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<DIV class=Section1>
<P class=CM1 style="MARGIN: 0in 0in 0pt; TEXT-ALIGN: center" align=center><FONT
face=Times><B><SPAN
style="FONT-SIZE: 14pt; COLOR: black; mso-bidi-font-family: Times">Debt Relief
As If People Mattered. <BR></SPAN></B><B><SPAN
style="FONT-SIZE: 10pt; COLOR: black; mso-bidi-font-family: Times">(excerpts)</SPAN></B><SPAN
style="FONT-SIZE: 10pt; COLOR: black; mso-bidi-font-family: Times"><?xml:namespace
prefix = o ns = "urn:schemas-microsoft-com:office:office"
/><o:p></o:p></SPAN></FONT></P>
<P class=CM7 style="MARGIN: 0in 0in 12.65pt; TEXT-ALIGN: center"
align=center><FONT face=Times><SPAN
style="FONT-SIZE: 11pt; COLOR: black; mso-bidi-font-family: Times">(for a full
version of this paper see </SPAN><SPAN
style="FONT-SIZE: 11pt; COLOR: blue; mso-bidi-font-family: Times">http://www.jubileeresearch.org/news/debt_relief_final.pdf
</SPAN><SPAN
style="FONT-SIZE: 11pt; COLOR: black; mso-bidi-font-family: Times">)
<o:p></o:p></SPAN></FONT></P>
<P class=CM7 style="MARGIN: 0in 0in 12.65pt"><FONT face=Times><B><SPAN
style="FONT-SIZE: 11pt; COLOR: black; mso-bidi-font-family: Times">Introduction
</SPAN></B><SPAN
style="FONT-SIZE: 11pt; COLOR: black; mso-bidi-font-family: Times"><o:p></o:p></SPAN></FONT></P>
<P class=CM7 style="MARGIN: 0in 16.75pt 12.65pt 0in; LINE-HEIGHT: 12.65pt"><SPAN
style="FONT-SIZE: 11pt; COLOR: black; mso-bidi-font-family: Times"><FONT
face=Times>We believe it is a fundamental human right to have basic needs met –
for food, clean water, shelter, education and health. Yet 45% of the world’s
population live on less than $2 a day, at which level life expectancy is
markedly reduced because their ability to meet these needs is restricted, partly
because of the high costs of debt service. <o:p></o:p></FONT></SPAN></P>
<P class=CM7 style="MARGIN: 0in 6.9pt 12.65pt 0in; LINE-HEIGHT: 12.65pt"><SPAN
style="FONT-SIZE: 11pt; COLOR: black; mso-bidi-font-family: Times"><FONT
face=Times>This paper is by Jubilee Research at <B>NEF </B>(the new economics
foundation). It promotes a concept of debt sustainability which puts the rights
and basic well-being of people first and those of the creditors second.
<o:p></o:p></FONT></SPAN></P>
<P class=CM7 style="MARGIN: 0in 0in 12.65pt; LINE-HEIGHT: 12.65pt"><SPAN
style="FONT-SIZE: 11pt; COLOR: black; mso-bidi-font-family: Times"><FONT
face=Times>Traditionally, debt sustainability has been judged along narrow
financial lines. A country’s ability to pay is assessed primarily by looking at
its income from export earnings, with little or no account taken of the demands
on government funds. According to the most recent data available,
<?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags"
/><st1:country-region w:st="on"><st1:place
w:st="on">Lebanon</st1:place></st1:country-region> spends 59% of its budget on
debt service, well over twice its spending on health and education combined. The
<st1:country-region w:st="on"><st1:place
w:st="on">Philippines</st1:place></st1:country-region> spends 47%, nearly twice
its combined spending on health and education. Twenty countries spend more than
20% of their budget servicing foreign debt. In many of the world’s poorest
nations, debt service payments have taken precedence over providing people with
a basic standard of living. In other words the Bretton Woods Institutions’
concept of debt sustainability should rather be called debt repayability. The
approach proposed here provides a much needed alternative.
<o:p></o:p></FONT></SPAN></P>
<P class=CM7 style="MARGIN: 0in 0in 12.65pt; LINE-HEIGHT: 12.65pt"><SPAN
style="FONT-SIZE: 11pt; COLOR: black; mso-bidi-font-family: Times"><FONT
face=Times>The <st1:country-region w:st="on"><st1:place
w:st="on">UK</st1:place></st1:country-region> and other Northern governments
like to paint a picture of their generosity in giving debt relief to the poorer
countries of the world. In fact, the net flow of resources from North to South
(that is the flow taking both net capital flows and interest paid on loans into
account) would be negative if it were not for grant aid (which includes debt
cancellation). Even taking this into account, the <I>total </I>net flow from
North to South over the 34 years since 1970 amount to a paltry $92 per person
living in the South. This is less than $3 a year, little more than one-fifth of
the average British child’s <B><I>weekly </I></B>pocket money.<SUP><SPAN
style="POSITION: relative; TOP: -5pt; mso-text-raise: 5.0pt"> </SPAN></SUP>The
picture is not one of any generosity on the part of the North.
<o:p></o:p></FONT></SPAN></P></DIV><SPAN
style="FONT-SIZE: 11pt; COLOR: black; FONT-FAMILY: Times; mso-fareast-font-family: 'Times New Roman'; mso-ansi-language: EN-US; mso-fareast-language: EN-US; mso-bidi-language: AR-SA"></SPAN>
<DIV class=Section2>
<P class=CM7 style="MARGIN: 0in 0in 12.65pt"><FONT face=Times><B><SPAN
style="FONT-SIZE: 11pt">Human Rights and Debt Cancellation </SPAN></B><SPAN
style="FONT-SIZE: 11pt"><o:p></o:p></SPAN></FONT></P>
<P class=CM8 style="MARGIN: 0in 0in 19.9pt; LINE-HEIGHT: 12.65pt"><SPAN
style="FONT-SIZE: 11pt; mso-bidi-font-family: Times"><FONT face=Times>National
governments have an obligation to provide for the meeting of their citizens’
basic needs. If a government can only meet its debt service payments by taxing
poorer citizens so that they cannot pay for enough food or shelter and at the
expense of providing basic health and education services, <B>this violates human
rights</B>. If they are prevented from doing so by their creditors’ demands for
payments, then the creditors bear the responsibility for this violation. The
amounts currently committed to relieve the debts of low and middle-income
countries fall far short of the levels needed to avoid this.
<o:p></o:p></FONT></SPAN></P>
<P class=CM7 style="MARGIN: 0in 4.4pt 12.65pt 0in; LINE-HEIGHT: 12.65pt"><SPAN
style="FONT-SIZE: 11pt; mso-bidi-font-family: Times"><FONT face=Times>In
adopting the UN Millennium Development Goals (MDGs), all the world’s countries
have made a commitment to reduce global poverty by 2015. The Millennium Goals
also reinforce earlier commitments to universal rights, including in health and
education. But the MDG targets will be impossible to meet as long as developing
countries have to use such a large proportion of their resources to meet
crippling debt service payments. <o:p></o:p></FONT></SPAN></P>
<P class=CM7 style="MARGIN: 0in 6.9pt 12.65pt 0in; LINE-HEIGHT: 12.65pt"><FONT
face=Times><B><SPAN style="FONT-SIZE: 11pt; mso-bidi-font-family: Times">Our
approach to debt sustainability therefore takes as its starting point the amount
of revenue that a government can be expected to raise without increasing poverty
or compromising future development. </SPAN></B><SPAN
style="FONT-SIZE: 11pt; mso-bidi-font-family: Times">This means not taxing those
people who already have less income than they need to fulfill their basic
rights, and protecting government spending needed to meet basic human
development needs. <o:p></o:p></SPAN></FONT></P></DIV><SPAN
style="FONT-SIZE: 11pt; FONT-FAMILY: Times; mso-fareast-font-family: 'Times New Roman'; mso-ansi-language: EN-US; mso-fareast-language: EN-US; mso-bidi-language: AR-SA"></SPAN>
<DIV class=Section3>
<P class=CM7 style="MARGIN: 0in 0in 12.65pt; LINE-HEIGHT: 12.65pt"><FONT
face=Times><B><SPAN style="FONT-SIZE: 11pt">An Ethical Poverty Line
</SPAN></B><SPAN style="FONT-SIZE: 11pt"><o:p></o:p></SPAN></FONT></P>
<P class=CM7 style="MARGIN: 0in 0in 12.65pt; LINE-HEIGHT: 12.65pt"><SPAN
style="FONT-SIZE: 11pt; mso-bidi-font-family: Times"><FONT face=Times>Recent
research<SUP><SPAN style="POSITION: relative; TOP: -5pt; mso-text-raise: 5.0pt">
</SPAN></SUP>shows that life expectancy falls off at an astonishing rate below a
mean income of $3 a day (taking into account relative prices). At this level,
life expectancy in a country is about 70 years, while at $1 a day it is in the
region of 40. We therefore adopt an “ethical poverty line” of $3 per person per
day – a level more compatible with the human rights to health than the $1 and $2
a day poverty lines used by the World Bank and others.
<o:p></o:p></FONT></SPAN></P></DIV><SPAN
style="FONT-SIZE: 10pt; FONT-FAMILY: Times; mso-fareast-font-family: 'Times New Roman'; mso-ansi-language: EN-US; mso-fareast-language: EN-US; mso-bidi-language: AR-SA"></SPAN>
<DIV class=Section4>
<P class=CM7 style="MARGIN: 0in 0in 12.65pt; LINE-HEIGHT: 12.65pt"><FONT
face=Times><B><SPAN style="FONT-SIZE: 11pt">Calculating Sustainable Debt
</SPAN></B><SPAN style="FONT-SIZE: 11pt"><o:p></o:p></SPAN></FONT></P>
<P class=CM7 style="MARGIN: 0in 0in 12.65pt; LINE-HEIGHT: 12.65pt"><SPAN
style="FONT-SIZE: 11pt; mso-bidi-font-family: Times"><FONT face=Times>We
therefore calculate the taxable proportion of national income by deducting $3 a
day for each person living on more than this amount and actual income for those
living on less. (We also carry out the same exercise using the World Bank’s $2 a
day poverty line.) We then estimate <B>maximum feasible gross revenue </B>as 25%
of this taxable national income, assuming that marginal tax rates above this
level would be too distorting to the economy. <o:p></o:p></FONT></SPAN></P>
<P class=CM7 style="MARGIN: 0in 0in 12.65pt; LINE-HEIGHT: 12.65pt"><SPAN
style="FONT-SIZE: 11pt; mso-bidi-font-family: Times"><FONT face=Times>From this
maximum feasible revenue we deduct basic minimum expenditure on health, primary
education and social expenditure to give <B>net feasible revenue</B>. Of this
net feasible revenue, we then assume that between 20% and 40% could be set aside
for paying interest on external debt. From these annual payments, we estimate
the net present value of debt <SPAN style="mso-spacerun: yes"> </SPAN>which
could be carried without violating human rights, and compare this with the
current level of debt for each country. <o:p></o:p></FONT></SPAN></P>
<P class=CM7 style="MARGIN: 0in 0in 12.65pt; LINE-HEIGHT: 12.65pt"><FONT
face=Times><B><SPAN style="FONT-SIZE: 11pt">Results </SPAN></B><SPAN
style="FONT-SIZE: 11pt"><o:p></o:p></SPAN></FONT></P>
<P class=CM7 style="MARGIN: 0in 29.25pt 12.65pt 0in; LINE-HEIGHT: 12.8pt"><SPAN
style="FONT-SIZE: 11pt; mso-bidi-font-family: Times"><FONT face=Times>Based on
these assumptions, and using data for 136 countries, we calculate how much debt
cancellation each country would need to reduce its debt to a sustainable level.
<o:p></o:p></FONT></SPAN></P>
<P class=Default style="MARGIN: 0in 0in 0pt"><SPAN
style="FONT-SIZE: 11pt; COLOR: windowtext"><FONT face=Times>•<SPAN
style="mso-tab-count: 1">
</SPAN>Of the 136 countries surveyed, between 51 and 54 need complete
cancellation of their debts and between 32 and 53 need partial cancellation on
human rights grounds. <o:p></o:p></FONT></SPAN></P>
<P class=Default style="MARGIN: 0in 0in 0pt"><SPAN
style="FONT-SIZE: 11pt; COLOR: windowtext"><FONT face=Times>•<SPAN
style="mso-tab-count: 1">
</SPAN>Based on the ethical poverty line of $3 a day, the net present value of
debt that should be cancelled is between $424 and $589 billion. This is far more
than is envisaged under the current Heavily Indebted Poor Country (HIPC)
programme (under which the <I>maximum </I>debt which might be written off is $59
billion for 38 countries) and the G8 Gleneagles deal which could at most amount
to $24 billion even if all 38 countries qualified. <o:p></o:p></FONT></SPAN></P>
<P class=Default style="MARGIN: 0in 0in 0pt"><FONT face=Times><SPAN
style="FONT-SIZE: 11pt; COLOR: windowtext">•<SPAN
style="mso-tab-count: 1">
</SPAN>Our recommended debt cancellation amounts to between 31 and 43 per cent
of all outstanding developing country debt. <B>This sounds a lot until it is
compared with the shortfall of aid below the target of 0.7% of rich countries’
GDP, which was $120 </B></SPAN><B><SPAN
style="FONT-SIZE: 11pt; COLOR: windowtext; mso-bidi-font-family: 'Times New Roman'">billion
in 2005, alone. If the North had met the target each year between 2001 and 2005
it could have wiped out all this debt. </SPAN></B><SPAN
style="FONT-SIZE: 11pt; COLOR: windowtext; mso-bidi-font-family: 'Times New Roman'"><o:p></o:p></SPAN></FONT></P>
<P class=Default style="MARGIN: 0in 0in 38.25pt; LINE-HEIGHT: 12.65pt"><FONT
face=Times><SPAN
style="FONT-SIZE: 11pt; COLOR: windowtext; mso-bidi-font-family: 'Times New Roman'">•<SPAN
style="mso-tab-count: 1">
</SPAN></SPAN><SPAN style="FONT-SIZE: 11pt; COLOR: windowtext">We also carried
out the same calculations using the more common $2 a day poverty line. Even at
this lower level, our results show that between $359 and $517 billion of debt
cancellation is needed for a wide range of countries if their debt is to be
brought down to sustainable levels.</SPAN></FONT><FONT face=Times><SPAN
style="FONT-SIZE: 11pt"><STRONG> </STRONG></SPAN></FONT></P>
<P class=Default style="MARGIN: 0in 0in 38.25pt; LINE-HEIGHT: 12.65pt"><FONT
face=Times><SPAN
style="FONT-SIZE: 11pt"><STRONG>Conclusion</STRONG>
</SPAN></FONT><SPAN style="FONT-SIZE: 11pt; mso-bidi-font-family: Times"><FONT
face=Times>In order to stop the drain on Southern government budgets from debt
servicing (which is one of the factors which prevent their meeting the basic
needs of their populations), substantial debt cancellation is urgently needed
beyond that provided under the Heavily Indebted Poor Countries (HIPC) initiative
and the 2005 G8
deal.
</FONT></SPAN><SPAN style="FONT-SIZE: 11pt; mso-bidi-font-family: Times"><FONT
face=Times>A further implication is that none of the countries requiring debt
cancellation on the grounds set out in this paper can afford to take out more
debt, though that is what has happened in the past. Yet they all need more
resources, beyond the relief which could be provided by debt cancellation, if
they are to meet the MDGs and reduce poverty. There therefore needs to be a
substantial increase in grant aid (at least up to the 0.7% of GDP target) in
addition to the debt cancellation we propose. </FONT></SPAN><SPAN
style="FONT-SIZE: 11pt; FONT-FAMILY: Times; mso-fareast-font-family: 'Times New Roman'; mso-ansi-language: EN-US; mso-fareast-language: EN-US; mso-bidi-language: AR-SA"><BR
style="PAGE-BREAK-BEFORE: auto; mso-break-type: section-break"
clear=all></SPAN><SPAN
style="COLOR: windowtext; mso-bidi-font-family: 'Times New Roman'"><FONT
size=3><FONT
face=Times>*******************
</FONT></FONT></SPAN><SPAN style="FONT-SIZE: 10pt"><FONT
face="Times New Roman">Please distribute this paper as widely as possible and do
send your comments on it to the author, Steve Mandel (</FONT><A
href="mailto:stephen.mandel@neweconomics.org"><FONT
face="Times New Roman">stephen.mandel@neweconomics.org</FONT></A><FONT
face="Times New Roman">). Please indicate whether you are commenting in a
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style="mso-spacerun: yes"> </SPAN><SPAN
style="mso-spacerun: yes"> </SPAN><SPAN
style="mso-spacerun: yes"> </SPAN>To assist you in responding to the final
question, we have posted an interactive spreadsheet on our web-site, at
</FONT><A href="http://www.neweconomics.org/"><FONT
face="Times New Roman">www.neweconomics.org</FONT></A><FONT
face="Times New Roman"> <SPAN style="mso-spacerun: yes"> </SPAN>which users
can download to see the effects of changing the parameters.<SPAN
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