Articles

This is a background paper to accompany the film Damned by Debt Relief to be premiered at the Battle of Ideas in 2006

By Ceri Dingle and Steve Daley

The much vaunted debt cancellation that was rubber stamped at the G8 summit in Gleneagles in 2005 provided no new money or impetus for development for the developing world. In fact, debt relief has helped to entrench Western control, undermine democratic institutions and ensure that economic growth and serious development are not on the agenda for the countries most desperately in need of it.

Debt relief was the World Bank’s baby and the World Bank encouraged NGOs to campaign on the issue. It was inspired by the very financial institution many campaigners vilify. Debt relief was made acceptable by NGO input and marketing and at the G8 it was sold to the world as a glorious great new step forward under Tony Blair’s leadership, thanks to the pressure of rock concerts.

In 1995 as newly appointed President of the World Bank, “Wolfensohn chose debt and empowered sympathetic elements of the Bank staff to accelerate its ongoing work on debt. Wolfensohn authorized the creation of a small, very low profile working group or task force on debt issues.”

Formally launched in1996 by the IMF and World Bank, the original initiative HIPC-1 (Highly Indebted Poor Countries) aimed to reduce to “sustainable levels” the external debts of the world's poorest countries. Its motivation was always about stabilizing poverty, not eradicating it.

The very idea of lending presumes that a certain level of development is going to occur, but western governments (represented by the World Bank) had given up on the idea that major investment and lending would enable the developing world to catch up with the West. Their concern became how to deal with highly indebted poor countries with no prospects. Without the control they could wield as donors the Bank needed to find new ways to regulate and manage less developed countries.

After years of providing new loans, postponing repayments of old loans or simply forgiving the original debts altogether (when individual countries faced difficulties with repayments) the concept of debt relief offered the Banks an opportunity to end this charade.

The project was welcomed by major NGOs. At the behest of World Bank President James Wolfensohn, UK Christian based NGOs (Christian Aid and CAFOD) along with Oxfam launched the Jubilee 2000 campaign in 1996. In 1997 they formed the Jubilee 2000 coalition to campaign for debt cancellation for the poorest countries.

It is worth reflecting on the convergence of interest and the collaboration between financial institutions and NGOs to understand the limited nature of current critiques of debt relief by NGOs.

The idea of economic growth benefiting the poor has, since the 1970s, been disparaged in NGO circles. Western governments too had their doubts, despite the fact that the Cold War had necessitated investment in the developing world to offset Soviet influence. They were concerned about the destabilizing effects of growth, modernization and development. Without an alternative to the market, old fears of overpopulation, migration, urbanization and environmental degradation resurfaced as problems of economic growth. With no opposing model of development, the West could also ignore Third World aspirations for material prosperity. In these circumstances, doubts about the market’s ability to deliver development, security and order flourished, as did the notion that the market tended to damage the world by creating insecurity and disorder.

World Bank policy in the 1980s – in particular their structural adjustment programmes (SAPs), which imposed privatization, liberalization & fiscal reforms on developing countries and summed up free market thinking – was hugely unpopular. Massive unemployment and unrest followed the enforced shake out of the state sector in developing countries. In Ghana, after 12 years of crippling austerity measures, 100,000 demonstrators marched under the banner “You may as well kill me now” against structural adjustment.

Yet everyone from NGOs to World Bank leaders accepted the market as the only option. How then to manage its negative effects?

It is in this context that debt relief offered a new way forward. The debt relief idea brought the NGOs on board and provided a much needed feel good effect for the West’s unpopular financial institutions. It also allowed for new levels of control over developing countries by taking an apparent moral high ground. It was, moreover, a cheap option.

Initially, to qualify for HIPC-1 debt relief, developing countries had to satisfy the standard conditions as applied to structural adjustment (privatization, liberalization & fiscal rectitude). Growing disillusionment within the World Bank and NGO criticisms of these stringent conditionalities led to a rethink and HIPC-2 emerged with a pro-poor emphasis, refocusing the “banks mission away from any association with society wide development towards a focus on the poorest and most marginalized people in poor societies.”

As a result of NGO pressure, under HIPC-2, more developing countries became eligible for debt relief and new conditions were subsequently applied. Qualifying countries now had to draft a Poverty Reduction Strategy Paper (PRSP). These papers had to demonstrate how “poverty reduction” would be prioritised in government spending and how funds no longer required to service debts would be spent on poverty reduction programmes. With no new funds available of course – and given that many countries had been having difficulty repaying their debts in the first place – spending on the areas proscribed by “poverty reduction” and the PRSPs posed a serious problem. How were countries supposed to fund these Western inspired poverty reduction programmes?

Unsurprisingly, HIPC was not universally welcomed, and in Ghana’s case it took Claire Short and DFID officials to convince Ghanaian ministers to accept the programme amid fears that new loans and investment would consequently dry up. In effect, the poverty reduction framework forces qualifying countries to raise taxation and ensure any revenues they can scrape together are allocated to poverty reduction programmes. As editor of the Ghanaian magazine Insight, Kwesi Pratt, explains in the documentary Damned by Debt Relief, developing countries like Ghana are being told “You owe us so much, we are not going to take the money from you, you generate the money yourself through taxation, through your productive activity, don’t pay it to us, keep it, but we are going to tell you how to invest that money.”

In contrast, the British government boasted of a successful debt relief campaign. In July 2004, Hilary Benn, Secretary of State for International Development, said: “I am delighted that Ghana has successfully reached HIPC Completion Point. Britain played a major role in encouraging the then new Government of President John Agyekum Kufuor to apply for HIPC in 2001, and we have been strong supporters of the country's reform efforts since. Ghana has made good use of the additional resources which were freed up by the reduction in debt repayments. I remember during my visit in March this year being shown a school building and a toilet block built with HIPC funds and sporting a bright “HIPC benefit” logo. Now Ghana has an opportunity to go further and faster with its development plans.”

The programmes that have been funded by debt relief are unsurprisingly Spartan, if not down right derisory. In Ghana a HIPC benefit logo with a rainbow beneath adorns toilet blocks, schools without electricity and waste bins. Small loan schemes of £5 to £40 are advanced to traders – but only women – to expand their supplies. As Ghana advanced towards HIPC completion point with NGOs monitoring its progress, VALCO – one of Ghana’s few major industries and provider of properly salaried jobs – collapsed, as did Ghana Airways. NGOs did not even complain as these major industries shut their doors and people lost their jobs.

In July 2005, the multilateral debt relief initiative (MDRI) was launched at the G8 meeting at Gleneagles. This involved the G8 leaders agreeing to cover in full the losses of the International Development Association (IDA), the International Monetary Fund (IMF) and the African Development Fund (ADF), losses that were incurred as a result of debt cancellation. This amounted to an average commitment by the richer donor countries of no more than $1billion to be paid over forty years to the World Bank, IMF and ADF.

The sum total of G8 thrift – equivalent to around a penny a day for each man, woman and child in qualifying countries – will be deposited in the vaults of the banks, not poor countries. Qualifying countries will not receive any additional resources. In fact, for every dollar of debt repayment waived, poor countries will be deducted a dollar in new loans from the World Bank. Poor countries will have to “win back” this allocation from the Bank on the basis of good policy performance (known as the Performance Based Allocation System or PBA). As Professor Sawyer explains, the debt relief campaign is a zero sum game for the poor countries involved. There is no additional money, Ghana is expected to confiscate the hard-earned incomes of local producers and consumers through taxation to immediately make up for a $79million cut (after PBA allocation) in World Bank assistance.

Amidst the spectacular Live 8 jamboree and Geldof’s claim of “mission accomplished”, all that world leaders did was agree to cover the international financial institutions for loss of income. Effectively the G8 have bought the debt and bailed their banks out. This, it turns out, was what was classed as additional aid to the developing world.

While banners were raised for the ultimate in debt forgiveness, an impossible burden was placed on developing countries to raise funds for the World Bank’s poverty reduction programmes. Aware of the possible unpopularity of World Bank, IMF and donor diktat, Blair’s development department DFID has been at pains to point out that poverty reduction strategies (PRSs) were written and authored by developing countries themselves.

“The basic principle of the PRS approach is national ownership. A Government will only implement policies in which it believes, so the Poverty Reduction Strategy Paper (PRSP) has to be written in country, by its government, with the full involvement of civil society, the private sector and the international community. This should ensure that these strategies have the widest possible support in the country.”

In Ghana’s case, the PRS involved targeting education, health, water and sanitation as key areas for spending. These are, in fact, DFID’s priorities for all HIPC countries.

“The UK believes there are four essential public services that are needed to make faster progress towards the MDGs (Millennium Development Goals): education, health, water and sanitation, and ‘social protection’ – various forms of direct help to poor families.”

Not surprisingly, it is impossible to find any country qualifying for HIPC with a so called “nationally owned” poverty reduction strategy with anything more ambitious than these priorities, or priorities that aren’t specified in the UN’s Millennium Development Goals. In practice, every “nationally owned” poverty reduction strategy had to rubber stamp donor prescriptions.

In keeping with the “just-enough-to-get-by” approach summed up by the paltry Millennium Development Goals, DFID has heralded HIPC debt relief and the PRS as a success story, citing miniscule village-level improvements as a breakthrough.

“A joint initiative between a multinational, a farmers’ co-operative and an international charity supported by DFID has brought fresh water to tens of thousands of cocoa-farmers and their families in rural Ghana over the last couple of years. Working with Ghanaian co-operative Kuapa Kokoo, Cadbury/Schweppes and WaterAid have set up over 260 village wells in the country’s cocoa-growing region – providing year-round access to clean drinking water. And giving the village children more time to attend school. DFID continues to work closely with WaterAid to influence government policy and spending on water and sanitation in the countries where the charity works.”

Neither DFID nor the World Bank deny that growth is a key component to eradicating poverty. However, there is certainly no expectation that poor countries should become rich. Growth has been redefined to mean success in reaching the Millennium Development Goals. These sum up the low horizons enshrined in western development thinking. Halving extreme poverty, not eradicating it or becoming wealthy; improving access to potable water, not piped water and flushing loos; universal primary education, not universal access to university, and so on. Major industrial development is most definitely not on the cards. Instead, development is limited to community led, small-scale, participatory schemes. This is what is known as pro poor growth. In the minds of the development community, serious economic growth only leads to some people becoming well off, hence deepening a country’s inequality.

As the World Bank’s Ghana Country Director Mats Karlsson told young TRASNA reporters filming in 1994, HIPC along with the Millennium Development Goals allows local people to participate and benefit. “The local village decides what to do with the money – a borehole, a hand dug well, a little road, a little market – they choose.”

Not only are poverty reduction strategies a retreat from serious development, they guarantee that the poorest countries will never enjoy Western standards of living. In DFID’s Blue Peter-style story, material transformation is not entertained.

“When there is access to water, children can go to school rather than spend time fetching it. Going to school leads to better health. A girl who has been educated is much more likely to get her own children immunised, and healthy children are much less likely to drop out of school. Social protection helps children attend school or get to a health clinic. Investing in people – their skills, health and security – boosts economic growth and increases incomes. And having more money, in turn, gives people more choice, and generates the tax revenues which pay for public services.”

HIPC has institutionalized this approach. Ghana is tied to donor diktat and their conditions for the next forty years under this initiative.

Most NGOs are critical of the conditions attached to the HIPC initiative, yet in every case the conditions they attack are the remnants of the old structural adjustment programmes, namely privatization and fiscal rectitude. What they have championed, endorsed and wish to deepen are the poverty reduction conditions.

It is not hard to see that this is the most damaging aspect of the whole debt relief phenomenon. Poverty reduction strategies have created a new regulatory framework, one which gives western donors the authority to police every aspect of life in the poorest countries, down to its local sanitation policies. This level of western interference and prescription outstrips colonial rule in its capacity to seep into every facet of life unopposed.

“Socially inclusive” local committees in the poorest villages are co-opted to monitor paltry handouts for a small school building or a bore hole assisted and monitored by NGOs and funded by the World Bank to encourage civil society participation. With their backs against the wall, the poorest are the least likely to question anything which may provide a few pennies; as NGOs increasingly call the shots on their behalf, political institutions are seen, at best, as irrelevant and, more commonly, as the cause of poverty. In local communities national politics and elected politicians are further undermined because the lack of debt relief funds available leads to assumptions of government corruption and misspending.

Not only are the democratically elected governments in HIPC countries undermined by donor tutelage, but they are obliged to consult unelected and unaccountable NGOs every step of the way and to become accountable to them.

Debt relief should be damned. It has forced developing countries into a corner. At the behest of Western interference and development ideologies (sold to HIPC countries and to Western society by NGOs), debt relief has ensured that governments remain undermined, politics and political autonomy are demeaned, serious growth is dismissed and that the world’s poor stay poor.