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Debt –Understanding the Challenge

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 year Debt stock $375,000,000,000.

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Debt –Understanding the Challenge

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  1. Debt –Understanding the Challenge • The Injustice of the debt burden • Background to the Debt Crisis • Structure of Debt • Campaign Achievements • Challenge ahead JDC Web Group - Debt Slides

  2. The Debt burden Debt Service:- • $64,000,000 every day • $23,000,000,000 every year Debt stock • $375,000,000,000 • 52 counties identified by Jubilee • Over 1 billion people live on less than $1/day JDC Web Group - Debt Slides

  3. 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 JDC Web Group - Debt Slides

  4. 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 JDC Web Group - Debt Slides

  5. 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 ! JDC Web Group - Debt Slides

  6. Debt structure (22 HIPCs) • G8 control World bank /IMF • Bilateral loans typically under Paris Club JDC Web Group - Debt Slides

  7. 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% JDC Web Group - Debt Slides

  8. Debt Stock –$ bn JDC Web Group - Debt Slides

  9. Debt Service $US bn • This is $64M /day JDC Web Group - Debt Slides

  10. Debt service : education & health JDC Web Group - Debt Slides

  11. 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! JDC Web Group - Debt Slides

  12. 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! JDC Web Group - Debt Slides

  13. 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 JDC Web Group - Debt Slides

  14. 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) JDC Web Group - Debt Slides

  15. Challenge ahead • Big impact on first 23 HIPCs • Only halves debt for the 41 HIPCs • Long way to the Jubilee target JDC Web Group - Debt Slides

  16. 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 JDC Web Group - Debt Slides

  17. Challenge Broader debt relief • Minimal reduction in debt service –just 4%! • Payments reduced from $64 M/day to $61 M/day! JDC Web Group - Debt Slides

  18. 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 JDC Web Group - Debt Slides

  19. Challenge2015 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) JDC Web Group - Debt Slides

  20. Challenge • Debt sustainability measured against social spending • Grants/aid not loans • Independent arbitration of debt, not just WB/IMF –include UN/WHO JDC Web Group - Debt Slides

  21. Cancel the Debt • Faster • Broader • Deeper • Fairer JDC Web Group - Debt Slides

  22. Campaign arguments • Focus on poorest countries (say HIPC) or broader base? • What criteria for sustainability • Corruption/conflict • Move on to fairer trade rules JDC Web Group - Debt Slides Discussion

  23. Motivation issues What will win wider public support? • Demonstrations? • Images of poverty • Health? Education? • Individuals/families/human interest stories JDC Web Group - Debt Slides Discussion

  24. 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? JDC Web Group - Debt Slides Discussion

  25. 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 JDC Web Group - Debt Slides Discussion

  26. 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 JDC Web Group - Debt Slides Discussion

  27. 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 JDC Web Group - Debt Slides Discussion

  28. HIPC Countries JDC Web Group - Debt Slides Discussion

  29. Remaining HIPC Debt Sustainable Conflict Countries According to World Bank JDC Web Group - Debt Slides Discussion

  30. The Jubilee extra countries JDC Web Group - Debt Slides Discussion

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