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Debt –Understanding the Challenge

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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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