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Debt Cancellation - Unfinished Business

As we enter year two of the new millennium, what ever happened to the debt cancellation promised by the G7 in Cologne June l999?

The promised cancellation has been channelled through the Heavily Indebted Poor Country Initiative with limited results:

• 24 countries have been promised debt reduction
  
  
• Of the 24 only Bolivia, Mozambique, Tanzania and Uganda are receiving the debt reduction agreed
  
  
• World Bank and IMF expect a mere 38 countries in total to qualify

What will be the impact of debt reduction?

• External debt will be reduced by almost two thirds over a period of up to 20 years
• Debt service will be cut by one third.

This might sound promising but after receiving the promised reduction

• 16 countries will spend more on debt than on health
• 10 countries will spend more debt than on primary education and health combined

The situation in Tanzania

Tanzania is implementing a Poverty Reduction Strategy which is one of the conditions to receive debt reduction.

Faced with a shortage of resources, Tanzania continues to repay debt and take out further loans to implement its poverty reduction strategy. The table below shows that full debt cancellation would help to reduce ths financing gap.

Conclusion

The G8, IMF, World Bank’s response to the Jubilee call for cancellation of unpayable debt has been totally inadequate. Debt reduction continues to be based on how much the creditors are prepared to pay rather than on the needs of the indebted country.

Clearly it is now time to shift control of decision making on debt out of the hands of the creditors. We need a fair and transparent system to deal with debt.

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