Mennonite Economists Support Jubilee 2000Reprinted from The Marketplace, the magazine of Mennonite Economic Development Associates, July-August 2000, vol. 30, no. 4, and in the online edition at http://www.meda.org/marketplace/article_4_2000_06.shtml
The following statement has been drafted by Mennonite Economists, an association of academics and practitioners:
Should we support Jubilee 2000? The answer is yes! Jubilee 2000 is a drive by Catholic and Protestant churches, plus a variety of non-church groups, to declare the year 2000 a "Jubilee." This celebration of the millennium is in the spirit of the Old Testament Jubilee, an invitation to spiritual, economic and social liberation.
The debtors are the people in 50 or more of the poorest countries. The debt involved is what they owe to the high-income countries such as Canada and the United States. The primary beneficiaries of being freed from the bondage of this debt would be the poor people in these low-income countries.
The debt crisis forced the low-income countries to increase exports by as much as 75 per cent to meet debt-servicing costs. As possibilities for new loans dried up, their capacity to import went down dramatically. The reduced level of imports caused shortages of such strategic goods as fuel, fertilizer, spare parts and medical supplies. The standard of living in a number of these countries was reduced to what it had been 20 to 30 years earlier. The number of families unable to meet their basic needs doubled during the decade of the 1980s. We expect this number will have doubled once more during the 1990s.
Four reasons to forgive debt now
Why does Jubilee 2000 deserve your support? It is the right thing to do. The amount of the debt involved is four times the value of what these countries export annually. Even if they struggle very hard to pay off something every year they have no hope of ever reducing the debt to a level where they could pay all of it. As Paul Martin, Canada's Finance Minister, has stated: "It doesn't make any sense for the poorest countries to be paying more in debt service than in fact they are able to devote to health care or to clean water."
Take, for example, the countries most affected, Sub-Saharan Africa. They will struggle to pay an estimated $13 billion to service their debts for one year. The United Nations estimates $9 billion invested by these countries in basic health, nutrition and sanitation would save the lives of 21 million African children. Without the bondage of debt hanging over them these children would have some hope for a new lease on life.
A second reason for supporting Jubilee 2000 is it is timely to do so. Some of us have been advocating such debt relief for 15 years because we were painfully aware of the devastating effects of the debt on the world's poor people. An example of this concern is the MCC statement on international debt, Response to the International Debt Crisis, which was adopted in 1991 as one step in the direction to forgiveness and renewal. But in 1991 the time for effective action wasn't right. The media was focused on how wonderful it was that our banks had survived the debt crisis. It failed to inform us that the actions taken by our banks and governments wouldn't solve that crisis, it merely postponed the need for corrective action. Also, the media failed to report that the effect of our approach to "solving" the debt problem was to place the burden of carrying the debt primarily on the poor people of the world.
Now, 10 years later, the effects of the debt bondage are becoming so painfully evident that even our government leaders favor some form of debt relief. The Group of 8, meeting in June 1999 in Cologne, agreed to forgive 90 per cent of the official debt of 40 poor countries provided certain conditions are met. The World Bank and the International Monetary Fund are prepared to become involved, offering to write down the value of some of the debt they hold. With this increased public awareness and willingness to act we have an opportunity that has not existed previously to mobilize a political will to actually solve the debt crisis.
Third, supporting debt relief is one form of a peace ministry. According to Lawrence Summers, U.S. Secretary of the Treasury, the end of the Cold War has enabled the United States to reduce its annual defense budget by $107 billion. He sees President Clinton's support of the Cologne agreement as investing one billion dollars over four years to support "global stability through debt reduction." The Irish rock star activist Bono is even more to the point: "Misery causes conflict, war is expensive. Preventative measures are cheaper in the end. And canceling debt is sound economics when the debt is bad and the debtor is bankrupt. Every moneyman will tell you, 'if your horse falls down and dies, we suggest you dismount'." A fourth reason for action is that it will cost us very little. For example, Canada has already forgiven more than half of the $1.2 billion official debt involved. The cost to Canadian taxpayers of writing off the remaining debt is minimal. The United States is owed an estimated $6 billion by these countries. The present value of the cost to the United States taxpayers to removing this debt burden is $600 million.
The World Bank offered US$1.3 billion in debt relief in 1998 and is offering to do more. This will tarnish slightly its excellent record of collecting payment for loans made. But, as the debt involved is not payable anyway, it will not reduce the viability of the Bank if it accepts reality and writes off its portion of this debt. The International Monetary Fund holds approximately $8 billion and it admits it can pay this off by selling some of the gold it is holding. The commercial banks hold approximately $19 billion. Banks annually include an amount in their accounts to cover "bad debts." This is a tax-deductible expense equal to the value of the loans they do not expect to recover. Most, if not all, of this $19 billion in debt falls in such a bad debt category. We have paid for these in the form of higher taxes, required because the allowance for bad debts reduced corporate income taxes paid by banks, and through higher interest rates for our loans and lower interest rates for savings. Therefore, requiring all banks to write off their low-income country debts will have very little if any effect on their profits.
Half-way measures are inadequate
The action of the Group of 8 world leaders in Cologne was a follow-up to a small step they took in 1996 toward addressing the international debt crisis: the creation of a Heavily Indebted Poor Countries [HIPC] program. It was designed to reduce the debt of 40 low-income and heavily indebted countries by 50 per cent. To be eligible for such a reduction in debt the countries have to submit for three years to strict conditions set by the International Monetary Fund. As of 1999 less than a half dozen countries were eligible for debt reduction. To gain this debt reduction they have to agree to spend money on basic human needs.
Realizing the three-year trial period was unrealistic, the Group of 8 leaders have reduced the conditions. They agreed to be more generous after reducing their per capita aid flows by 20 per cent. This reduction occurred during a time period in which the value of stock market wealth increased by $5 trillion. The latter is approximately 50 times the value of non-payable debt our leaders are proposing to forgive.
Mozambique is one of the countries that has met the conditions and is eligible for debt reduction. It owes $5 billion and pays approximately $100 million annually to service part of this debt. Under HIPC $4 billion will be written off. To receive this, Mozambique has to promise it will continue to pay $100 million annually until the $1 billion in debt, plus interest, is paid.
In the rural areas of Mozambique one in five women have had the opportunity to learn to read and write. Girls born in town have slightly better opportunities. For example, in Maputo 10 teachers are trying to provide schooling, in four shifts, for 4,000 students. The government is trying to improve the education system but one-third of its spending is the $100 million in debt repayment. Under HIPC the government has to promise to spend more on schooling but the creditor countries are not offering any new money.
The realization of Jubilee 2000 requires a strong reaction to this limited, unrealistic HIPC program. First, it merely wipes out that portion of the debt that will never be repaid anyway. As part of the forgiveness of that portion of their debt the 40 countries have to agree to service fully the remaining debt. These low-income countries will be servicing debt that has a value still twice as high as their export earnings. What is especially cynical about HIPC is the requirement that the 40 countries spend a nonexistent saving on basic human needs when the bondage of debt, in the form of debt servicing payments, remains as high as it is now.
Jubilee 2000 is calling for more. It advocates all of the debt, not merely the half that will never be repaid, be eliminated. It also expands the number of countries from 40 to at least 52. The costs involved for the high-income countries are clearly manageable as it does not require higher taxes. It primarily means less tax revenue will be received in the future because the current debt servicing payments from these 52 countries will cease. That cost will be offset partially by increased exports that will follow from renewed economic vitality in these low-income countries.
Restoring the dignity and hope of the poor
The Jubilee 2000 initiative is a direct challenge to our leaders. It is important for us to impress on our leaders that the motivation for action should be the well-being of the poor people of the world. This will be advanced significantly if the total debt of these 50-plus countries is eliminated. To encourage the people in these countries to take advantage of their release from debt bondage, to address the root causes of their poverty, the Jubilee 2000 movement calls for an internationally agreed mechanism for monitoring debt relief.
It is estimated approximately 1.2 billion people live below a poverty line defined as US$1 per person per day. Almost half of these are in the 50-plus countries included within Jubilee 2000. Giving them a new opportunity to move forward by releasing them from the bondage of debt reflects economic logic. Such action is not merely humanitarian, it will serve the interests of the global economy in a profound manner. It will provide the opportunity for a new start. It will open the door to new aid and trade possibilities that have some hope of enabling many of these people to rise from their current poverty.
The African political leaders have started the ball rolling. In a meeting in January 2000 in Libreville they "pledged to redouble their efforts to promote strong and lasting growth and poverty reduction through, in particular, the elimination of unproductive expenditures and improvements in education, health, social services and basic infrastructure. They reaffirmed their resolve to reduce poverty by half by 2015. They pledged to establish a committee to monitor the implementation of the recommendations made by this conference." Now is the opportune time to assist them in this noble endeavor by lifting the bondage of debt from their people.
Debt relief conditions designed to benefit the poor people
"We must create models of hope that will give the vast majority of people in the world a new chance. We have a responsibility as we prepare for the next millennium, in our global village, to ensure that all people have the same opportunity to reach their full potential." -- Archbishop Desmond Tutu, May 1997
The debt crisis persists because there is no provision in international law for declaring bankruptcy. Bankruptcy allows either the lender or the debtor to initiate action to end an impossible debt situation. The end result is some form of compromise between the lender and the borrower.
In the international debt crisis there has been little compromise with the lending countries setting the conditions. Until the collapse of the Soviet Union, credit was readily available for any country wanting to import military equipment. While restructuring the debt the debtor governments were required to reduce their spending on the provision of basic human needs. Without offering any new money, the Group of 8 leaders still wants to impose additional conditions that do not benefit the poor.
Monitoring the actions of the debtor country governments to assure the poor people also benefit from debt relief offers support to active civic groups and non-governmental organizations working for the poor people in each debtor country. At the same time we need to assure that the governments of the lending countries do not use the power to delay or withhold debt relief for their political gain. For example, there can be the temptation to offer debt relief to a country provided it votes in our favor in such forums as the United Nations, the International Monetary Fund and the World Trade Organization.
Once debt relief is achieved there is a need for lending and borrowing countries to define jointly the conditions under which new loans will be made in the future. This is where conditions, designed to avoid another international debt crisis, will provide real value for all.