Introduction to Debt Issues
For several decades, the crisis of developing country debt has been a cause of crippling poverty for many of the poorest countries and people in the world. As of the end of 2005, developing countries owed around $2.8 trillion in foreign debts, and the low income countries were paying about $118 million in debt service a day. In many countries, the amounts paid in debt service dwarfed governmental education and health budgets. As a consequence, millions of people were denied access to schooling or to even the most basic health services.
The debt crisis resulted from a variety of factors. In the early 1970s, a flood of "petro-dollars" made financial institutions eager to lend. The loans -- both from banks and through sovereign governments, the World Bank and IMF -- were often characterised by a lack of concern about the nature of the borrowers (ie whether they were democratic sovereign states or dictators), how the money would actually be used, and whether the borrowers had a reasonable capacity to repay. Indeed, all too often lending by governments was designed to promote markets for their goods abroad, or, during the Cold War, was based on political considerations. The World Bank, for example, loaned large sums to Mobutu Seseko of Zaire -- a dictator who was perceived as a bulwark against communism -- despite the explicit advice of their adviser.
Developing-country governments, meanwhile, borrowed at floating interest rates on the assumption that they would soon be able to repay -- but found that their exports were declining, interest rates were rising sharply, and the dollar, the currency of repayment, was increasing in value relative to their currencies. Particularly when this combined with slow growth in their own economies -- often due largely to the crisis in commodity prices, though governments' economic policies (as in developed countries!) also sometimes played a role-- the debt mountains quickly became unsustainable. The result was that in some of the poorest countries of the world, large sums that were critically needed for human development were, instead, going to repay wealthy countries' governments, the International Financial Institutions (World Bank and IMF), and commercial lenders.
For this reason, starting in the 1980s, there began to be calls for debt cancellation. Then, in the 1990s, as John Goldingay put it "Somebody saw that the Jubilee vision in Leviticus 25 pointed to the cancelling of punitive Third World debts to Western banks and governments, and this caught the imagination of millions of believers and others." The Jubilee campaigns -- in which Churches played a major role -- were large, effective, and bold in their calls.
Initial responses by governments and financial institutions were limited. After various piecemeal initiatives in the 1980s and 1990s, in 1996, major creditors responded to the campaigns and concerns by proposing the HIPC (Heavily Indebted Poor Countries) initiative, designed to reduce the debt burden of some of the poorest countries to "sustainable" levels, with sustainability determined by a ratio of debt stock to exports. The benefits to poor countries of this initiative, however, proved small and slow, and in 1999, the "enhanced HIPC initiative" was created.
Even an enhanced HIPC, however, had many failings. One of these was the often harsh economic policy conditions which the IMF and World Bank imposed on poor countries: in order to stay "on track" with the World Bank and IMF, countries had to adopt the policies they recommended, whether or not they were the policies the countries' governments would actually have chosen. Many of these policies -- including privatisation of resources and services and trade liberalisation -- are controversial. In Zambia, for example, the consequence of trade liberalisation was the destruction of the greater part of Zambian industry.
Another primary problem with HIPC was the fact that it offered debt relief and defined "debt sustainability" in terms relating to what a country could possibly pay its creditors, rather than in terms of what that country needed in order to be able to meet the basic development needs of its citizens. The Jubilee vision, as seen in Leviticus, is not that the poor should limp along, forever poor, paying all they can. It is a vision of a new start -- a release and chance to begin again. For several years, therefore, campaigners have been arguing that countries that need 100% debt relief to meet the Millennium Development Goals, and are prepared to use the funds released by 100% debt relief for human development, should receive it.
As Saul Banda, coordinator of the Lusaka-based Jesuit Centre for Theological Reflection's Provincial Outreach Programme, put it in 2006: “Jubilee Zambia has been campaigning for unconditional and total cancellation of Zambia's and other Low Income Countries' external debts for the last eight years. This was after the realization among campaigners world-wide that external debts were blocking development in the Third World, because resources meant for investment in the social sectors (particularly health and education) and for infrastructural development were being spent on servicing external debts." Banda notes: “At the end of 2004, Zambia's external debt stood at US $7. billion with annual debt service payments of between $150 million and $200 million and accounted for as high as 10% of Gross Domestic Product; health and education accounted for only 2% and 3% respectively."
In recent years, in large part thanks to the efforts of campaigners, the once unthinkable concept of "100% debt relief" has become part of the political landscape. And in 2005, at Gleneagles, the G8 proposed 100% cancellation of World Bank, IMF and African Development Bank debt for countries that reached the HIPC Completion Point. This was a triumph for campaigners -- and for people in developing countries. Thanks to debt relief from the Multilateral Debt Relief Initiative (MDRI), Zambia is employing 4,500 more teachers and has abolished fees for medical care in rural areas. That makes a real difference in terms of lives saved and enriched.
But problems remain. The MDRI still pertains to only a relatively small number of countries; many more need the benefits that relief on their IMF and World Bank debts would offer. The MDRI deals only with debts to the World Bank, IMF, African Development Bank and, as of 2007, Inter-American Development Bank; it doesn't cover debts from the Asian Development Bank or various other lenders. And MDRI relief still comes with harmful conditionalities -- economic policy conditions that countries have to fulfill in order to stay "on track" with the World Bank and IMF. Indeed, generally speaking, the MDRI isn't fully transparent, and the determination of who qualifies and how the process operates still rests almost entirely with a small group of creditors. And no multilateral organisations, and almost no sovereign states and other creditors, are yet willing to take responsibility for their own part in creating the crisis through irresponsible or unfair loans.
So, rejoicing in what has been achieved, the debt campaigns continue to campaign for a true vision of Jubilee. Today their focus is on:
What keeps Christian debt campaigners going? The knowledge that millions of people -- many of them brothers and sisters in Christ -- are suffering and dying because of the effects of debt. The victories that show change can happen -- including the most recent actions by Norway, which has become the first country to renounce an illegitimate debt owed to it. And the theological truths that we are called as Christians to work for love and justice and that, as the Reverend Caroline Dick stated in a Church of England General Synod debate in 2001: our “act of witness for debt relief . . . reveals . . . the God of justice, of love and of peace at work in our world now.”