More countries set for debt cancellation - at a price

Sierra Leone, Liberia, Haiti and Kyrgyzstan are among the countries expecting debt cancellation or 'relief' over the next few months - but at a price.

Sierra Leone and São Tomé and Príncipe are expecting debt canellation before the end of 2006, after many years of trying to comply with the harsh directives set by the rich world as conditions of getting debt cancellation. These conditions are set as part of the Heavily Indebted Poor Countries process - Sierra Leone entered the scheme back in 2002, and São Tomé in 2000. Poor countries do get some reduction in their debt service (payment of interest and principal) whilst going through the scheme - but this has still left Sierra Leone, for instance, paying $25 million to the rich world every year. On average, a person in Sierra Leone lives on just $0.58 a day. If it completes HIPC this year, it will get many debts cancelled - but will still be paying out around $9 million a year to the rich world on remaining debts.

Haiti and Kyrgyzstan are due to become the next countries to enter the HIPC initiative. However, despite the eventual benefits, campaigners in both countries are expressing concern about entering HIPC at all: they fear that the undemocratic conditions in the scheme could bring more harm than good. We are campaigning for an end to the unfair conditions attached to debt cancellation.

Liberia also looks likely to enter HIPC in 2007: but first it must pay off huge arrears, built up during the civil war and totalling more than $1.5 billion - and then it must keep paying off debts every year until it finally completes HIPC. The UK government has said that rich countries will pay for the arrears clearance, rather than Liberia itself, where more than three quarters of the population lives on less than $1 a day. This is much better than making Liberia pay. However, it is important that this payment is not made at the expense of aid to Africa or elsewhere - and it still does not deal with the ongoing debt service that Liberia, just emerging from brutal conflict, will have to keep paying as it goes through HIPC.

There has recently been yet more confirmation of the benefits of debt relief: a working paper from the IMF finds, again, that poor countries do increase social spending when their debt payments go down. In fact, it states that the impact of reduced debt payments on social spending is "significantly stronger" than of increased grants. This answers the argument made by many governments that they should not cancel debts, but should instead give more aid - thus maintaining their control over poor countries' decisions.