Global Policy Forum

The MDG Drumbeat Gets Louder –


Romilly Greenhill

Jubilee Research
October 7, 2002

In 2000, there were 1.2 billion people living in absolute poverty – that is, on less than $1 per day. This is a well known and oft-quoted fact – but one that should not fail to shock, nevertheless. In a world that is richer than it has ever been (at least in economic terms), the fact that almost a quarter of the population cannot even meet their basic needs should act as a wake-up call to the world's leaders.

Indeed, in 2000, the world's leaders seemed to wake up. In a United Nations Resolution, they committed themselves to `spare no effort to free our fellow men, women and children from the abject and dehumanising conditions of extreme poverty ...and to free the entire human race from want [1].' From these fine words, a set of `Millennium Development Goals' (MDGs) was born – to halve world poverty, ensure universal access to primary education, reduce child mortality, and so on (see Box 1 for full list.)

But meeting these goals requires resources – an additional $50bn, according to the World Bank. Slowly the wheels of the aid machine are creaking into action, with commitments of an additional $5bn from the United States, and $7bn from Europe. But while these amounts are the result of hard fought political battles at home, they do not even fill a quarter of the development finance `black hole.' If no more money is forthcoming, the MDGs will remain little more than words.

This is where the debt comes in. NGOs have long argued that debt service payments – which remain high, despite the best (or worst) efforts of the World Bank and IMF's Heavily Indebted Poor Country Initiative – are sucking crucial resources out of poor country budgets, and into the coffers of the rich world. In 2001, low income countries sent more than twice the amount back to the rich world in debt service than they received in aid. For all developing countries, this figure was almost 7 times as much. Even Africa – the `scar on the worlds' conscience', according to UK Prime Minister Tony Blair - still sends out more in debt service than it receives in aid [2].

NGOs including Jubilee Research have argued that if poor countries are to have any hope of meeting the MDGs, they will need total debt cancellation – as well as substantial increases in aid. In a report released in February this year - The Unbreakable Link – Debt Relief and the Millennium Development Goals, we analysed the resource requirements of each country to meet the MDGs, and looked at how much would be `spare' for debt service payments if the MDGs were to be met. The result, for almost all HIPC countries, was substantially less than zero.

Jubilee Research has used these findings to call for an in international insolvency framework based on Chapter 9 of the US Legal Code [3]. The `Jubilee Framework', as it has been dubbed, would operate under the key principles of domestic bankruptcy laws, which include `the protection of the human rights, and human dignity of the debtor, as well as the rights of creditors [4]'. The IMF has accepted the need for an international insolvency framework, and, working with private creditors in particular, is designing a mechanism they call the Sovereign Debt Restructuring Mechanism (SDRM).

However in assessing a country's level of insolvency, the IMF continues to use standard and simplistic indicators e.g. debt to export ratios. Jubilee Research believes that there should be a wider range of indicators, and that debt service to government revenues is one such vital indicator. However, in determining whether a country has the ability to repay its debts, we believe that it will be essential to establish how much debt service can be paid, without undermining fundamental human rights in that country.

To assess the resources that are needed to defend these fundamental human rights, we believe that the MDGs should be used as a yardstick. Furthermore, we propose that UN agencies such as UNDP, and not creditors like the IMF or World Bank, should be made responsible for assessing the resource requirements, a task which they are undertaking anyway, on behalf of UN agencies. A similar proposal has recently been put forward by renowned economist Jeffrey Sachs [5].

The MDG drumbeat gets louder...

Since February, the number of rallying cries around the need for greater linkages between debt relief and the MDGs has expanded far beyond the confines of a few concerned NGOs and academics. The Monterrey Consensus, agreed at the UN Financing for Development Conference in March 2002, stated that `future reviews of debt sustainability should also bear in mind the impact of debt relief on progress towards the achievement of the development goals contained in the Millennium Declaration.' Earlier, African leaders had made a similar statement. In their `New Partnership for Africa's Development' (NEPAD) they argued that `the long term objective of NEPAD is to link debt relief with costed poverty reduction outcomes [6]' - in other words, the MDGs.

Moreover, such concerns have not only appeared in the grand statements of multilateral agreements or international organisations such as UNDP. Individual countries – some of them even creditors – have also started banging the MDG drum. The Irish government, in their recent `Developing Country Debt Relief Strategy', called for total debt cancellation for the 42 HIPC countries in order to meet the MDGs. Even the larger developing countries contained within the Group of 24 –traditionally assumed to be resistant to poor-country debt cancellation, on the grounds that it might raise their borrowing costs – have agreed to the need for greater debt cancellation in light of the MDGs.

Such calls have also, of course, come from HIPC governments themselves. The network of HIPC Finance Ministers, for example, recently issued a statement on behalf of 34 of their members, lamenting the fact that `there continues to be no systematic analysis of the contribution that HIPC relief is making to the Millennium Development Goals [7].' Although they stressed that debt relief could not be the only mechanism for channelling more resources to HIPCs – on the grounds that it would disadvantage countries such as Benin, which have very little outstanding debt – they at least requested that the linkages be taken more seriously.

But the Bank and Fund are still not listening

It is clear that the calls for greater debt cancellation to meet the MDGs have gone far beyond the traditional constellation of NGOs which have for years pushed on this issue – and continue to do so [8]. At a recent consultation meeting between World Bank and IMF staff and Civil Society Organisations [9], therefore, NGOs put the question to Bank and Fund staff – why not?

To a certain extent, our question had already been answered. As we have noted elsewhere [10], the latest Status of Implementation Report on HIPC did review the option of providing greater debt cancellation in order to meet the MDGs, but concluded that `there are no reliable estimates of the cost of scaling up debt relief to achieve the MDGs' and that they would `result in higher overall debt relief to HIPCs and [thus] would clearly lead to higher costs for creditors.' Not satisfied with these response, NGOs pressed World Bank and IMF Staff further, and received the following five replies:

`Debt relief cannot be linked to the MDGs because the amount of relief that could be provided even with total debt cancellation is not enough to fill the total financing gap of $50bn per year.' That is, even total debt cancellation would save HIPCs a total of less than $10bn per year, or what they currently pay in debt service. Given that the financing gap is $50bn per year, debt relief alone could not provide sufficient additional resources.

The observation that poor countries will need further aid, as well as debt cancellation, in order to meet the MDGs is obviously true, and is a point we have ourselves made. But not walking a step because you cannot walk a mile seems counter-productive – and illogical. Furthermore, the Bank's calculations simply do not make sense. For the $50bn resource gap estimated by the Bank is for all developing countries, not just the HIPCs. Developing countries in total in fact pay very nearly $50bn in debt service each year, according to the Bank's own figures [11]. Of course, simply cancelling all developing country debt would not necessarily channel the extra resources to the countries that need it most. Our point is simply that the Bank's calculations don't work – and so their counter-argument falls apart.

`New money can be more flexible in resource allocation.' This is a bizarre statement, and one that is simply not true. Debt relief is the probably the most flexible form of transfer of resources to poor countries, on the grounds that it provides a pot of money that would have otherwise been transferred to creditors. This money is then available for spending on education, health or other priority areas needed to meet the MDGs. Any aid, whether it is traditional project aid or budget support – where donors contribute directly to the recipient countries budget – brings with it transactions costs, such as the time spent negotiating with donors. New aid also inevitably rises and falls with the wills of Parliaments in donor countries, making long term planning difficult for the poor country government. Of course, however, new aid gives a greater role for Bank and Fund staff in planning, execution and monitoring of projects. Maybe this `flexibility' that the World Bank and IMF are so in favour of is simply a codeword for more Bank and Fund control?

`New aid can be provided by individual countries, whereas debt relief needs multilateral agreement, making it more difficult to achieve.' The centre of this argument is the idea of `burden sharing' - namely that when debts are reduced, all creditors should take an equal share of the `haircut.' According to this principle, debts cannot be reduced without agreement across all countries, while any donor is free to provide new aid, regardless of the contributions of other donors. Thus, according to political realities, Bank and Fund staff have argued that new aid is a more realistic mechanism for providing the financing to meet the MDGs.

But what the Bank and Fund fail to acknowledge is that the principle of proportional burden sharing is already being violated within the HIPC initiative, with many of the bilateral creditors, including all G7 countries, providing 100% debt cancellation for HIPCs – well above the levels they would have to provide under a proportional burden sharing approach. Moreover, multilateral pressure for new money – either in the form of aid or debt relief - is if anything likely to be a good thing. The depressing downward trend in aid flows over the 1990s suggests that without multilateral pressure, donors may simply fail to cough up. Recent commitments by the EU and US to increase aid during the UN Financing for Development process would tend to support this view.

`Market access is more important than debt in meeting the Millennium Development Goals.' Bank and Fund staff rightly point out that providing duty free access for poor-country exports would do more to help meet the MDGs than would further debt relief. This may be true, but it does not mean that a debt relief strategy should be abandoned altogether. Partly this is again due to political realities: recent moves in the US suggest that, if anything, the rich world is becoming more protectionist, rather than less. Moreover, debt relief and market access are complements, rather than substitutes. Debt relief can provide governments with the additional resources they need to invest in the areas which are necessary to enable the poor to really benefit from market access, such as primary education and rural transportation.

`There will be costs in terms of future access to capital markets for countries which receive total debt cancellation thus undermining future ability to meet the MDGs.' This is another tired old argument that is wheeled out whenever campaigners call for further debt relief, or new processes such as the Jubilee Framework. Bank and Fund staff worry that debt relief today will scare off foreign investors tomorrow, undermining countries' ability to attract the foreign capital which it is believed they need to grow.

There are three points that can be made about this argument. Firstly, the reality is that the poor countries are receiving very little private foreign investment in any case. Net private capital flows to low income countries were only $4.6bn in 2000, or some 2% of total private capital flows to developing countries [12]. Since 1990, this figure has fallen both in absolute terms, and as a proportion of total flows to developing countries.

Secondly, there are reasons to think that debt relief resources, if devoted towards meeting the MDGs, will actually promote private capital flows. The major reason for the limited volume of capital flows to poorer developing countries is lack of infrastructure, skills and capacity. Investors are far more likely to go to countries with a good transport infrastructure, an educated population and a reliable power supply. Meeting the MDGs would go a long way towards guaranteeing these things.

Finally, here at Jubilee Research we also believe that countries should rely less on foreign investment and start taking domestic resource mobilisation more seriously. When looking at the countries which have been most successful in growing, and reducing poverty, since 1960, it is not those that have borrowed most from abroad, but those that have most effectively mobilised domestic resources. In East Asia, for example, up until the early 1990s growth was almost exclusively financed by very high domestic savings rates, rather than external capital. And as HIPC Finance Ministers have pointed out, a high external debt burden often encourages governments to pay off external creditors at the expense of domestic creditors, thus undermining the domestic financial system and thus the capacity for domestic resource mobilisation.


Jubilee Research believes that it is time for the Bank and Fund to start listening to the growing clamour of voices around the world, calling for greater debt cancellation to meet the MDGs. We believe that the Bank and Fund can no longer afford to dismiss this proposal within a few sentences of their HIPC reports.

To be fair, Bank and Fund staff have apologised to NGOs for seeming to downplay their concerns, and indeed have stressed that much more work on the MDGs will be going on within the Bank and Fund over the next few months. With UNDP gearing up their campaign, they may find it harder, next time, to ignore. Maybe next time the urgent need for more debt cancellation in order to, in the words of the United Nations Millennium Declaration `free the entire human race from want [13]' will be taken a little more seriously.


[1] United Nations Millennium Declaration, 55/2

[2] Total aid to all developing countries in 2000 was $56.2bn, of which $22.9bn went to low income countries and $13.4bn to Africa. (Source: World Development Indicators 2002.) In 2002, debt service from all developing countries was $381.9bn, of which $47.8bn came from low income countries and $14.5bn from SS Africa. Source: World Bank Global Development Finance 2002.

[3] See 'Chapter 9/11? Resolving international debt crises – the Jubilee Framework for international insolvency' available at

[4] Chapter 9/11 op cit, page 8.

[5] See `Resolving the Debt Crises of Low-Income Countries' by Jeffrey Sachs, March 2002, available at

[6] New Partnership for Africa's Development, October 2001, page 37-38. See our report `Relief Works – African Proposals for debt cancellation – and why debt relief works' for more details on the NEPAD proposal.

[7] HIPC Ministerial Network Press Release, 28th September 2002.

[8] See, for example, the joint submission to the HIPC Review by CAFOD, Christian Aid, Oxfam and Eurodad, available at

[9] The meeting took place on 26th September 2002, and was part of the Bank and Fund consultations with Civil Society Organisations in the run up to the 2002 Annual Meetings.

[10] See `Latest HIPC Report Brings More Bad News for Poor Countries' available at

[11] See the World Bank's `Global Development Finance 2002'

[12] Source: World Development Indicators 2002

[13] Source: United Nations Millennium Declaration, Resolution 55/2

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FAIR USE NOTICE: This page contains copyrighted material the use of which has not been specifically authorized by the copyright owner. Global Policy Forum distributes this material without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. We believe this constitutes a fair use of any such copyrighted material as provided for in 17 U.S.C § 107. If you wish to use copyrighted material from this site for purposes of your own that go beyond fair use, you must obtain permission from the copyright owner.