1. Why should we drop the debt?Debts should be cancelled because they are unjust in terms of their origin, and also because they worsen poverty. We are not against all debt - all countries rely on credit (which becomes debt). But we are calling for an end to unjust, or 'illegitimate', debt, which should not be paid either because payment is an intolerable burden on poor countries, or because the supposed 'debt' itself is simply unfair. This includes:
- Debts that a country can't afford to repay without meeting its people's basic needs. For instance, in 2005/06, Kenya's budget for debt payments was as much as for water, health, agriculture, roads, transport and finance combined. A recent study suggested that 107 countries need debt cancellation to enable them to meet their people's basic needs without taxing those below an 'ethical poverty line' of $3 a day for their people.
- Debts on loans that the lender knowingly gave to dictators or oppressive regimes For instance, the current South African government, since it came to power, has been paying off a debt of $22 billion lent to the apartheid regime, money that helped to prop up that regime.
- Debts on loans that the lender knew was going to be stolen through corruption. For instance, the World Bank continued lending to former dictator Mobutu Sese Seko in Zaire (now Democratic Republic of Congo), even after the IMF representative said he was stealing the money and that there was "no prospect" of getting it back.
- Debts in payment for projects that failed because of bad advice or incompetence by the lenders. For instance, the Bataan nuclear power plant in the Philippines was built on an earthquake fault-line at the foot of a volcano and has never been used - but the Philippines still had to repay the US over $1.5 billion for the plant, making it the country's biggest single debt obligation. The company that built it got paid.
- Debt on unfair terms, such as very high interest rates. Poor countries' debts have to be repaid in foreign currency, usually dollars, so they are vulnerable to changes in interest rates on the world markets. The terms of a loan can make it horrendously expensive for a country to repay, and it can end up paying the debt back many times over, and still owing more than they originally borrowed.
- Debts contracted illegally, where proper processes weren't gone through. For instance, the military dictatorship in Argentina contracted many loans, that it used to prop up its oppressive regime, without getting the congressional approval that the constitution required.
Rich world governments must accept that debt isn't just a cause of poverty - it is also a result of their reckless, negligent or self-interested lending. They lent in order to buy support in the Cold War, or to secure contracts for their companies - they should not now demand this money back from the poor. That's why we call on them to drop the debt.
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