7. Where do debt payments go?

Poor countries are paying debts to the World Bank, the IMF, other international bodies (all controlled by rich countries), to rich country governments and to companies.

Multilateral debt
For the poorest countries, most of their debt is owed to 'multilateral' institutions: that is, institutions owned and managed by lots of different countries. In particular, they are paying debts to the World Bank, to the International Monetary Fund (IMF) and to other regional development banks - like the African Development Bank or the Inter-American Development Bank. The IMF is very important - it doesn't hold the biggest share of the debt, but the other creditors look to the IMF to decide whether they should agree to debt cancellation, or to give new aid grants or loans.

Bilateral debt
This is the name given to debts held by one other government. There are two types. 'Aid debt' is debt on aid money given in the form of loans. But most bilateral debt is 'export credit debt'. This is owed for projects or goods supplied by companies in the creditor country, which were guaranteed or insured by the creditor government. For instance, the UK government might guarantee the building of a power plant in Ethiopia by a UK company. If Ethiopia has difficulty paying the debt, the British government pays out its guarantee to the company, and the debt becomes a debt of Ethiopia to the UK. A huge amount of UK export credit debt relates to sales of weapons. Many export credit deals are mired in corruption: governments tend to be more concerned with securing contracts for their own companies than with assessing whether the project is viable or desirable for the country concerned.

Commercial or private debt
This is debt owed to private companies, banks or individuals. During the 1980s and 1990s, the poorest countries were given new loans by the World Bank and by rich governments in order to pay off commercial creditors: effectively, this turned commercial debt into multilateral or bilateral debt. Other poor countries still have huge amounts of private debt.

Domestic debt
This is the name given to debt that countries owe to companies , banks or individuals in their own country. It is not counted in their 'total external debt', and not taken into consideration when deciding if a country needs debt relief or cancellation. But it can be a huge problem: countries like Nicaragua and Kenya have huge domestic debts. Much of these were run up as the countries borrowed in order to pay off external debtors. Now their debt is judged 'sustainable' but really it has just been transferred.

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