Don't Make Poor Nations 'Pay' for

Catholic Agency for Overseas Development
September 14, 2004

Proposals by the US government to re-divert aid funding to pay for the debt cancellation for the world's poorest countries have been criticized by CAFOD. Deputy Finance Ministers from the wealthiest countries met in Paris this week to prepare the agenda for the upcoming October 1 meeting of Finance Ministers in Washington.

It is understood that the US Treasury Department is going to call for 100% debt cancellation for highly indebted poor countries. However the American proposal calls for the debt relief to be offset against new aid funding for the poverty-stricken countries.* Henry Northover, Public Policy Analyst, CAFOD, said: "It's not so much a 100% debt cancellation as a 100% debt makeover. Debt cancellation for the worlds poorest must be paid for by the world's richest."

Total debt cancellation needed

One option would be for the International Monetary Fund (IMF) to sell or revalue part of its gold reserve to help pay for the debt write-off. CAFOD and other aid agencies have long been calling for 100% debt relief on Heavily Indebted Poor Countries' multilateral debts - those owed to international institutions such as the World Bank and IMF. Debt cancellation is desperately needed—this year alone, 3 million people in Africa will die due to the HIV/AIDS pandemic and the countries cannot afford even basic health care. Yet the same nations on the African continent will send an estimated £8.3 billion ($15 billion) in debt service to the IMF, World Bank and wealthy creditor nations this year.

Debt write-off on the agenda

At the G-8 summit in early June this year, the world's wealthiest leaders considered for the first time a proposal that would provide 100% multilateral debt cancellation for impoverished nations. But the welcome signs that the wealthy nations is moving toward a full write-off of debt have been muddied by the US proposal that the debt write-off is effectively offset by a reduction in new aid. Henry Northover said: "While the US proposal tidies up some of the absurdities of a failing debt system, there is no new money chasing a big new promise. Paying for debt relief by recycling the money due to the world's poorest is a continuation of a social and economic injustice."

* The US Treasury's Proposal: Debts owed by eligible Heavily Indebted Poor Countries (HIPCs) to the World Bank's International Development Association (IDA) facility and the AfDB would be met from IDA. This means an impoverished country X owing $1 a year to IDA and the AfDB and receiving $10 in new loans from IDA, would instead be paid $9 in grants and the $1 would be retained by IDA as a form of debt relief for X.

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