2 - 1999

The Debts of poor Countries

Editorial

Many Church congregations and Church-based initiatives in Germany are currently addressing the problem of international debt. Indeed, the majority of the more than 1600 groups that until May have joined the "Kampagne Erlaßjahr 2000", the German branch of the international "Jubilee 2000 Campaign", are Church-related. The Campaign demands to drastically reduce the international debt of poor countries.

That the indebtment of the least developed countries is a serious obstacle to their economic and social development is beyond doubt. Equally clear is that many poor states will under the prevailing conditions never be able to serve all their debt. This is particularly true of 40 so-called Highly Indebted Poor Countries (HIPCs) of which 32 are in Africa. To serve all their debt, they would on average in the first half of the nineties have had to transfer roughly a quarter of all their export earnings to international creditors. They were however only able to pay less than half of that in recent years.

The total debt burden of the HIPCs was, on average, above 360 per cent of export earnings in 1996. The biggest part of this debt is bilateral, that is, the creditors are goverments of rich countries. A rising part - more than a third - is due to mulitlateral institutions, mainly the World Bank and the International Monetary Fund (IMF); only about 12 percent of the HIPC’s long-term debt is still due to private banks.

That poor countries need debt reductions has in principle long been recognized by creditor governments. Reductions on bilateral debt are given on a case-by-case-basis since the mid-eighties. In 1995, the World Bank has launched its HIPC initiative which for the first time proposed reductions also on multilateral debt. What is at issue today is the details of debt relief. How many HIPCs will be eligible for debt reductions? Will these be tied to Structural Adjustment Programmes devised by the IMF? After how many years of such programmes may debt relief be granted? And which debt burden shall be regarded as "sustainable"? The World Bank has proposed to reduce the total debt of HIPCs to 200-250 percent and their debt service to 20-25 percent of export earnings. According to the Jubilee Campaign, this is far too high to allow economic development in these countries.

The campaign is gaining momentum in Germany in the runup to the summit of the Group of the seven biggest industrial countries (G7) plus Russia, scheduled for June 19th in the German city of Cologne. These seven countries are amongst the biggest creditors to poor countries and have decisive influence on the policies of the World Bank and the IMF. They have already acknowledged that the HIPC inititive as it stands now needs to be reworked. The summit is likely to make major changes to the international debt management, but is unlikely to heed the call for a Jubilee year. The problem will continue to be a challenge for christians in Germany for some time to come.