Sins of Past Rulers Shouldn't Burden People with Debt
As Bandiwagons go, the campaign for more debt relief for the poorest countries has gathered an impressive head of steam, as well as an odd crew of passengers: aid workers and finance ministers, pop stars and bishops. When such a coalition of popularity-seekers united behind such a simple demand -- couched, moreover, in such a sanctimonious term -- it is tempting to believe it must be wrong. It is not. Rather, debt relief needs to go faster and further even than its proponents envisage.
It has long been obvious that several countries, especially in Africa, cannot repay their debts. Their (occasional) efforts to do so impoverish already destitute people, and blight their hopes of economic take-off. Ten years of efforts to put this right have yielded some results. The Paris Club of official creditors has offered steadily better terms to poor countries. Commercial banks have become used to buying back their loans at deep discounts. Most significantly, a Heavily Indebted Poor Countries (HIPC) initiative was launched in 1996 by the World Bank and the IMF. This broke a taboo on the restructuring of debt to multilateral agencies, and set up a framework for systematic debt reduction in return for overdue economic house cleaning.
Some 40 countries have now been classified as HIPCs. They owe about $170 billion, less than half all low-income-country debt. On average their debts exceed their annual export earnings more than fourfold.
Yet under the HIPC initiative, the process of debt relief remains painfully slow. A country must pursue IMF-mandated reforms for three years before donors agree to reduce its debts to "sustainable levels -- and they will actually do it only after a further three years of good behaviour. So far, only eight have qualified; and just two -- Uganda and Bolivia -- have actually received any debt relief. …