Debt Relief
April 2006
[The]G-8, that is, the Summit of the Heads of State and Government of the world's most industrialized countries, will open Wednesday, 6 July, at Gleneagles, Scotland. One of its priorities will be Africa, a Continent that is often ignored. I warmly wish this important meeting full success, in the hope that it may lead to sharing the costs of the reduction of the debt in solidarity, to implementing concrete measures to uproot poverty and to promoting authentic development.”
Pope Benedict XVI, July 3, 2005
Heavy debt burdens continue to draw precious government resources away from critical investments in health care, education, water and other sectors necessary to improve lives in the poorest countries. Debt burdens also impede the ability of governments to respond to crises such as HIV/AIDS, natural disasters and civil strife.
Many poor countries have begun to see their debts reduced through the Heavily Indebted Poor Countries (HIPC) initiative that was adopted in 1996 and expanded in 1999 in response to successful advocacy by the global Jubilee 2000 movement, in which the Catholic Church played a major role. However, as implementation of the HIPC program progressed, it became increasingly apparent that the amount of debt relief provided was insufficient for the kind of “fresh start” that countries needed in order to address deep-seated poverty. To address the situation, the USCCB developed a proposal for deeper debt relief that was passed into law with bipartisan support in 2003. Unfortunately, the Administration treated the law as “advisory” rather than mandatory and did not implement it.
Eventually the Administration changed its position. In 2004 both US and United Kingdom officials announced that they favored providing up to 100% debt cancellation of debt owed to the World Bank’s International Development Association (IDA) and other international financial institutions that held most of the remaining HIPC-country debt. In September 2004, Bishop Ricard wrote to Treasury Secretary Snow urging a resolution of the problem of poor country debt “in a way that offers new hope to some of the world’s poorest and most forgotten people.” He also urged that the losses of the international financial institutions from the debt cancellation not be offset by reductions in new assistance to poor countries. He stressed that, for us, debt cancellation is not about adjusting accounts, but about combating poverty.
While US and UK efforts did not produce results in 2004, a major breakthrough occurred in the July 2005 Summit of leaders of the major industrialized countries plus Russia (the G8). They announced a proposal to cancel 100% of the debt owed by about 18 HIPC countries (eventually as many as 42 HIPC’s) to IDA, the African Development Fund (AfDF), and the International Monetary Fund (IMF). The G8 called for the major donor countries to reimburse the IDA and AfDF for losses from debt cancellation. (The IMF will finance its costs mainly from internal resources.)
Bishop Ricard issued a statement following the G8 meeting welcoming the new commitments on debt cancellation while urging leaders to expand the countries eligible for debt relief and to include debt owed to the Inter-American Development Bank (IDB). Immediately prior to the G8 Summit, USCCB participated in an ecumenical delegation that met with British Finance Minister Brown and held a seminar to discuss a joint message that was delivered to the G8 leaders.
The G8 proposal was accepted by all member countries of the World Bank and IMF at their recent annual meetings. The IMF gave final approval to the proposal in December, and the World Bank gave approval last month. In response to efforts by USCCB and the Church, the World Bank agreed to reduce the timeframe for granting debt relief to countries that qualify after July 1, 2006. This decision reversed previous policy that would have required qualifying countries to wait up to 15 months before receiving debt relief. The AfDF should give approval shortly.
Congress appropriated $950 million for IDA in the FY06 Foreign Operations (ForOps) bill, which is sufficient to satisfy the U.S.’s initial commitment to finance a share of the cost of the new debt cancellation to the international financial institutions. To assure that the US can continue to meet its financial commitment, it is essential that the Congress provide $950 million for IDA in the FY07 ForOps bill (See Backgrounder on Development Assistance).
A major goal of USCCB has been to promote fairness in country eligibility so that all of the poorest countries that have heavy debt burdens are included in the new debt cancellation. The G8 proposal is limited to HIPC countries. An appropriate standard would be to include all poor countries with debt burdens sufficient to qualify for grants (rather than loans) from IDA. World Bank analysis shows that non-HIPC countries eligible for grants have debt burdens at least as heavy as the HIPCs.
Another USCCB goal is to include debt owed to the IDB, the largest creditor of Latin American HIPC countries. USCCB has worked closely with Congressional offices in drafting a bill that supports the debt cancellation in the G8 proposal but also authorizes cancellation of IDB debt and urges the U.S. Treasury to work to expand the group of eligible countries. The “Multilateral Debt Relief Act” was introduced by Sen. Mike DeWine (R-OH) and by Rep. Chris Smith (R-NJ). Bishop Ricard wrote to Congress in July and September urging support for the bill. USCCB staff testified before the Africa Sub-committee of the House International Relations Committee on the benefits of, and issues raised by, the G8 proposal. The Administration has recently indicated support for cancellation of HIPC country debt owed to the IDB, and at its April meeting in Brazil, the IDB agreed to consider proposals for debt cancellation. Potential beneficiaries are Honduras, Nicaragua, Bolivia, Guyana, and Haiti (not currently a HIPC but expected to qualify shortly). As well as following IDB steps to offer debt relief, USCCB will continue to work to increase the bipartisan support for the Multilateral Debt Relief Act in the Congress.
USCCB and CRS commend the Administration for its leadership in bringing about a new debt cancellation agreement. USCCB and CRS will:
- Advocate with the Congress for appropriation of $950 million for IDA for FY 2007;
- Continue to support passage of the “Multilateral Debt Relief Act;” and
- Encourage the Administration to work for:
- inclusion of debt owed to the IDB in the debt cancellation program, and
- extension of the program to all poor countries entitled to grant financing from IDA.
See the letters on Catholic Campaign Against Global Poverty website of the USCCB and CRS at www.usccb.org/globalpoverty. For more information contact: Gerry Flood, 202-541-3167; gflood@usccb.org; and Fr. Andrew Small, 202-541-3153; asmall@usccb.org