Debt –Understanding the Challenge

JDC Web Group - Debt Slides 1

Debt –Understanding the Challenge

The Injustice of the debt burden

Background to the Debt Crisis

Structure of Debt Campaign

Achievements Challenge ahead


The Debt burden

Debt Service:- $64,000,000 every day $23,000,000,000 every yearDebt stock $375,000,000,000

52 counties identified by Jubilee Over 1 billion people live on less than $1/day


Debt = death 19,000 die every day from poverty 1 in 5 babies die before the age of 5 Average age is falling!

2-3 Million AIDS 3.5 Million from Pneumonia 2 million TB 1 million Malaria

Because there is no money in drugs for the poor countries, less than 1 % of health research is in tropical disease


Debt = lost opportunity Education has to be

paid for 125 million children

get no education Sometimes the state

pays just the teachers salary

Pay for books, paper, buildings, school clothes

Education is a route to empowerment


Origins of Debt Vast petroleum dollar

liquidity after the oil price

rise in the 1960's Cold war politics to 'buy'

influence – Much of it military

contracts

Conversion of commercial

debt into public debt What does the 'G' stand for?..why, GREEDY !


Debt structure (22 HIPCs)Total debt (NPV) for 22 HIPCs

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

Traditional relief Enhanced HIPC + additionalbilateral

+ 100% IMF &WB

+ 100% ParisClub

$ m

illio

ns

IMF World Bank Other multilateralParis Club Non-Paris Club Commercial

G8 control World bank /IMF

Bilateral loans typically under Paris Club


HIPC (Enhanced)Heavily Indebted Poor Countries

HIPC covers 41 countries

Only 23 have reached agreement

So poor even the banks know they couldn’t pay

Conditions of sustainability set by IMF/WB –

HIPC doesn’t cancel all debt; it reduces it to a ‘sustainable’ level

Debt:exports>150%;Debt : Government revenue 250%


Debt Stock –$ bnDebt stock-EDT- HIPC and Jubilee 52

Countries $bn

0

50

100

150

200

250

300

350

400

HIPC -First23

HIPC - total41

Jubilee-Total 52


Debt Service $US bn

This is $64M /day

Debt Service 1998 US$bn

0

5

10

15

20

25

HIPC/23 HIPC/41 Jubilee /52


Debt service : education & health

HIPC Countries

01,0002,0003,0004,0005,0006,0007,0008,0009,000

10,000

Debt serv

ice

Reduced D

ebt Serv

.

Educatio

n+Health

Educatio

n

Health

$ M

illi

on


Conditionality Problems with Debt Cancellation

Conflict Corruption/ governance Poverty reduction

PRSP –Poverty Reductions Strategy Paper

Civil society Focus on poverty reduction Dictatorial economic conditions

Market liberalisation, Privatisation, Service fees

USA congress has edicted NO fees!


Campaign Achievements

Nominal $100bn debt to be cancelled!

41 countries to be assisted 24 million signatures collected

Every signature worth $4,000! 50,000 demonstrators in

Cologne Enhanced HIPC added $50 bn Every demonstrator worth

$1,000,000!


Impact of HIPC

HIPC has cut debt stock

US$20bn

Debt stock 'slashed' from 60%

of GDP in 1999 to 28% after

HIPC which is 10% lower than the

average for developing countries

5 more could reach decision in

FY02


Impact of HIPC-Debt Service debt service will fall

from 4% of GDP to 2% and from 27% of government expenditure to 12%

social expenditure will increase by US$1.7bn/a equal to 1.2% of GDP (driven by diversion of debt service into social expenditure)


Challenge ahead Big impact on first

23 HIPCs Only halves debt for

the 41 HIPCs Long way to the

Jubilee target


Challenge Deeper debt relief

Actual reduction in debt service is small (perhaps 1/3rd)

Relief is on future increases due!

No basis for poverty reduction targets 2015


Challenge Broader debt relief

Minimal reduction in

debt service –just

4%!

Payments reduced

from $64 M/day to

$61 M/day!

Debt Service Reduction from Enhanced HIPC - US$bn

0

5

10

15

20

25

HIPC/23 HIPC/41 Jubilee /52

Before HIPC

After HIPC


Challenge – WB/IMF rejection of 100% cancellation

Claim – debt service now sustainable for 23 HIPCs

Unfair on other countries who need WB/IMF loans

Write off reduces loan capability by 5 times Deplete asset reserves would reduce credit

rating and hence increase cost of loans


Challenge 2015 Poverty Reduction

Targets

Free primary education for all

Halve the number below

poverty level ($1/day)

Halve infant mortality (from 1:5 to 1:10)


Challenge

Debt sustainability measured

against social spending

Grants/aid not loans

Independent arbitration of

debt, not just WB/IMF –

include UN/WHO


Cancel the Debt

Faster

Broader

Deeper

Fairer


Campaign arguments Focus on poorest countries (say

HIPC) or broader base? What criteria for sustainability Corruption/conflict Move on to fairer trade rules

Discussion


Motivation issues

What will win wider public support? Demonstrations? Images of poverty Health? Education? Individuals/families/human interest

stories

Discussion


How should we campaign? How do we move the political

process? Letters/lobbying/vigils – as before? Alternatives to G8/IMF venues? It’s the media that set the agenda! Post terrorism focus on poverty is

the breeding ground?

Discussion


Origins of Debt –(2) Vast petroleum dollar liquidity after the oil price

rise in the 1960's Cold war politics to 'buy' influence Conversion of commercial debt into public debt * Commodity prices crash

(IMF/WB had insisted countries focused on these cash commodities)

Little of the money was spent on poverty alleviation

It was known that much of the money was being spent on arms and corruption.

Large proportion for ‘Arms’ and western prestige projects

Discussion


Structure of Debt Burden Multilateral banks – controlled by G8

World bank – primary responsibility loans for development ODA -Overseas development aid –low interest/high risk countries IDA International Development Association –loans, zero interest IBRD: The International Bank for Reconstruction and Development

IMF –International Monetary Fund –primary responsibility global financial stability

Many regional development banks (IDB, AfDB, AsDB etc) Bilateral loans –individual countries

Paris club Commercial Banks –now negligible

Discussion


Structure of Debt Burden Multilateral banks – controlled by G8

World bank – primary responsibility loans for development

IMF –International Monetary Fund –primary responsibility global financial stability

Many regional development banks (IDB, AfDB, AsDB etc)

Bilateral loans –individual countries Paris club

Commercial Banks –now negligible

Discussion


HIPC Countries

02468

1012141618

Benin

Bolivia

Burkin

a Fas

o

Camero

on

Chad

Gambia

Guinea

Guinea

-Bis

sau

Guyana

Hondu

ras

Madag

ascar

Malawi

Mali

Maurit

ania

Mozam

biqu

e

Nicara

gua

Rwanda

Sao Tom

e

Senegal

Tanza

nia

Ugand

a

Zambia

< HIPC > HIPC

Discussion


Remaining HIPC Remaining HIPC -Debt Stock -EDT

0

5000

10000

15000

20000

25000

Angola

Burun

di

Cote

d'Ivo

ireCAR

Comor

os

Congo

-Dem

Rep

Congo

-Rep

Ethiop

ia

Ghana

Kenya

Lao

PDR

Liber

ia

Mya

nmar

Sierra

Leo

ne

Somali

a

Sudan

Togo

Vietna

m

Yemen

$ M

Debt Conflict Countries Sustainable

DiscussionAccording to World Bank


The Jubilee extra countries

Jubilee 11

0

10000

20000

30000

40000

50000

60000

$M

Discussion

Debt –Understanding the Challenge

Documents

public debt

debt burdenbackground

debt service levels

total debt service figures

afterdebt service

health research

public health spendingfigure

health expenditure figures