In the past two years, a coalition of unprecedented international breadth and vitality has grown around the world. Known as Jubilee 2000, or J2K, it has roots in communities of faith but includes secular groups of every political stripe, all sharing a moral commitment to ensure a debt-free fresh start for the world’s poorest nations. The first international conference of Jubilee 2000 was held in November 1998 in Rome, with 38 national campaigns and 12 international organizations represented. That conference agreed to coordinate a Global Chain Reaction which will work toward a target of 22 million signatures – the biggest petition in history – scheduled for delivery as part of an international event at the June 1999 Summit of the G8 countries in Cologne.
Is It Practical?
Jubilee 2000 doesn’t call for the cancellation of all debt, but rather all debt that is unpayable. Declaring a debt unpayable is not simply about determining whether it can physically be paid. The calculation grid is far more complex than a simple balance sheet.
Unpayable foreign debt is that which would cost such human suffering to repay that no honorable creditor would exact it. Debt should also be declared unpayable whenever the cost of debt service is more than the financial resources needed for significant human development. A 1987 Vatican Statement on the ethics of debt cancellation put it another way: "No government can morally demand of its people privations which are incompatible with human dignity."
The most urgent unpayable debt is that of the 41 nations the World Bank and the IMF declared to be Heavily Indebted Poor Countries (HIPCs). The J2K campaign is simple in its call and sophisticated in its analytical approach, with a careful focus on specific countries and specific debts. The reality is that almost all HIPC debt can’t and won’t be repaid, and it’s senseless to believe otherwise. These countries can’t develop healthy economies as long as millions of their people are being denied basic health care and education, and earn wages so low that they can barely survive. Cancellation of this crushing debt is the most practical way to reduce poverty and restart HIPC economies, as well as to protect the global environment – which undergoes enormous degradation under the pressure to develop export markets to finance debt repayment.
Because the face value, or official amount, of these debts will never be repaid, their true market value is only a fraction of their face value. HIPC bilateral debts to the US government, for instance, are heavily discounted, generally worth only about 10-15 percent of the original loan. Donor nations and lending institutions will not suffer greatly by writing off these debts, since contributions needed would be based on true market value. In effect, Western governments received what they paid for – support in the Cold War – and they have been well repaid over many years of debt servicing.
There are numerous precedents for debt relief, including cancellation. In 1953, Germany negotiated an accord in which, in addition to having about 80 percent of its war debt written off, it was required to use only three to five percent of export earnings to pay back the rest of its foreign debt. HIPCs are currently required to use 20-25 percent of their earnings for debt repayment. Ironically, Germany now sits on the IMF Board, which enforces that stringent demand on HIPCs. In the late 80s, creditor countries canceled about 50 percent of Poland’s debt, as the Iron Curtain began to crumble. In 1991, the US forgave $7 billion in debt which Egypt owed, in gratitude for Egyptian assistance in the Gulf War.
A Stanford University study substantiated that the US government bailout of the Savings & Loans in the early 90s will cost taxpayers $1.36 trillion. Most are unaware of just how generous they’ve been in canceling that debt, or that they’re paying depositors 100 percent of their loss rather than only up to the $100,000 maximum usually covered by the Federal Deposit Insurance Corporation (FDIC). No argument can be made that, as a nation, we simply can’t afford HIPC debt cancellation. The question is political will, not economic possibility.
Impact on Rich Countries
Cancellation of crushing international debt is simply the right thing to do. At the same time, however, in an increasingly globalized world there are many practical reasons why it’s in the enlightened self-interest of industrialized nations to relieve the debt of impoverished countries.
First, a major governing principle of the capitalist economic system is the need for ever-expanding markets. The huge debts of HIPCs and the rigid imposition of Structural Adjustment Program (SAP) austerity frequently leads to social conflict, political instability, and government repression. Add crumbling infrastructures and a poorly educated and unhealthy workforce, and it’s unrealistic to expect foreign investment and market development. Greater political stability and economic possibility would make lower income countries better markets for goods and services and more attractive to corporate investors.
Second, the need to repay foreign debt in "hard currencies" like US dollars usually results in lax environmental protection and the misuse of natural resources. Unmanageable debt service easily translates into eroded and toxically depleted soils in the rush to raise cash crops, polluted and over-fished waters, clear-cut rain forests, and unregulated mining practices. Environmental damage on such a scale doesn’t respect national borders, and rich countries must realize that the impact is felt in their own backyards. The debt burden carried by impoverished countries has global repercussions and impoverishes us all.
To call for Third World debt cancellation is in effect to take on all the major social and economic issues, and the focus of one’s analysis continually widens. Migration patterns, for instance, are directly related to economic possibilities wiped out by the demands of debt repayment. As the president of the Latin American Bishops Conference recently said, "When there is no development in the South, migrants will continue flowing north, because it’s a situation of despair."
International drug traffic is likewise related to the debt crisis. To repay high international debt, the major drug-producing nations need hard currency from drug-consuming countries like the US. The sale of cocaine and opium produces that, and the cycle of the drug fix continues.
Responses to the Crisis
In 1996, there was a major shift by the IMF and the member nations of the World Bank when they announced the HIPC Initiative. It was an historic event, in that the Bretton Woods institutions, for all 50 years of their existence, had never considered writing off or rescheduling debts owed to them. The intent of the initiative was to reduce debtor nations’ overall burden to a "sustainable" level.
But many NGOs and faith-based groups say the initiative is flawed. The criteria to qualify are too strict, the amounts offered too small, and the length of time required to prove credit-worthiness too long. In short, the whole process is simply too little, too late. Furthermore, in addition to continuing to insist on an array of SAPs, the HIPC Initiative is intended only to restore a debtor country’s ability to repay its loans, without any real consideration of debt cancellation.
In November 1998, the peoples of Central America suffered the ravages of Hurricane Mitch, which wiped out decades of painful development effort. There are a few hopeful rays of light in steps taken by the international financial community to address this disaster.
Nicaragua and Honduras, among the poorest nations in the hemisphere, with nearly half their people living below the poverty line, are the focus of most international attention. Honduras owes about $4.1 billion to international creditors, almost one-third of the government’s revenue last year. It takes $400 million a year to service that debt. Nicaragua owes about $6.1 billion, almost $1300 per person, the highest per capita debt in the world. That takes $254 million annually to service, about 52 percent of all its export revenue and almost three times the country’s spending on health and education.
Honduras needs to rebuild more than 170 bridges destroyed by Hurricane Mitch, and build housing for over two million homeless. Whole villages and banana plantations – not just their crops – were washed away. There won’t be any Honduran banana exporting for at least two years. Chiquita Banana and United Fruit shareholders will no doubt land on their feet with tax write-offs, but thousands of campesinos won’t have work for months or years.
George Bush came down right away and offered condolences, but didn’t mention possible debt cancellation. Hillary Clinton also visited, announcing a two-year moratorium on US debt repayments – an offer to postpone, but not cancel, $54 million that the two countries were scheduled to repay through 2000. Then, in December, a crisis consultation was called in Washington between the affected countries and the Paris Club ministers of finance, including the US. Word came in January that the Paris Club agreed to forgive 80 percent of Nicaragua’s debt, consider a similar reduction for Honduras, and postpone for three years all payments on their loans. Full details are hard to come by, but it’s an historic event and should be saluted as such. It will free over $400 million for reconstruction, and hopefully set an example for future deliberations on the Jubilee cancellation of debt.
Still more promising are two broader initiatives on the international scene. In mid-January, German Chancellor Gerhard Schroeder launched his own proposal for alleviating the burdens of the most indebted nations, calling on the G8 nations to make this a priority at their June summit. Given Germany’s regrettable history of foot-dragging on this issue in World Bank/IMF deliberations, and that Schroeder will play host to the next G8 meeting, his initiative should be encouraged. This is the same meeting to which the J2K Campaign hopes to bring 22 million signatures on a worldwide petition with the same objectives.
And, finally, at the 1999 World Economic Forum in late January, bringing together 2000 movers and shakers of the international financial community in Davos, Switzerland, Vice President Al Gore made a similar plea for a debt-relief plan. Without giving any details, he pledged a new US-led initiative to eliminate the debt of developing countries, relieving them of their current burden of interest payments. According to the New York Times, Gore promised that the next Clinton budget would include "significant new US funding" to pay off debts of HIPCs, many in Africa. But further news reports never mentioned the initiative. It may be hoped, however, that Gore’s pledge implies administration support for debt cancellation legislation that will be introduced in the 106th Congress this year.
Kairos for a New World Order
The energy and speed with which the Jubilee 2000 Campaign has spread around the world is without precedent. The extraordinary human chain being forged around the debt crisis is a sign of something new – a significant momentum and an international awakening which declares that new beginnings are indeed possible for the poor, if there is political will to make that happen.
The hidden blessing in the debt crisis may be that it will force the world toward a new global order. There is more than a hint of this in the realistically ambitious goals of Jubilee 2000. Achieving the goal of debt cancellation in the most impoverished countries would put the world on the road toward creating humane alternatives beyond self-interest. It would also encourage economic systems in which conscious commitments to justice and compassion – rather than blind mechanisms or invisible hands – are counted on to make things right between peoples.
If significant HIPC debt cancellation is achieved, it will force a widening range of revolutionary political and economic initiatives. Traditional SAP requirements will be replaced with adjustment programs that better meet the needs of the poor and promote participatory and equitable human development. This will force the governments of developing nations to ensure support for basic needs such as education, nutrition, and health care, prevent environmental degradation, reduce inappropriate levels of military spending, and effectively seek recovery of resources that were diverted to corrupt regimes. Most important, it will prompt them to develop democratic, transparent processes whereby debts will not be canceled or new loans ever assumed without popular debate and the participation of civil society.
The millennium is a key moment, a kairos, a moment that must be grasped. The Jubilee 2000 initiative clearly is poised to make a radical difference in our connectedness with a developing world that deserves more than the share it is getting. The J2K Coalition has demonstrated the potential to develop a broad convergence of political, economic, and moral forces such as that which once ended slavery, and, in our time, apartheid. An effective political network is urgently needed, especially in US churches and wider faith communities. The convergence will not hold indefinitely. For the sake of the brothers and the sisters, we dare not let the millennial moment pass us by.
Thomas E. Ambrogi, a theologian and human rights advocate, lives with his wife in Pilgrim Place, an ecumenical community of retired church professionals in Claremont, California. His article first appeared in the National Catholic Reporter. He can be e-mailed at Tambrogi@aol.com.