Ann McKechin MP

Labour Member of Parliament for Glasgow North

Debt Relief

1 November 2001

I declare an interest as a member of the council of the World Development Movement.

The Government should be commended for calling for a new international effort to tackle poverty, especially after the events of the past few weeks. There is little prospect of meeting our target of halving the number of people in absolute poverty by 2015 unless we crack the problem of massive debt cancellation. Only 23 countries are at decision point in the HIPC scheme, but another 50 countries have been identified by the Jubilee Plus campaign as being heavily indebted and poor. That shows the extent of the problem that we still face.

Some Members mentioned the failures of the HIPC scheme, into which many of us who campaigned on debt put much reliance and effort. Its aim--to reduce debt to a level where it could be repaid--was fundamentally flawed and written to the criteria of the creditors not the debtors. It ignored the latter's problems of development and poverty, and how they would tackle them. Northern aid donations are still being used to pay off debts, and the Department for International Development last year used aid funds for Sierra Leone's debt repayments to the World Bank and IMF. As has been said, some African countries are paying $1.4 billion per annum on debt repayment, rather than using those resources for health, education, preventing AIDS and economic development.

The Chair of the International Development Committee spoke about the difficulties of calculating sustainability. A recent internal World Bank report stated that it overestimated growth level in HIPCs. If their exports continue to grow at just over 4 per cent., as they did in the 1990s, rather than at the growth rate estimated by the World Bank of over 6 per cent.--which seems excessive in view of world events--they will never reach a sustainable level of debt servicing, and that is in the World Bank's narrow criteria. It is also true that the World Bank is giving relief only on debts incurred at the point when the debtors announced that they had a problem with their debts. Debts incurred after that date are not taken into account in the sustainability equation, and the criteria take no account of the extent or depth of poverty in a country.

Many hon. Members have mentioned today that HIPCs are still paying more in debt servicing than they are in their combined health and education budgets. The debt relief that was announced at Cologne has resulted so far in only 6 per cent. of HIPC debt being relieved and, as has been stated, further payments will not make any substantial difference if the current scheme continues. I believe that government revenue should be spent first on poverty reduction, with resources left over being used to repay debts. As early as 1988, the International Development Committee accepted that unstable debt was debt that cannot be repaid without damaging the prospects of economic and human development. Studies estimate that if we take a rights-based approach to debt relief, we are talking about having to write off over $600 billion owed by 71 countries.

HIPC applies only to official creditors--the World Bank and the development banks-but much of the poorest countries' debt repayment is to private international financial institutions that have not undertaken any risk. If a country does not repay its debt, the World Bank suspends relief to it. Banks are not made to take the penalty of bad lending decisions, which runs counter to normal commercial practice. Where there is no risk, there is no penalty and so the penalty falls on innocent people in third-world countries. On the other hand, private international institutions actively promote free market policies that have driven the pace of globalisation on behalf of the richest stakeholders and that create injustice in the world economic system.

It is also disgraceful that some donor countries have put pressure on HIPC countries to withdraw from the scheme. Japan, for example, has put pressure on such countries as Ghana and Laos to withdraw, on the basis that instead of debt relief they will be given grants or aid tied to Japanese goods. Again, we have had the difficulty of a delay in payments from the US Congress, which has in turn slowed down the entire procedure.

I also have doubts about the poverty reduction strategy papers that were introduced as part of the Cologne settlement. They were supposedly designed by the recipient countries and endorsed by the World Bank and the IMF but they bear a close similarity to the structural adjustment programmes that attracted so much criticism in the past decade. A quarter of the developing countries' debt has been estimated to be odious - that is, debt that has unwisely been made to dictators, particularly those backed by the west during the cold war. My hon. Friend the Member for SouthSwindon (Ms Drown) made a telling reference to the case of Pakistan and the debts provided under the regime of President Zia. G8 leaders increasingly point to the value of other resources to hide their inaction on debt. I have severe doubts about the global health fund, which is in no way adequate to address the problems faced by the developing world. It applies a top-down rather than bottom-up policy, which does not bode well for good international relations. The issue of how trade can assist the situation has been mentioned. I agree that we have to look carefully at the next round of trade negotiations to ensure that we allow better trade terms for the poorest countries. However, only about 1 per cent. of world trade comes from the very poorest countries. Africa receives only 1 per cent. of foreign direct investment flows. Even the proposed trade reforms are unlikely to benefit the very poorest countries in the short and medium term.

The UN Secretary-General, Kofi Annan, has called for radical debt relief and has said that if we are to meet the international development targets to which the Minister referred all donor countries and private international financial institutions should consider wiping off all their official debts. It is widely thought that there is a link between conflict and poverty. My hon. Friend the Member for Hampstead and Highgate (Glenda Jackson) made some telling points on the subject, but debt reduction would reduce the economic distress that leads to armed conflicts. Ultimately, the eradication of poverty comes down to political will. It is not just a question of pure finance. Leaders in the north who signed up to the international development targets will have to find sufficient funds if they are genuinely to support the poverty reduction process. We need immediately to stop taking payments from the poorest countries instead of waiting six, seven or eight years until they have reached some completion point that has been arbitrarily decided by the World Bank. All creditors need to commit to a 100 per cent. cancellation of debt for all the poorest countries.

We should reassess the basis of poverty reduction strategy papers so that they are the subject of valid discussion between the north and the south rather than an imposed solution. We need to consider a fundamental change to the multilateral trading system that permits a huge amount of northern protectionism, while liberalising southern markets without much protection to them. Trade should instead be focused on reducing world poverty. We need to begin new consultation and to engage in new dialogue between the north and the south, to establish a way of dealing with the money freed by debt cancellation. If we consider those aspects of the matter, we shall achieve the targets for which we have so long campaigned.


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