Global Policy Forum

By Charlotte Denny

Guess who is claiming $73m this year from the famine-stricken Ethiopian government? Nestlé? Some big multinational suffering a temporary corporate social responsibility bypass?

Guess again. The vulture creditors in question are the World Bank, the IMF and the governments of some of the world's richest countries.

Hang on a minute, you're probably thinking. Didn't western leaders promise three years ago to forgive the unpayable debts of the world's poorest countries? It took years of fierce campaigning by Jubilee 2000 and its hundreds of thousands of supporters, but eventually Tony Blair and his fellow leaders of the seven most powerful economies said they would write off $100bn of the third world's debts.

So how is it that the government of one of the world's poorest countries wrote out a cheque for $100m - nearly 10% of government revenues - last year to its creditors even as its worst famine in 20 years was threatening?

Ethiopia is not alone. Three other sub-Saharan countries facing an epidemic of hunger - Zambia, Mozambique and Malawi - will pay back an estimated $250m to their creditors this year, even as they struggle to feed their people.

Under the debt relief deal reached by G7 leaders in Cologne in 1999, 26 countries were supposed to have had $68bn of their debts written off by now. In fact, just over half that amount has been forgiven and the World Bank admits that for half of those countries the amount of relief granted is not enough to make their debts sustainable, even by the Bank and Fund's limited view of what constitutes sustainable debt.

Accountant's approach

The basic problem with the Cologne deal, as with every previous attempt to reduce Africa's debt burden, is that the West's criteria for sustainability do not have anything to do with human needs, but were based on narrow financial parameters.

The terms they offered debtors in Cologne were an improvement on the previous half-dozen efforts to solve the problem, but it was still an accountant's approach based on how much money can be extracted from a country without it collapsing entirely. In Cologne, the West decided that the amount of debt servicing which a country can afford is about 150% of its earnings from exports each year.

Britain, the US and several of the main creditors went further and promised to cancel all outstanding debts. Their generosity has been betrayed. Originally the relief was to be on top the debts forgiven through the HIPC (heavily indebted poorer countries) process. In an unpublicised sleight of hand, the Bank now calculates debt sustainability including the savings from countries offering 100% debt relief, meaning the more generous countries are subsidising the meaner stance of the rest of the creditor community.

Even by the Bank and IMF view of sustainability, HIPC isn't working. Ten of the 26 countries which have entered the HIPC since Cologne will exit with debt payments above that level - and that is the Bank's own forecast. The problem is that estimates of export earnings by the International Monetary Fund have proved hopelessly optimistic, as many observers predicted at the time.

Collapsing coffee prices have hit Uganda, the West's star pupil and the first country to graduate from HIPC. It has fallen back into unsustainable debt. G7 promises of an extra $1bn to top up countries sliding back below the sustainability criteria will not be enough to meet the shortfall.

Those countries judged by the Bank and the IMF to have sustainable debts are still facing enormous human development needs which come second to the requirement to pay back their creditors. When Ethiopia graduates from HIPC later this year, payments to the West will be reduced by about $30m but will still be half what it spends on its health system. Even before the harvests failed last year, half of the country's children were malnourished and more than one in 10 died before their fifth birthday.

To put it in perspective, $73m is enough to pay for food for 12m people for a month, according to the aid agency Oxfam. "There are 11m people at risk of starvation in Ethiopia, which is transferring 5% of its tax revenues to the international creditors," says Kevin Watkins, senior policy adviser at Oxfam. "That raises really fundamental questions about what the creditor community think they are doing."

The evidence from 10 countries which have had payments reduced under HIPC is that the limited debt relief on offer is making a difference. Spending on health and education has risen.

The problem with coming to a more generous deal on debt, as the Bank admits in its latest assessment, is that creditors are not prepared to be more generous.

The Bank and the IMF's debt relief efforts are ultimately paid for by the western governments which are their largest shareholders. Embarrassed by the largest peaceful public protest movement since the Vietnam war, the G7 made some concessions in Cologne. When Jubilee 2000 wound up at the end of the millennium, western governments breathed a sigh of relief and went back to business as usual - the biannual issuing at G7 summits of platitudes about the importance of debt relief and very little action or extra money.

The Bank argues that help for the worst affected countries could be provided through bigger aid budgets and debt relief is not a well targeted way of providing development assistance; most of the world's poor live in countries which have never stacked up large debts and are thus excluded from the benefits of HIPC.

As Watkins points out, cutting debt service payments provides a bonus for poor countries over and above extra aid. It gives them back their own money to spend, whereas western aid always seems to come with strings and the burden of explaining to a multitude of donors how it is being spent.

What motivated Jubilee 2000's supporters was the simple hope that western governments would stop taking from poor countries money which they ought to be spending on their own populations. With famine threatening in many parts of Africa, that aspiration is more urgent than ever.

Instead of the narrow financial criteria, creditors should base efforts to meet the millennium development goals at the heart of their assessment of how much debt these countries can repay.

The goals, which include halving the proportion of people living in absolute poverty, reducing maternal and infant mortality and getting every child into school, are supposed to be reached by 2015, but the UN has warned that most African countries are off track.

Nestlé buckled under public pressure when in the run-up to Christmas we revealed that it was demanding $6m compensation from the Ethiopian government. The Swiss multinational pledged that the money it gets from its claim will go into famine relief efforts. Maybe it is time that Ethiopia's other creditors took a leaf out of Nestlé's book.

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