Global Policy Forum

By Emad Mekay

A prominent economist is urging poor nations to redirect their debt payments away from rich creditors and spend the money on health and education.

Columbia University's Jeffrey Sachs says that the Highly-Indebted Poor Countries, known as HIPC nations, should re-channel their debt payments to more pressing domestic needs like health, elementary education and the fight against HIV/AIDS.

Sachs' idea has elated anti-debt campaigners, who have long called for a repudiation of the debt of poor nations, but was greeted with caution by some creditors.

The debt-recycling plan is now being widely circulated among anti-debt campaigners and economists from developing countries, who say Sachs' weight gives the idea desperately needed new momentum.

"In the North, when Sachs makes a paper like this, it's an incredible push forward," said Marie Clarke from the Washington-based, anti-debt group Jubilee USA.

Activists say the current debt-relief program, known as HIPC, has stumbled over many problems and failed to solve the debt crisis. Those criticisms have been acknowledged by the World Bank and the International Monetary Fund (IMF), who run HIPC.

In his paper, to be published in the prestigious Brookings Papers on Economic Activity in mid-August, Sachs argues that there is no financial reason that impoverished countries should continue paying their debts, which amount to only a few billion dollars a year.

Nor does anyone in the creditor world (including the White House) believe that those countries can service these debts without extreme human cost, Sachs adds.

The money should instead be re-routed as grants to be spent on more demanding social needs at home.

Poor countries should take the first step by demanding that all outstanding debt service payments to official creditors be reprocessed as grants for the fight against HIV/AIDS, says Sachs.

"In that context, the debtor countries can responsibly take proactive leadership," the economist reportedly says in a letter now being circulated among civil society groups.

If creditors in the North say no, poor nations should act unilaterally, keeping careful and transparent records that show exactly how the money was used for urgent public health needs continues Sachs.

Not everyone likes the idea.

The U.S. State Department said the Bush administration would not support any plan that goes beyond the HIPC process.

"HIPC is an excellent debt forgiveness mechanism," Walter Kansteiner, assistant secretary of state

for African affairs, told IPS. "We think that's enough."

Kansteiner said officials of the seven most industrialized nations (G7) agreed at meetings in Canada last month to increase HIPC funding and to provide more money to counter external shocks like fluctuations in the prices of commodities, on which many developing countries depend.

Officials in the U.S. Treasury Department say Sachs' idea would negate one of the primary aims of the current debt-relief system - imposing conditions to guarantee that debtor countries make economic choices that fit the free-market vision of the Treasury, the Bank and the IMF.

But the World Bank says it would not stand in the way of further debt cancellation plans, provided its shareholders do not object.

"The Bank would support additional debt relief provided that's OK with the Bank shareholders," said a spokesperson. "But they cannot decide on that on their own."

Activists doubt that Bank shareholders would go along with the proposal.

"I think there would be a certain amount of resistance on all different levels in the creditor nations to countries repudiating their debt," Clarke said. "The countries will not simply say 'sure, now that it's not being paid, we are going to let it go'. I think it'll be a struggle."

Rich nations could retaliate by refusing to give out any more grants or loans, Clarke added. The IMF could also decide to withdraw its certification, which is necessary for countries that attempt to borrow elsewhere.

"We would hope that our governments and other creditor nations, institutions do not retaliate,

Clarke said. "But if a country should repudiate their debt and stop payment and put those resources towards AIDS, healthcare, education and sustainable development, Jubilee would call on the creditors not to punish the countries for taking this option."

Rick Rowden of Washington-based Results, another anti-poverty campaigner, said developing countries have a strong moral case for redirecting debt payments, and could succeed if they take the right approach.

"It's really how they go about it that's important," Rowden said. "I do not think it should be done in an atmosphere of defiance as much as an atmosphere of emergency and crisis. I don't think they can do it out of the old nationalistic 1960s style."

"But if they did show it as a health crisis and showed why they are doing it, then that would determine how the rich countries would respond."

Activists say that the Third World's 2.6 trillion-dollar debt - mostly from accrued interest on loans - means it can make little progress in the fight against AIDS. According to the United Nations, some 40 million people worldwide live with HIV/AIDS, around 29 million - including three million children under 15 - in sub-Saharan Africa. Last year, three million died of AIDS, many of them from lack of funds.

FAIR USE NOTICE: This page contains copyrighted material the use of which has not been specifically authorized by the copyright owner. Global Policy Forum distributes this material without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. We believe this constitutes a fair use of any such copyrighted material as provided for in 17 U.S.C § 107. If you wish to use copyrighted material from this site for purposes of your own that go beyond fair use, you must obtain permission from the copyright owner.