Damned by Debt Relief

FAQ

1. What did the G8 promise at Gleneagles?

2. What is the HIPC initiative?

3. What’s new about the debt relief deal?

4. Oxfam and Jubilee2000 campaigned for debt forgiveness, so why are you bashing it?

5. Why did the World Bank initiate a debt relief crusade?

6. How much money did G8 leaders provide to subsidise the Multilateral Debt Relief Initiative at Gleneagles in July 2005?

7. Is the G8 an “historic breakthrough” as described by Gordon Brown?

8. Did the G8 deal cover 100% of poor countries and 100% of their debts?

9. Surely something is better than nothing?

10. Does this mean governments are as shackled as ever to the diktat of international financial institutions?

11. Are you saying it would be preferable that Ghana and other poor countries remain crippled by debt?

12. Is debt cancellation simply an amnesty for corrupt governments who have siphoned aid and investment?

13. What is so wrong with the Poverty Reduction Strategies?

14. If donor countries are waiving repayments, then surely they have a right to ensure it is spent wisely?

15. Are you saying it’s undemocratic for local groups to monitor poverty-related spending too?

16. What is wrong with “pro-poor growth”?

17. Ghana may well be briefly tied to HIPC conditions, but surely in a few years they will benefit?

18. HIPC dustbins, toilets and wells may appear trifling but they are much needed. Don’t they make a difference to the real lives of Ghana’s poor?

19. Debt relief and cancellation are not enough, but does that mean we should reject them out of hand?

20. Isn’t it the failure to reform global trade that is the main hurdle for Ghana and other poor countries?

21. Why should Ghana or any other poor country sign up to the HIPC initiative or G8 plans? Why don’t they simply default on debt repayments?

22. Isn’t the theft of Ghana’s natural resources by foreign companies more ruinous than the debt obligations?

23. Who finances the majority of government spending in Ghana?

24. Why does this film not condemn G8 leaders for failing to double aid as promised?

1. What did the G8 promise at Gleneagles?

There were two key promises at Gleneagles:

First, the G8’s Multilateral Debt Relief Initiative (MDRI) promised to erase the debts of poor countries that signed up to the Highly Indebted Poor Countries (HIPC) initiative and had completed the acceptance process. These debts consisted of monies owed to the World Bank, International Monetary Fund (IMF) and African Development Fund (ADF).

Second, G8 leaders agreed to double overseas aid commitments by 2010 (adding an extra $50billion globally and $25billion to Africa).

2. What is the HIPC initiative?

The World Bank and IMF devised and formally launched the Highly Indebted Poor Countries (HIPC) initiative in 1996 to reduce debt repayments of indebted poor countries. Eligibility was initially based on strict financial criteria and on the progress of poor countries in implementing prescribed economic reforms (privatisation, austerity measures etc.). In 1999, what was called “enhanced HIPC” eased the fiscal criteria and introduced new conditions in line with the World Bank’s new Poverty Reduction Strategy. The HIPC initiative currently obliges candidate countries to prepare a Poverty Reduction Strategy Paper (PRSP). If this paper gets approved the country is admitted into the HIPC scheme and they are required to report monthly to the World Bank group, and to implement Poverty Reduction Strategies in partnership with civil society and external donors.

3. What’s new about the debt relief deal?

On July 1st 2006, the World Bank and African Development Fund annulled the outstanding debts of nineteen impoverished countries, fifteen in sub-Saharan Africa. A further ten countries may qualify in the next two years, and another dozen or so poor countries remain in the queue, awaiting entry into the protracted HIPC process.

In essence, the multilateral debt write-off agreed by G8 leaders at Gleneagles succeeds the World Bank’s decade-old debt relief mechanism for Highly Indebted Poor Countries. This entitled them to subsidised debt servicing. Instead, we now have what is known as the “HIPC completion point”. When countries with HIPC status reach this completion point their outstanding obligations to the World Bank, IMF and African Development Fund are cancelled outright in perpetuity.

4. Oxfam and Jubilee2000 campaigned for debt forgiveness, so why are you bashing it?

As early as 1995 Oxfam was invited to work with the World Bank to cultivate a debt relief agenda as part of the World Bank’s “new thinking” exercise. The World Bank, Oxfam and other lobbyists in Washington were united in their desire to move away from the World Bank’s hated structural adjustment framework, which involved draconian austerity measures and resulted in massive unemployment. This rapport matured rapidly, leading to the launch of the “Drop the Debt” campaign a year later and the formation of the Jubilee 2000 coalition in 1997. HIPC debt relief - along with its Poverty Reduction Strategy conditions - provided a “radical” opportunity to promote the “basic needs” approach of development NGOs. Debt forgiveness caught the imagination of New Social Movements (NSMs), not because it offered poor countries the real possibility of “catching up” with the West, but because of its pro-poor emphasis and its dismissal of major development plans.

With this background in mind, the key reasons for WORLDwrite’s “bashing” of the debt relief campaign are as follows:

The HIPC initiative has allowed for a massive increase in Western interference and intrusion into all walks of life in developing nations, especially concerning development policy. Furthermore, conditions tied to the HIPC initiative force developing countries to follow Western policies for many years to come, which denies these countries autonomy and degrades democracy.
As Mohammed Issah points out in Damned by Debt Relief, the HIPC initiative provides no new money, which is desperately needed for serious development. In fact, as Yao Graham states in the film, applying for HIPC status is actually a declaration of bankruptcy. It gets worse, however, because countries with HIPC status are forced to raise the money they would have paid back to creditors and then spend it according to Western diktat.
As Kwesi Pratt explains in the full version of Damned by Debt Relief, the HIPC initiative incorporates goals with extremely low horizons regarding development, suggesting that a certain level of poverty is tolerable. WORLDwrite believes that all levels of poverty are unacceptable.
The HIPC initiative forbids countries with HIPC status to invest in the productive base of their economies. In so doing, the entire HIPC scheme denies developing countries both national autonomy and the possibility of catching up with the West.
The HIPC initiative is not about making the poor rich, it is based on the millennium development goals which make mere survival an end goal. This is not development; it is about “coping” with poverty. WORLDwrite campaigns for people in developing countries to have all the chances and opportunities that people in the West enjoy and more besides. Campaigning for mere survival levels demeans our global peers and is a disgraceful effort on the West’s part. The HIPC initiative’s Poverty Reduction Strategy represents an extreme lowering of horizons and denial of North -South equality. WORLDwrite has made global equality and the best for all its end goal.
Pro-poor policy prescription is based on the assumption that governments in developing countries don’t care about their people and cannot be trusted. This assumption is anti-democratic, racist and wrong. WORLDwrite believes it must be opposed.

5. Why did the World Bank initiate a debt relief crusade?

Contrary to popular belief, debt relief has become the only show in town for the poorest countries not because of the pressure from any of the anti-debt campaigns or coalitions - for example Jubilee2000 and later Make Poverty History - but because it had become the preferred mechanism for dealing with the developing world by the unpopular World Bank and IMF. Capitalist triumphalism quickly faded in the early 1990s after the collapse of the Soviet Union, as did confidence in institutions like the World Bank, which faced opposition from friends and foes alike. The World Bank was faced with:
Cynicism from hard-strapped Western donors unsure of the Bank’s future significance;
Censure summed up by the “50 years is Enough” slogan of international NGOs;
Hostility in poor countries towards the devastating cuts in public spending during the era of structural adjustment;
Revulsion in Western capitals against Bank funding of industrial and commercial infrastructure projects in middle-income countries;
Internal disillusionment fuelled by the catastrophic failure of structural adjustment programmes, the collapse of “transition economies” and the contrasting growth of the “Asian tiger” economies.

The World Bank and IMF needed to reassert their moral legitimacy to justify their interventions into poorer countries’ economic affairs on behalf of Western powers. Debt relief was swiftly identified as an inexpensive mechanism to reinvent an identity for the World Bank and IMF, a new friendlier face that preached debt relief and poverty alleviation.

6. How much money did G8 leaders provide to subsidise the Multilateral Debt Relief Initiative at Gleneagles in July 2005?

At Gleneagles the G8 effectively paid off the money owed to the World Bank group of lenders by countries that had achieved HIPC status. This amounted to US$37 billion, which will be transferred from G8 treasuries to multilateral bank accounts over the next forty years. In human terms, this is equivalent to about $5 (£3) in debt relief each year per inhabitant of the eligible countries. The G8 leaders’ “unprecedented” agreement to bail out their own institutions (the World Bank, IMF and African Development Fund) may well be useful to clean the slate and morally rejuvenate these discredited institutions, but in terms of extra money for the poor it is a farce.

7. Is the G8 an “historic breakthrough” as described by Gordon Brown?

Make Poverty History organisers and Live8 campaigners were quick to pat themselves on the back for the Gleneagles statement. However, Bob Geldof’s jubilation summed up by his “mission accomplished” comment should act as a warning. Let’s face it, the events and outcomes of the Gleneagles Summit hit a new low point in history-making. Poverty was not made history in any shape or form and the only breakthrough was in making us believe something great had been done.

8. Did the G8 deal cover 100% of poor countries and 100% of their debts?

No. Many countries are excluded and only those debts owed to three international financial institutions (IFIs) - the World Bank, IMF and African Development Fund - are included.

9. Surely something is better than nothing?

People in the poor countries lucky enough to qualify for HIPC debt relief and cancellation have gained zilch, nada, niente, squat, zip, diddly, nothing!

The sum total of G8 expenditure - equivalent to around a penny a day for each man, woman and child in qualifying countries - will be deposited into the vaults of banks, not of the countries partaking in the HIPC initiative. Qualifying countries will not receive any additional resources. In fact, for every dollar of debt repayment waived, poor countries will have a dollar deducted from any new loans from the World Bank. Poor countries will have to “win back” these deductions on the basis of good policy performance (known as the Performance-Based Allocation (PBA) system). As Professor Sawyer explains in Damned by Debt Relief, the debt relief campaign is a zero sum game for poor countries. There is no additional money provided, and Ghana is expected to confiscate the hard-earned incomes of local producers and consumers through taxation to make up for a $79million cut in World Bank assistance, a reduction that was legitimised by the PBA system. The future for countries with HIPC status is bleak!

10. Does this mean governments are as shackled as ever to the diktat of international financial institutions?

Yes!

The G8’s Multilateral Debt Relief Initiative ties poor countries into the flawed Poverty Reduction Strategy (PRS) process. Poor countries must jump through hoops held by the Western governments, IFIs & NGOs and pay hard cash for the privilege. Countries with HIPC status will not receive a penny of extra domestic revenue to fund the mandatory pet projects of donors and civil society as agreed in the Poverty Reduction Strategy Papers. Instead, poor countries will have to win Performance-Based Allocation points to recoup the deficits in International Development Assistance (IDA) financing, or they will have to raise taxes. The shame of monthly reporting to the IFIs will be replaced by the indignity of multi-donor consultations and NGO-trained snoops tracking every dollar of government expenditure.

It’s win-win for the G8 leaders, multilateral banks and international NGOs and lose-lose for poor countries, who remain locked into even greater levels of surveillance and a virulently anti-development agenda.

11. Are you saying it would be preferable that Ghana and other poor countries remain crippled by debt?

The debt relief package has little to do with debt. The campaign to portray Ghana or other poor countries as crushed by the weight of excessive debt repayments is far too simplistic to stand up to scrutiny. There are two widespread falsehoods that are often used to justify the “debt overhang” assumption. First, some claim that poor countries have inherited colossal debts from corrupt despots who siphoned off a significant fraction of loans from irresponsible lenders. Second, other campaigners argue that it is the narrow focus on economic growth pursued by the World Bank and IMF that failed to create benefits for the poor and saddled their governments with huge debts, causing them to slash public spending. Both are wrong.

The notion that poor countries are crippled by debt is a moral statement that evades the real question as to why the poorest countries, especially in Sub-Saharan Africa, are marginalized from the world economy. Today, the process by which poor countries borrow money from IFIs to invest in serious development is seen as dangerous and unnecessary. It is mocked by those who have given up on the goal of investing in the developing world’s future. Yet borrowing and lending is part and parcel of economic growth and development. We should remember that the USA is kept afloat by China and Japan and is the most indebted (and richest!) country in the world.

The message of the debt relief agenda is that: increasing the GDP (gross domestic product) of less-developed countries is ok as long as this is a product of “pro-poor growth.” This is based on the mistaken idea that it is possible to reduce poverty without society wide development.

There is also a widespread assumption that if poor countries achieve any kind of wealth they will only screw their population’s poor more.

The pessimistic outlook that African economies are crippled by debt reinforces the World Bank’s “new thinking” that poverty reduction must take precedence over the so-called “narrow” goals of economic growth. In WORLDwrite’s view, debt cancellation that is provided along with the low horizons of “poverty reduction” offers no possibility of serious development in poor countries.

12. Is debt cancellation simply an amnesty for corrupt governments who have siphoned aid and investment?

No.

Such cynicism has lead to the deplorable consensus that waived repayments must be actively policed in order to make sure all monies are disbursed into the poverty reduction programmes directed by the West.

13. What is so wrong with the Poverty Reduction Strategies?

The World Bank claims that Poverty Reduction Strategies are written and developed by developing countries themselves and that they are “nationally owned”. In Ghana’s case, the claim that the Ghana Poverty Reduction Strategy (GPRS) is “nationally owned” or that this pro-poor framework is a partnership between the government of Ghana, Western donors, international NGOs and the World Bank group is absurd. A cursory read of Poverty Reduction Strategy Papers from countries with HIPC status will demonstrate how all of these supposedly national documents in fact conform to donor priorities, proving the PRSPs are actually authored in the capitals of the West. While nine out of ten PRSPs uphold privatisation, every PRSP scrupulously itemizes “participation” and “poverty reduction” as priorities for poor countries. If a PRSP is considered “off-message” (that is, if it does not meet Western donor priorities) it is not unknown for the boards of the World Bank and IMF to return it for rewriting, as it did with the Ghana Poverty Reduction Strategy Paper. Even those critics who are loudest in their condemnations of the structural conditionalities of HIPC are conspicuously silent about the constraints that “poverty reduction” and “participation” inflict on economic and political sovereignty.

Leaders of poor countries are treated like wayward children who must write down a long list of responsibilities and targets to be approved by school monitors, teachers, governors and management (civil society, international NGOs, G8 leaders and the multilateral institutions respectively).

14. If donor countries are waiving repayments, then surely they have a right to ensure it is spent wisely?

Governments of poor countries must be accountable to their own citizens’ visions of a better life. It is intolerable that international agencies who claim to speak on behalf of the poorest serve as apologists for Western diktat, which insists upon limiting the actions of governments in poor countries.

15. Are you saying it’s undemocratic for local groups to monitor poverty-related spending too?

The World Bank’s “empowerment” of civil society (commonly referred to as “participatory development programmes”), effectively creates a Western-sponsored policing operation involved in surveillance and monitoring. Basically, the West (including international NGOs) co-opts the impoverished local people within poor countries into reporting back to the West on how the pennies (and it is only pennies!) are spent by their governments. In other words, the West encourages local people to distrust their own governments by requiring that they report any governmental failure to comply with Western spending plans and Poverty Reduction Strategies. This is not participatory democracy or development.

WORLDwrite does not believe it any more democratic to compel elected leaders to be accountable to chambers of commerce, women’s groups, churches or grassroots projects than to external meddlers like the International Financial Institutions, G8 donors or international NGOs. It seems to us that this can only breed distrust of elected leaders and undermine democratic institutions within poor countries. The importance of democratic accountability within countries with HIPC status is dismissed and thus democracy is seriously demeaned. The poor must be free to pursue their own aspirations rather than be patronised by unaccountable advocates with their own agendas. In actuality, it is the claims of those in the West that they are speaking on behalf of the world’s poor (despite having no democratic mandate to do so) that should be distrusted, not the governments of poor countries.

16. What is wrong with “pro-poor growth”?

“Pro-poor growth” is a misnomer if ever there was one. “Pro-poor growth” or “poverty reduction” dismisses the hopes and dreams of the poor to become wealthy. What if the poor wish to wake in their own bedroom, take a hot shower, jump in a car and drive off to work in an air-conditioned office? The low horizons of “poverty reduction” can only ensure hand-dug wells, hand tools and a hand-to-mouth existence will be all that is offered to the present and future populations of the world’s poorest countries. It is fallacious to believe that “poverty reduction” - based upon targets such as the Millennium Development Goals - has anything to do with society-wide improvements.

Not only are “pro-poor” limitations likely to institutionalise extreme poverty, but the tying of countries with HIPC status to a “poverty reduction” agenda is hostile towards individual autonomy, personal affluence and the electoral mandate of poor governments.

17. Ghana may well be briefly tied to HIPC conditions, but surely in a few years they will benefit?

If only! Although the debt stock cancellation is irrevocable, countries with HIPC status will be tied to conditions for the next forty years. Poor countries ineligible for debt cancellation will be on the leash for only twenty years. Performance-Based Assessment (PBA) systems and civil society monitoring will weaken the authority of elected governments and institutions of the state for the next forty years. Furthermore, Poverty Reduction Strategies that focus merely on survival-level projects will ensure that genuine development and the eradication of poverty never take place.

18. HIPC dustbins, toilets and wells may appear trifling but they are much needed. Don’t they make a difference to the real lives of Ghana’s poor?

Dustbins, latrines and hand-dug wells are cheap and easily constructed. As Kwesi Pratt retorts, Ghanaians have been building them for generations. In the absence of investment in industrial and public infrastructure to increase employment, housing and productivity, such rudimentary projects serve only to patronise the poor. Development must not be demoted to mean spending only on basic public services like water, health, basic literacy and waste management. Worse still, many basic health and education programmes run by NGOs as part of the Poverty Reduction Strategy focus on issues such as HIV/AIDS awareness, family planning, child trafficking and child abuse. These projects assume people in developing countries are stupid and that poverty is a result of ignorance. They are Western-imposed behavioural change programmes and have nothing to do with development at all.

19. Debt relief and cancellation are not enough, but does that mean we should reject them out of hand?

100% debt cancellation without strings would be welcomed by all poor countries without reservation. However, such a measure would not alone merit any celebration or distinction, since a debt write-off simply returns poor countries to zero.

20. Isn’t it the failure to reform global trade that is the main hurdle for Ghana and other poor countries?

Trade reforms may indeed be welcomed by poor countries, but without solving the underlying problem of low productivity - and in Ghana’s case very little manufacturing in the first place - trade reforms will never put producers in poor countries on an equal footing with the big players. As Kwame Agyapong argues in the full version of Damned by Debt Relief, trade reform is all very well but “what have we got to trade”?

Unfortunately, pro-poor conditionalities and low horizons permeate discussions of trade reform just as they do discussions of development and growth. Whether it is the romantic calls to protect subsistence farming from the threat of world trade or the celebration of the miserable benefits of FairTrade, criticisms of global trade deepen the orthodoxy of “poverty reduction” and celebrate primitively-produced goods. Treating the developing world as a farm offers little prospect for serious development.

21. Why should Ghana or any other poor country sign up to the HIPC initiative or G8 plans? Why don’t they simply default on debt repayments?

Ghana, like many other poor countries, is unlikely to default as it is so dependent on foreign donors and institutions. Defaulting also attracts punitive measures.

22. Isn’t the theft of Ghana’s natural resources by foreign companies more ruinous than the debt obligations?

The extraction of Ghana’s natural resources offers much needed income in the form of employment and government revenue. Ghana’s productive economy is distorted due to its dependence on mining and agriculture (gold and cocoa respectively). The key lesson here is that investment in jobs and industry is essential for the creation of a diversified economy. Conversely, “pro-poor growth” squeezes investment in Ghana and ensures that revenue generated by gold and cocoa is squandered on “pro-poor” policies and is not re-invested in the productive economy. Without productive investment, systematic growth and development, the poor are guaranteed to stay poor.

23. Who finances the majority of government spending in Ghana?

Ghana, like many other poor countries, is heavily dependent on foreign donors. A large proportion of its social expenditure is financed through multilateral, bilateral and international NGOs. Foreign direct investment is practically non-existent and multinationals - who are often seen by NGOs as the bad guys - are notable in their aversion to locate or do business in Ghana. The inadequate assistance that richer nations give Ghana is readily apparent in the fact that Ghana receives more money from Ghanaians working overseas (known as remittances) than it does from all of the external donors, creditors and investors combined. Foreign direct investment is even less than the peanuts offered at Gleneagles, and Ghana’s international Diaspora scrapes together over ten times the amount provided by G8 or its multinational corporations.

24. Why does this film not condemn G8 leaders for failing to double aid as promised?

It is true that the G8 did make a commitment to double aid to poor countries, and critics have pointed out quite correctly that this has involved the mischievous claim that debt relief counts as aid (i.e. as new money). Yet this is totally consistent with the mean-spirited impulse of the debt relief agenda in general. Such criticisms, therefore, fail to identify the key motivation of the debt relief process: regulation. Sadly, it is the West’s incessant regulation of the economies of poor countries (via the HIPC initiative) that gets the least international criticism, despite being the most harmful and dangerous aspect of debt relief.