Waving Off Debt

Mark Engler
TomPaine.com
January 10, 2005

Despite an increase in promised aid to tsunami-affected countries last week, the United States' aid offering still isn't topping the list. Australia, for one, has donated much more. But the United States could make up for its somewhat meager offering by forgiving debt payments for tsunami countries. A temporary moratorium on payments won't be enough. It's time to go farther-much farther-and end debt obligations for tsunami countries in Southeast Asia. Trouble is, we probably won't, says foreign policy analyst Mark Engler.

As we reach out to those struggling to recover from a natural disaster, our country has an important opportunity to address one of the core issues contributing to the impoverishment of the tsunami-stricken nations: the huge foreign debts that rob their governments of money to provide for human needs.

This is an idea that you might expect the Bush administration, already stung by charges of being stingy and slow to respond with aid for tsunami victims, to wholeheartedly endorse. Think again.

Despite having recognized the economic hardship caused by massive debts, President Bush has shown little eagerness to end payments from poor countries and forgive unpayable debt obligations.

Shortly after the invasion of Iraq, the current administration underwent a dramatic conversion on the issue of debt relief. George W. Bush-like his predecessors in the White House-had previously been reluctant to decisively address the crisis of debt in the developing world. But in late 2003, he came forward with a series of remarkable statements.

The president acknowledged that the type of huge debt obligations all too common among impoverished countries can "unjustly burden a struggling nation" and endanger its "long-term prospects for political health and economic prosperity." He argued that debt forgiveness was vital. Of course, he only had one country in mind-Iraq.

The problem is not that Iraq didn't deserve relief. Certainly, the billions of dollars worth of debt racked up by Saddam Hussein should be considered odious and illegitimate. The problem is that the administration did not go nearly far enough. Many other poor nations throughout the world continue to struggle under unjust burdens.

Among them are the countries devastated by last month's tsunami.

World Bank statistics indicate that the total external debts of the 12 countries hit by the tsunami exceed $300 billion. The Jubilee Debt Campaign reports that India, Sri Lanka, Thailand, the Maldives and Indonesia together make over $23 billion in debt payments each year to multilateral banks and wealthy governments. According to Oxfam, Indonesia-the region's greatest debtor-spends 10 times as much on debt service as on health care for its people.

In the wake of the natural disaster, through-going debt relief should be an essential element of the humanitarian and reconstruction assistance to these countries.

Recognizing that money spent on debt payments could be better used to assist disaster victims, to spur economic recovery and to alleviate poverty, European governments have already proposed some debt relief for tsunami-impacted nations. In advance of their upcoming meeting on January 12, officials from the Paris Club-a group of creditor nations-have announced that they will agree to a temporary moratorium on debt payments from affected countries.

There is clear precedent for such a move. Payments from debtor nations were rescheduled after Hurricane Mitch in 1999 and after the floods that struck Mozambique in 2000.

Sadly, the Bush administration's first reaction to these proposals was to hold up forward momentum on debt relief. Treasury spokesperson Tony Fratto's bureaucratic justification for the stance-he cited the need to "gather all the facts"-hardly sounded convincing, and the United States has since been brought into an agreement to be forwarded at the Wednesday meeting. But the real need is to go beyond a simple postponement of payments and to promote debt cancellation for the impoverished countries.

Economic analysts argue that a moratorium could do more harm than good in the long run if it results in higher, bunched-up debt payments in the future. And debt campaigners such as World Development Movement director Mark Curtis point out that a moratorium would not give affected countries much room to breathe if "massive debt repayments could restart at any time that rich countries chose."

Indonesia has echoed this concern in expressing reservations about a moratorium. Moreover, its finance minister, Jusuf Anwar, notes that existing debt relief programs from rich creditors often come with many strings attached. Tying some forms of conditionality to debt cancellation-like safeguards to ensure that money go towards reconstruction, social needs and sustainable development-can be reasonable. After Hurricane Mitch, major donor countries agreed to a set of standards known as the Stockholm principles. These were designed to make emergency aid part of a longer-term effort to address the causes of poverty and vulnerability, and they allowed civil society groups to push for standards of good governance in the use of foreign aid.

However, the type of conditionality typically involved with debt relief has a less humanitarian orientation. Creditor countries demand that countries open their markets to foreign companies or restructure their economies based on International Monetary Fund dictates before lifting debt obligations.

These type of conditions ignore the larger injustice of many of the developing world's debts. Even before the tsunami, a great number of citizens in the affected countries faced desperate poverty.

Those of us in wealthy nations believe that our governments donate generously to help these people. Yet many poor countries pay out more in debt service than they receive in aid, the poorest sending a total of $100 million every day back to rich countries, according to Oxfam.

In the case of Iraq, President Bush argued that the future of a people "must not be mortgaged to the enormous burden of debt incurred" by an undemocratic leader like Saddam Hussein. But Indonesia, which built up much of its debt through military spending in the long years of the Suharto dictatorship, provides a no less relevant illustration of why many debts should be eliminated as odious.

Creditor governments should individually consider each of the countries hit by the tsunami and calculate debt cancellation based on the true needs of their people-acknowledging the unpayable burdens of nations throughout the developing world, and extending the generosity of all those who have responded to this natural disaster into a just program for human development.

Mark Engler, a writer based in New York City, is a commentator for Foreign Policy in Focus . He can be reached via the website http://www.DemocracyUprising.com. Research assistance for this article provided by Jason Rowe.

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