What we want
Jubilee Debt Campaign's election proposals for debt cancellation and responsible finance.
The cancellation of large amounts of ‘Third World Debt’ over the last 10 years has had a major impact on poverty in some of the poorest countries in the world. The United Nations and World Bank have reported that debt relief has proved extremely effective as a means of fighting poverty in those countries that have received it.
However, the debt cancellation systems are far from perfect. We believe they are too narrowly focussed, both in terms of countries covered and the level of debts regarded as ‘sustainable’, they enshrine control of creditor countries, and they fail to deal with the question of the legitimacy of debts and responsible lending going forward.
The economic crisis has proved how vulnerable many developing countries remain to debt. Some of the poorest countries, that bear no responsibility for creating the current crisis, are nonetheless amongst those most severely effected by it. In order to emerge from the crisis, many have been forced to borrow substantial amounts of money and increase their debt levels once again.
Substantial quantities of debt continue to prevent countries fighting poverty. Debt repayments from developing to developed countries continue to vastly outweigh the international assistance those countries receive.
We do not believe there can be a one-time solution to debt crises. Rather we need to look at changing the nature of the international lending system – ensuring it is more responsible, more just, more focussed on need rather than greed.
The measures below would close loopholes in the current debt cancellation schemes and provide a long-term solution to the problem of debt. We would like political parties to consider incorporating these proposals into their election manifestos.
1. Support a Fair and Transparent Arbitration Process to adjudicate on the payability and legitimacy of sovereign debt
A one-time cancellation of debt can only hope to provide for a temporary improvement in the position of developing countries if it is not accompanied by a system to improve the quality of lending and to re-balance the responsibilities of creditors vis-à-vis debtors. A Fair and Transparent Arbitration Process could change this. Such a mechanism would take account of both the origin and the impact of the debts, and would give equal treatment to both debtors and creditors, acknowledging their co-responsibility for the creation of debt. It would incorporate ‘bankruptcy’ proceedings for countries when events of sufficient magnitude occur, allowing for an orderly work-out process. This mechanism would have to be located in a forum regarded as neutral such as the United Nations. Governments of Norway and Germany have come out in support of an arbitration process, not to mention many developing world governments.
2. Support binding standards on UK lending through reform of the ECGD
Debt cancellation schemes are still based on a one-sided notion of responsibility. The international lending system places sole responsibility on the debtor nation. The risk to lenders is almost eliminated by the absence of an international responsible lending framework; by the non-existence of an insolvency procedure and by an export credit system which guarantees debt and transfers risk back to the sovereign state. To change this, we encourage adoption into law of responsible lending standards. These must cover the Export Credit Guarantee Department. The ECGD is the largest public bearer of developing country debt in the UK. The ECGD should strengthen its regulatory policies to prevent the build-up of unpayable and illegitimate debt. The current ECGD portfolio needs screening procedures that exclude support for harmful exports, parliamentary accountability and a method of insurance which doesn’t leave poor countries footing the bill. To correct past wrongs, the ECGD's existing loan portfolio should be audited and illegitimate or unpayable debts cancelled.
3. Recognise the concept of co-responsibility and illegitimacy in lending and take steps to deal with historical illegitimate debt
Current debt relief schemes do not deal explicitly with an issue at the heart of the debt crisis – irresponsible lending. Many countries are still repaying large amounts of money on the basis of projects that were detrimental to their people or environment, that involved large-scale corruption, that carry extortionate rates of interest or that were illegally transacted in the first place. We regard this as the biggest single deficit in debt relief schemes. Indonesia’s arms debt to the UK from the Suharto era is around £525 million. It was known that Suharto used such weapons against his people. In making such loans, the UK knowingly helped a dictator to oppress people. Norway has shown global leadership by unilaterally cancelled $80m in debt owed by five poor countries, on the grounds that the loans were examples of a “development policy failure”. This shows that a country can acknowledge past irresponsible lending and cancel the resulting debts. We propose recognising the concepts of co-responsibility and illegitimacy in lending; supporting the 3-year UNCTAD study and debt audits in developing countries; and carrying out an audit of the UK’s debt portfolio.
4. End policy conditionality in debt relief and new lending
Debt cancellation schemes are still controlled by creditor countries. Creditors exercise that control very explicitly through conditions they apply to debt relief. Economic policy conditions have often been shown to harm developing countries, and always undermine democracy. The UK’s policy of ending the imposition of economic policy conditions attached to their aid was very welcome, as was its use in 2006 of financial leverage with the World Bank to put pressure on that institution to reform. But the World Bank still places policy conditions on debt relief and new loans. We are proposing pushing to end the use of policy conditions by the World Bank and IMF, including by withholding money from these institutions if necessary.
