PHA-Exchange> HPIC

[Maria Hamlin Zúniga]

Article from the Guardian Weekly



Hypocrisy that underlines HIPC





Guess who is claiming $73m this year from the famine-stricken Ethiopian
government? Nestle? Some big multinational suffering a temporary corporate
social responsibility bypass?Guess again. The vulture creditors in question
are the World Bank, the International Monetary Fund 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 the leaders of the seven
most powerful economies agreed to 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 the IMF's
limited view of what constitutes sustainable debt.
The basic problem with the Cologne deal is that the West's criteria for
sustainability have nothing to do with  human needs, and are based on narrow
financial parameters.
The terms they offered debtors in Cologne were an improvement on the
previous 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
which a country can afford to service 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 have been on top of the debts forgiven through
the HIPC (heavily indebted poorer countries) process. In an unpublicised
sleight of hand the World Bank now calculates debt sustainability as
including the savings from countries offering 100% debt relief: in effect,
the more generous countries are subsidising the meaner members of the
creditor community.
Even by the bank's and IMF's view of sustainability, HIPC isn't working. Ten
of the 26 countries that have entered the HIPC since Cologne will exit with
debts above that level - and that is the bank's own forecast. The problem is
that estimates of export earnings by the IMF have proved hopelessly
optimistic. 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 needs that 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 12 million
people for a month, according to the aid agency Oxfam. "There are 11 million
people at risk of starvation in Ethiopia, which is transferring 5% of its
tax revenues to international creditors," says Kevin Watkins, senior policy
adviser at Oxfam. "That raises fundamental questions about what the creditor
community think they are doing."
The evidence from 10 countries that  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.
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 World Bank argues that help for the worst affected countries could be
provided through bigger aid budgets, and that debt relief is not a well
targeted way of providing development assistance; most of the world's poor
live in countries that have never stacked up large debts and are thus
excluded from the benefits of HIPC.
But cutting debt service payments  gives poor countries back their own money
to spend, whereas Western aid always seems to come with strings and the
burden of explaining to donors how it is being spent.
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 and getting every child
into school, are supposed to be reached by 2015, but the United Nations has
warned that most African countries are off track.
Nestle buckled under public pressure when it was revealed the firm was
demanding $6m compensation from Ethiopia. The Swiss multinational has
pledged that any money it gets from its claim will go into famine relief.
Maybe it is time that Ethiopia's other creditors took a leaf out of Nestle's
book.

The Guardian Weekly 20-3-0123, page 23