities for agricultural countries and countries with low industrialisation rates as a result of industrialised countries mainly affects sectors in which these countries could have considerable competitive advantages. "An essential contribution on the part of the industrialised countries to the solving of the problems of poverty and debt would be to offer the developing countries better chances of profiting from our markets as trading partners. Anyone asking for greater efforts on the part of the developing countries cannot at the same time here at home avoid structural adjustment - by a move such as blocking our market, not least the European market." (Common good and self-interest, a memorandum by EKD, 1991, no. 191)

In community with many churches throughout the world we are therefore encouraging everyone not to put up with the fate of the poor peoples. For "globalisation without marginalisation", "globalisation with solidarity" (Message of Pope John Paul II 1998) we need decisive reforms and courageous steps in the poor countries as well as in the rich countries. A consistent policy of debt reduction is part of this.

Joint statement of of the Council of the Evangelical Church in Germany and the German Bishops’ Conference; Hannover, October 21, 1998