Debt relief – will this time be different?

This was the question being asked by World Bank staff and other ‘experts’ on a panel at the Annual Meetings. The event marked the launch of a new Bank book, Debt relief and beyond, which assesses progress under the Heavily Indebted Poor Countries Initiative (HIPC) and the Multilateral Debt Relief Initiative (MDRI) and other challenges on the debt issue, including a section on odious and illegitimate debt. The focus on debt is welcome, especially as the issue is quite marginalised in these meetings otherwise.

Countries that have had debt relief have seen increases in social spending, and in some cases indicators such as child mortality have improved. Plus the better debt situation of countries after HIPC and MDRI means they were better able to face the global financial crisis.

However the tone of the discussion looking forward was alarming. Now, a new debt crisis doesn’t seem likely, we were told, although many poor countries are vulnerable, a dozen or more are in severe debt distress, and the outlook is uncertain. Given this prognosis, no real thought seems to have gone into what should be done, beyond imposing the newly-flexibilised Debt Sustainability Framework, and hoping that donors won’t cut back on grant aid. More urgent and radical thinking is needed.

Civil society representatives called for a new debt work-out mechanism to deal with future debt problems, and the Norwegian government minister Solheim spoke of the importance of responsible lending standards, but the Bank's approch seems to be a mixture of wishful thinking and sticking their heads in the sand. In which case it is hard to see how this time things really will be any different.

Alternative voices on the Bank and Fund

Local civil society groups, academics and students have organised an alternative conference, Critical Voices on the World Bank and IMF and the World in Crisis, at Bilgi University in Istanbul, shadowing the official meetings taking place this week.

The conference is providing some refreshingly different perspectives from much of the programme at the official conference centre. Yesterday saw presentations on the IMF and its role in Turkey, as well as other emerging and developing countries. Professor Erinc Yeldan gave a detailed analysis of the impact of IMF conditions on Turkey, where inflation has been pushed down, but interest rates continue to hover high, unemployment is soaring and the public debt is huge. He pointed out that the Fund’s growth model is based on capital inflows and a growing financial sector, not growth in the real, productive, job-creating economy.

Professor Robert Wade from the London School of Economics was in town to give his perspective on the IMF’s logic that markets are 'efficient' - this means the aim of their programmes is to impose domestic austerity in order to restore investor confidence, because the financial markets will make 'correct judgements' about the situation on the ground once stability is restored. As well as questioning this logic, Wade pointed to the issues that have been masked and ignored by following it, for example the huge income inequality, both within countries and globally. This inequality means most people have less income, so demand stagnates, while the super rich put their wealth in the money markets, creating grand casinos of ultimately deadly fragility.

Nuria Molina, new director of Eurodad, talked about whether the IMF has really changed, as their PR would have us believe. Certainly they have removed some conditions and been more flexible in the downturn. But the harsh macroeconomic conditions are still there – if put off until next year in some places. And there is even evidence of the old structural conditions that are supposed to have been abolished – she gave examples of conditions imposing trade liberalisation in the Republic of Congo, privatisation in the energy sector in Kyrgyz Republic, and removing fuel subsidies in Ethiopia.

Stiglitz criticises new loans and failure to deal with debt

Joseph Stiglitz, nobel prize laureate and chair of the UN's expert committee on the financial crisis, addressed a seminar today at the IFI annual meetings on the problems with the G20's lack of legitimacy and inclusivity. He focused on the ways that the absence of 172 UN member states from the G20, which has become the new global forum for economic governance, has meant that policy decisions have ignored or worsened the plight of the poorest countries and the poorest people within them. These countries are not represented and so their voices are not heard.

The first problem Stiglitz identified was the fact that the key response of the G20 - to lend more money through the IMF - is creating huge new debts for low income countries. This at a time when many are just emerging from the debt relief process with relatively better debt situations, only to have these undone by the need to borrow more to protect social spending and invest in their economies. The downturn is going to be long, Stiglitz warned, so why saddle countries with more debts now? They need grant based finance instead, and a new framework to deal with sovereign debt.

Unfortunately, no one at the Bank and Fund seems to be listening - they're going to approve a revised debt sustainability framework here in the next few days that will let lenders provide more expensive loans, and even less grants. And a new debt work-out mechanism is not on the agenda at all. More signs that the rich and powerful are calling the shots when it comes to decisions about the global economy.

Town Hall meeting with Bank and Fund leaders

Last night saw the main opportunity for civil society groups to quiz Bob Zoellick, President of the World Bank, and Dominic Strauss-Kahn, Managing Director of the IMF, at the annual Town Hall meeting.

Zoellick concentrated his remarks on the "dangerous moment" we are now in, the biggest threat now being complacency. He also talked about the food crisis, and commented that the G8 deal for $20 billion for food security was still only "words on paper". He mentioned the $11.6 billion funding gap the Bank has identified, which is for just 43 countries to cover their core social spending commitments, and said that, in contrast to the Fund, the Bank still needs to raise a lot of money to meet the needs of poor countries.

Strauss-Kahn said that, while we were at the start of recovery, there would be a long delay before employment stopped rising. And it was too early to implement so-called 'exit strategies'. He talked about the changing IMF role, with a new facility for low income countries (still loans with strings attached though) and reform to the quota in the Fund's governance (fairly meagre changes in reality). The IMF, he said, needs to promote stability as well as prosperity (if only they'd been doing that 2 years ago!).

Chaired by Archbishop Ndungane of South Africa, questions from civil society representatives ranged from governance and transparency to specific policies on agriculture, gender and disability. But they generally failed to critique the institutions' central role in this crisis, and only one question targetted the Fund, which is worrying given that organisation's massive renaissance in the past year.

Such a set-piece event was never going to be very critical or alternative in its perspective - hopefully some of the alternative forms and meetings being planned in the margins of this conference will provide more inspiration in the coming days.

IMF and World Bank meet in Istanbul

This year's meetings of the IMF and World Bank are taking place in Turkey, a country that hasn't always had the most straightforward relationship with the international financial institutions. Last year the Turkish Prime Minister commented that "We will not cast our tomorrows into darkness by bowing to IMF demands at such a time of crisis".

So far the biggest headline of the meetings seems to be the moment when a Turkish student threw a shoe at IMF Managing Director Dominic Strauss-Kahn at a meeting on Thursday. Strauss-Kahn later commented that Turkish students were at least polite enough to wait until he'd finished speaking to throw their shoes.

Zoellick's main message so far has been the need to counter 'complacency' and that although economic recovery may be starting, it will be slow and uneven. Strauss-Kahn has been talking about the Fund's role in promoting stability as well as prosperity.

More odious debts for the Democratic Republic of Congo if the World Bank gets its way

Probe International reports that World Bank President Robert Zoellick is urging the Democratic Republic of Congo to pursue better governance as a way to entice more companies to build dams in the country. In his sights are the rehabilitation of the notoriously dysfunctional Inga 1 and 2 dams.

But if Zoellick has his way in the DRC, a new dam called Inga 3 will also be built, followed by the mother of all dams—the Grand Inga—which together would be constructed to harness the estimated 40,000-50,000 MW of hydro power potential on the Congo River. Proponents dream that the Inga dams complex, along with an equally mega transmission system, will power Africa—with some electricity left over to send to Europe.

Full article

Haiti finally completes debt relief process

Only one day after the Central African Republic, the IMF and World Bank have now also agreed to allow Haiti to complete the Heavily Indebted Poor Countries Initiative and receive $1.2 billion in debt relief. Haiti is the 26th country to complete HIPC. This is a major campaign victory after years of struggle for the poorest country in the Western hemisphere. In April this year, the US Obama administration said it would pay the remaining debt service that Haiti owed until it completed HIPC. This decision now makes that permanent, and means that Haiti also gets Multilateral Debt Relief and will have vital extra resources to tackle poverty and crisis.

Read the World Bank press release here.

Central African Republic gets debt relief

The International Monetary Fund (IMF) and the World Bank have agreed that the Central African Republic (C.A.R.) can complete the Heavily Indebted Poor Countries (HIPC) Initiative. The C.A.R. becomes the 25th country to reach the completion point under the Initiative. This means it will receive $207 million in debt relief. It also now becomes eligible for the Multilateral Debt Relief Initiative and so gets a further $182 million debt cancellation.

Read the IMF press release here.

African legal fund to help tackle vultures

The Financial Times reports that the African Development Bank launched a legal support organisation on Monday "designed to level the playing field for cash-strapped African states negotiating complex commercial transactions or facing litigation by vulture funds". This is something Jubilee Debt Campaign has been calling for since the Zambia v Donegal case in 2007, and the UK Government has been working behind the scenes to push it forward. However, legal assistance doesn't prevent the vultures attacking in the first place - see our End the Vulture Culture campaign to find out why the law needs to be changed.

Read the article in full: African plan to keep vulture funds at bay

One small step forward

An agreement by all 192 UN states on the financial crisis acknowledges our global interdependence

Joseph Stiglitz, Sunday 28 June 2009
guardian.co.uk

Last week, something unusual happened: the international community, coming together at the UN to discuss the global financial crisis and its impact on the developing world, reached a consensus on an agreement. This spelled out the issues to be addressed and laid out the way forward. Many had said it would be difficult for 192 countries to reach consensus, and that was why discussions should be limited to a self-selected group of 20. In fact, the UN agreement was stronger and more forceful than the G20 communique.

Full article

UN's turbulent priest refuses to go quietly

The Financial Times on the UN conference:

Presidents of the United Nations General Assembly - in office for a year - have little time to make themselves at home. [...] But for the UN's big powers the end of Father Miguel d'Escoto Brockmann's tenure in September cannot come soon enough. Western diplomats accuse him of abusing his position to pursue his own radical agenda and of bringing the UN into disrepute.

The latest bone of contention is his plan for a summit of world leaders later this month to discuss the impact of the financial crisis on developing countries. The event was mandated by member states in Doha last year, but critics reject His ambitions to use it to try to redesign the international financial architecture. Reforming bodies such as the World Bank and the International Monetary Fund, they argue, is best left to the Group of Eight and Group of 20 and is outside the remit of the General Assembly, the so-called G192 of all UN member states. Full article

When cashed-up IMF offers to help, steer well clear

Great article by Ross Buckley in the Sydney Morning Herald:

A year ago the International Monetary Fund was on the nose, its credibility in tatters. Today it is the darling of the rich countries.

[...] For 27 years, IMF policies have put the need for poor countries to service foreign debt ahead of their need to develop. Development has been subordinated to debt repayment.

So what happened? Has the IMF suddenly changed? Has it been reborn with new policies and perspectives? Have the needs of developing countries shifted?

No, no and no.

What has happened is the global financial crisis. The needs of rich countries have changed, specifically those of their financial sectors, not the needs of poor countries. [...]

Read the full article

Temporary debt moratorium needed for some poor nations, says UNCTAD Secretary-General

UNCTAD´s Secretary-General called for temporary debt relief for countries hard-hit by the crisis, telling a UN meeting that world attention to the crisis must not wane, regardless of signs of recovery in the developed world.

Full story: http://www.unctad.org/Templates/webflyer.asp?docid=11446&intItemID=1528&lang=1

Blog Action Day: Poverty and Finance

Today has been proclaimed Blog Action Day – when thousands of bloggers from every corner of the world write something to draw attention towards global poverty. At Jubilee Debt Campaign blogging against poverty isn’t unusual, but I’m going to use this year’s Action Day to make some connections between poverty and what’s foremost in the news – the credit crunch.

We have another name for the credit crunch – a debt crisis. The credit crunch has been explained as a lack of liquidity, or credit, available to banks on the international markets. Inject these markets with enough liquidity, restore lenders’ confidence enough to start lending again, and everything will come right. Hence the gigantic bail-out packages.

But actually the problem is less one of available credit, and more a massive over-accumulation of debt – much lent in a reckless way, like sub-prime mortgage debt, and packaged up in such a complex manner that no-one is quite sure how much or how bad the debt they hold amounts to – how ‘exposed’ they are to ‘toxic’ debt. Hence the loss of confidence.

Some commentators, like former head of Jubilee 2000 Ann Pettifor, have been predicting a ‘First World Debt Crisis’ for some time. These warnings went unheeded by a financial sector which has got used to having everything it’s own way.

This bears a strong resemblance to the debt crisis that the debt movement has been campaigning to end for 10 years. As today, banks in the 1960s and 70s lent huge amounts of money, in ever more complex and inventive ways, to developing countries. When interest rates soared and commodity prices fell, developing countries could no longer repay. The debt crisis was born – and 20 years later the world has still failed to learn the lesson.

Today developing countries’ debt stocks stand at a staggering $2.9 trillion and every day the poorest countries pay the rich world almost $100 million in debt repayments. Many countries in the world have been going through a financial crisis for more than 20 years.

Then, as now, many banks were effectively bailed out as the World Bank and other ‘multilateral banks’ gave new loans to pay off their old loans. But as the banks took the money, the poorest people in the world were still indebted – still couldn’t access health care, education or social security because their governments had to allocate such enormous sums to repaying old debts. Many countries remain in that state today.

We need to make sure that this time the financial sector is made to learn the lessons; that this time it is not the poor – in the developed or developing world – who pay the price for the recklessness of a few.

The answer isn’t ever greater freedom for the financial sector but greater regulation to make sure the financial sector is at the command of society rather than the other way round.

End Poverty Now forum - what next?

Anti-poverty campaigners gathered in Central London on Saturday for a forum to discuss what today's global crises (the financial crisis, the food and fuel crisis, and climate change) mean for campaigners against poverty. Were you there? If so what did you think?

Photo: Benedict Parsons/BOND

Unsurprisingly the financial crisis dominated, and speakers and activists talked about using it as an opportunity to explain how the overwhelming power of the financial system has been the cause of so much poverty and inequality in recent decades. There was a call for urgent regulation which would hold the financial sector accountable to democratic institutions across the world.

Tony Juniper (former head of Friends of the Earth), Celine Tan (the Third World Network) and Nick Hildyard (the Cornerhouse) showed the inter-connectedness of the crises the world is now facing and spoke of the necessity of going well beyond a single issue approach to campaigning. The anti-poverty movement needs to understand and convey the connectedness of the crises we’re facing – allowing ordinary people to understand how our actions or failure to act can impact on the developing world for better or worse.

A series of papers discuss these links in more depth:

• Tony Juniper and others, A Green New Deal report, July 2008
• Nick Hildyard, A (Crumbling) Wall of Money: Financial Bricolage, Derivatives andPower, 9 October 2008
• Jubilee Debt Campaign, The debt crisis and the credit crunch, October 2008
  

The afternoon was dominated by a discussion of whether current anti-poverty campaigning was up to the task of combating the crises faced by the world. Speakers from Make Poverty History North East, Leeds University and the Climate Camp argued for better working together by activists at a national and local level across a range of different issues, including better provision of educational resources and other means of empowering local activists.

There was widespread agreement that we must join the growing call for a radically restructured financial system, and ensure that any reformed system will place people and the planet at its core. We couldn’t afford to wait for months or years to join this call – immediate action is necessary.

The conference described itself as a starting point – to allow us to start conversations and actions which will strengthen the anti-poverty movement. It achieved that but real progress depends on others getting involved to reinvigorate and broaden the anti-poverty movement.

The networks who organised and supported the day include: The Global Call to Action against Poverty, Jubilee Debt Campaign, Trade Justice Movement, Stop Aids Campaign, Stamp Out Poverty, and Stop Climate Chaos.