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What does the UNDP Report 2003 Say about Debt?

This year's UNDP report focussing on the Millennium Development Goals [1] was launched in Dublin on July 8. Bono threatened civil disobedience and Mary Robinson called for 'constructive anger' in the face of the rich world's failure to tackle poverty.

Debt: A Matter of 'Policy not Charity' Says the Report

The Report identifies 59 countries which face huge obstacles in achieving the Millennium Development Goals (MDGs). Thirty one of these are heavily indebted poor countries.

1. Debt Cancellation to Fund the MDGs

To achieve the goals, at least $50 bn additional aid is needed. Debt cancellation could help fund this. However, debt reduction delivered under the Heavily Indebted Poor Countries Initiative is totally inadequate. While debt servicing will be reduced by one third, many countries will need full debt cancellation if they are to meet the MDGs.

Campaigners have long criticised the IMF and World Bank for not taking human development need into account in assessing debt reduction. The UNDP proposes that assessments be based on the resources a country needs in order to achieve the MDGs.
This approach has in the past been rejected by the World Bank and IMF.

Both the UNDP's recognition of the need for (almost) full cancellation and the need to put human need at the heart of debt assessments echo the 2002 Irish debt policy.

2. Shortcomings in Current Approaches to Debt

The Report summed these up as too little (debt reduction); too slow (only 8 countries have completed the HIPC process); and too few (countries benefitting). Moreover, countries which have benefitted are not escaping the debt trap. This is because of the over optimistic assumptions on which the IMF and World Bank have based debt reduction

  • Exports would increase and enable countries to repay debt. The UNDP points out that exports would have to grow at twice the rate they grew in the 1990s if heavily indebted low income countries are to be able to repay their debt.

  • Borrowing would fall. Some countries are borrowing at higher than expected interest rates

  • Shocks would not matter much: Most HIPCs are vulnerable to droughts, floods, civil conflicts and plunging commodity prices.

3. Can the IMF and World Bank Afford to Cancel their debt?

The UNDP Report does not tackle the IMF and World Bank's pleas of poverty but hints at its scepticism in the following statement: 'Campaigners convincingly argued that debts owed by developing countries to well funded institutions such as the IMF and World Bank and to rich country governments were an unjust burden on poor people who were paying for debts often incurred by since displaced corrupt leaders (page 152). (UNDP para 7 page ii). It is very disappointing that, rather than hiding behind debt campaigners, the UNDP Report does not come with a clear position on IMF/World Bank ability to fund debt cancellation.

The Report points out, however, that it is in creditors' self interest to reduce debt as 'they were locked in to 'endless rounds of debt rescheduling and new grants and loans to help poor countries pay back old loans, hardly a good use of new aid money' (page 152)

4. Achievements following from debt reduction

Governments are using debt reduction received to improve health and education e.g.

  • Uganda has almost achieved universal primary education

  • Mali, Mozambique and Senegal plan to use their debt savings to increase spending on HIV/Aids prevention.

5. Action Needed

While the Report highlights the need for further debt cancellation, it does not call clearly for 100% cancellation for low income countries. Instead they call for improvements to the HIPC. The only improvement spelt out is the need to relate debt reduction to countries' requirements to meet the MDGs.

The Report ignores many of the other shortcomings of HIPC. A major one is the IMF/World Bank conditions which countries must meet in order to be eligible for HIPC. Failure to meet these conditions has held up debt reduction for many countries - the requirements to privatise state companies, for example, has held up debt reduction in seven countries. [2]

Another major criticism of HIPC is that creditors control the process. The UNDP Report does not acknowledge this problem, merely stating that Jubilee Research's proposal for an independent process to deal with debt 'merits consideration' [3]

While the UNDP Report marshalls the facts, figures and arguments, it fails to challenge the IMF and World Bank which continue to be major obstacles to progress on debt cancellation. Some 'constructive anger' might have strengthened the Report.

[1] Eight goals adopted at the UN Millennium Summit 2000. These cover: tackling extreme poverty, achieving universal primary education, promoting gender equality; reducing child mortality, improving maternal health, combating HIV/Aids, malaria and other diseases, ensuring environmental sustainability; developing a global partnership for development

[2] Derek McCuish 'Water, Land and Labour: Impacts of Forced Privatisation in Vulnerable Communities' Halifax Initiative/Social Justice Committee 2003 (Appendix 111)

[3] UNDP Human Development Report 2003 page 153


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