Where the parties stand on debt

We've looked at what each of the main political parties has to say about debt.

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The Issue

‘Third World Debt’ attracted considerable attention at the turn of the millennium, as people became aware that massive, reckless lending, had created unjust and unpayable debts which prevented scores of countries from developing and allowed rich countries to force liberalisation programmes onto third world nations.

This concern promoted cross-party agreement on ‘debt relief’, from the first Conservative government initiatives in 1987, to the deals struck by the Labour Government at G8 summits in Cologne and Gleneagles. Over $100 billion of debt has been cancelled as a result, transforming the healthcare, education provision and economic development of many of the poorest countries in the world.

However, the debt cancellation systems are far from perfect. They are too narrowly focussed, both in terms of countries covered and the level of debts regarded as ‘sustainable’, they enshrine creditor control, 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, have been forced to borrow substantial amounts of money once again. There can be a one-time solution to debt crises by changing the international lending system.

In particular we need:

• Support for a Fair and Transparent Arbitration Process to adjudicate on the payability and legitimacy of sovereign debt.
• Support for binding standards on UK lending, especially through reform of the ECGD.
• A recognition of the concept of coresponsibility and illegitimacy in lending and take steps to deal with historical illegitimate debt.
• End policy conditionality in debt relief and new lending.

What the parties say

NB. All parties supported the law to prohibit vulture fund activity in April 2010, following a Conservative amendment which introduced a 'sunset clause', meaning the law will expire after a year unless it is renewed following further scrutiny after the election.

The Labour government has gained international renown for their stance on debt relief, playing a key role in current debt cancellation schemes which have delivered relief to 28 countries. They have also gone beyond the international schemes through UK MDRI which delivers debt relief to most low income countries. They also only currently support least developed countries through grant provision – not loans. However, they support loans for tackling climate change. On the key question of a structural solution to debt, Labour are wedded to the current debt relief processes and do not support an arbitration process, most especially one in a neutral space, and they oppose the concept of auditing or cancelling historical debts on the basis of legitimacy. They believe they do abide by responsible lending criteria but are currently engaged in watering down ethical and environmental standards on the ECGD.

The Conservative party supported initial debt relief initiatives when last in power. They are committed to “accelerating HIPC”, though it is unclear what this means in practice. They will continue, as far as possible, to give aid as grants not loans, and will encourage others to give aid for ‘social objectives’ as grants as well. Long-term they place faith in the development of capital markets in Africa to assist international lending. However, the Conservatives do not show recognition of the problems unregulated capital markets can cause even richer developing countries. They say nothing about an arbitration process or auditing or cancelling illegitimate debts. They support higher environmental standards for the ECGD – banning ECGD support for 'dirty' fossil fuel power stations. However, there is no commitment to making this reform wider and applying it to anti-poverty standards.

In their manifesto the Liberal Democrats say they would “Push for a renewed international effort on debt and support 100 per cent cancellation of the unpayable debts of the world’s poorest countries.” In more detail, they support renewing the international effort on debt by giving the new International Financial Authority the quasi-judicial function of assessing the nature and sources of debt and supervising an ‘administration/ bankruptcy’ procedure for sovereign nations that cannot repay all their debt. This is promising, although doesn’t mention the need to audit historical debt and cancel that deemed illegitimate. They also support privatisation of the ECGD, though it remains unclear what impact this would have on lending standards.

The Green Party are critical of the conditions attached to debt relief schemes and the limited nature of the schemes. They support going beyond the HIPC scheme to ensure that all foreign debts owed by least developed countries should immediately be written off, as well as those of all other countries which need such support in order to meet their MDG targets, and would press for this internationally. They support foreign assistance to least developed countries being provided only in the form of grants. They also support the more radical solution that all developing countries should limit debt service payments to 10 per cent of export earnings per year immediately and that rich countries should agree to write off the annual transfer of wealth which goes from the developing countries to the North each year. This would bring about some of the more important functions an arbitration scheme might play.

Plaid Cymru say they will “continue to campaign for the cancellation of developing countries' unaffordable debts” but have no further detailed information.

The Scottish Nationalist Party has no up to date information on debt.

You can see the parties' full reponses to the Vote Global manifesto on the Vote Global website.