The most glaring problem with the Heavily Indebted Poor Country (HIPC) initiative for debt relief is that it will not provide lasting relief from debt for the highly indebted countries of the south. The HIPC process is aimed not at canceling debts, but at ensuring that they can be repaid. It has little to do with enhancing human development, reducing poverty, or even increasing economic growth in the debtor countries. Rather, it is designed to massage debt figures down to a level where they would be deemed “sustainable” again according to the criteria of the IMF.
Enhanced HIPC (the born-again version of HIPC) is not much different from a bribe forced on poor, highly indebted nations to convince them to stay within the debt-finance system. It seeks to make and keep poor countries solvent enough so that they can continue paying their debts to international creditors. The so called easing of eligibility conditions for debt reduction, interim strategies for providing credits and grants, and announcements of a multi-billion dollar trust fund for fighting poverty, are all ways to calm frustrated debtor governments, who are fed up with the conditioning of meagre debt relief benefits on continued adherence to structural adjustment type policies.
Where one door is opened, another is closed. Through Enhanced HIPC, its architects and sponsors (the World Bank, IMF, G-8 governments and Paris Club creditors) have agreed to ease the criteria by which countries qualify for debt relief. But at the same time, they have also introduced a number of new hurdles into the process, from pre-entry requirements to ways in which resources eventually “freed up” through debt relief will be used. Enhanced HIPC thus represents a season of high conditionality: the macroeconomic, structural and institutional conditions already central to Bank-Fund adjustment programmes will be fully retained, with additional rigorous requirements in the areas of governance, public expenditure planning, private sector expansion, and the linking of any debt relief made available with Bank-Fund approved poverty reduction strategies.
From Rhetoric to Reality
The HIPC initiative was first proposed in 1996 by the World Bank and the International Monetary Fund (IMF) as an ostensibly comprehensive approach towards reducing the external debt of the world’s poorest and most heavily indebted countries. At its launch, the World Bank and IMF assured the international aid community that under the HIPC initiative, between 20 and 30 of the world’s poorest countries would have significant portions of their debts reduced by the year 2000, paving the way for their eventual exit from endless debt restructuring towards lasting debt “relief.”
By the end of 1998, HIPC had made little progress and only four countries (Bolivia, Uganda, Guyana and Mozambique) had qualified for extremely small amounts of debt reduction. In September, 1999, based on a global review of the initiative, growing pressure from civil society organisations and proposals discussed at the G-7 summit in Cologne, the World Bank and IMF announced changes to the HIPC initiative. The new, Enhanced HIPC would use more flexible criteria to assess debt sustainability and eligibility for debt relief, and offer quicker, greater support to more countries. Forty-one countries were identified as eligible for support under the new HIPC, and the G-7 countries at the Cologne summit announced debt relief of up to 90 percent 20 of the world’s poorest countries by the end of the year 2000.
In the same meetings, in order to demonstrate their commitment to poverty elimination, the World Bank and IMF also announced that debt relief would now be directly tied with poverty reduction programmes. The IMF’s old Enhanced Structural Adjustment Facility (ESAF) was renamed the Poverty Reduction and Growth Facility (PRGF), and its old Policy Framework Papers (PFPs) were replaced by Poverty Reduction Strategy Papers (PRSPs)s. The PRGF constitutes the central mechanism through which the IMF will provide assistance to the HIPC and in order to reach the “completion point” (i.e., the point at which debt stocks are cancelled), countries must prepare PRSPs that are acceptable to the Boards of the Bank and the Fund.
The World Bank and the IMF have widely promoted the Enhanced HIPC as an innovative and groundbreaking initiative towards debt relief. Not surprisingly, the key benefits that the initiative promises are emptied of meaning when we compare the rhetoric with reality.
1. Deeper and broader debt Relief: The World Bank claims that through the new HIPC framework, external debt servicing will be cut by approximately $ 50 billion, and that the World Bank itself will reduce its debt claims by nearly $ 11 billion.
In reality, the current relief amounts proposed by the major multilateral creditors is a far cry from the promised $ 50 billion reduction. The World Bank itself only proposes to reduce $ 5.7 billion through the International Development Association (IDA) and $ 600 million through the International Bank for Reconstruction and Development (IBRD). It has a long way to go to make good its $ 11 billion promise.
Further, the relief provided through Enhanced HIPC initiative is neither deep, nor broad. After debt relief, many countries will spend more on debt servicing than on priority areas such as health, food security and education. The current method used to assess debt sustainability is deeply flawed: it is based purely on econometric and financial indicators (debt /export and debt/government revenue ratios) and does not take into account the chronic levels of poverty in the HIPC, or what debt servicing would cost the population of a country even if its financial indicators showed that it was debt “sustainable.” Research conducted by Jubilee 2000 shows that the first five recipients will still be paying more than half a billion dollars every year to external creditors, and overall, countries already in the pipeline for HIPC assistance will pay more in debt servicing than they will in public healthcare and education. The cruelest cut of all is that 15 of the 41 HIPC countries will end up paying more after so called cancellation than they were paying earlier.
Despite claims that the funds “freed up” from debt reduction will now be redirected towards social spending, reports from Africa show that increased expenditures in areas such as health and education are miniscule in light of the combined cutbacks in these areas over fifteen years of structural adjustment programmes (SAPs). At this rate, it will be 2010 before levels of expenditure in health and education in most African countries can reach pre-1985 (pre-SAP) levels.
2. Faster debt relief: The World Bank claims that both the Bank and Fund will start providing assistance immediately at the point at which HIPC assistance is approved.
In reality, gaining approval for HIPC assistance is in itself a time consuming process, complicated by a number of conditionalities that a debtor country must satisfy. First there are the eligibility requirements: a country should have successfully (in Bank-Fund terms) applied a structural adjustment programme for three to six years and must have a level of debt considered unsupportable by the two institutions. If the Bank and Fund are convinced of the country’s good faith intentions to continue with the Bank-Fund package of neoliberal reforms, the country must begin its negotiations with the Paris Club of Creditors. If this proves successful, they must then return to the Bank-Fund negotiating table to hammer out the details of a HIPC relief package. Since 1999, a new conditionality has been added: the preparation of poverty reduction strategies (PRSPs) that outline measures that the debtor country will take to counter poverty.
The process does not become any faster once the above hurdles have been crossed and HIPC assistance begins. HIPC assistance is predicated on the recipient country putting into place the usual assortment of neo-liberal reforms. Experience from Guyana, Honduras and Mozambique show that assistance can be stalled or delayed because of negotiations over conditionalities and the time required by Bank-Fund internal approval processes. The Bank and Fund themselves state that full debt relief will be spread over 20 years. Having seen what simply ten years of structural adjustment and debt servicing can do to developing and transition countries, the pace of debt relief promised through Enhanced HIPC is unlikely to make any positive impacts on the well being of the HIPC.
In order to “expedite” the debt relief process, the Enhanced HIPC allows for interim relief measures, provided that the debtor government demonstrates full commitment to future implementation of the HIPC framework. To this end, “floating completion points” were introduced in 1999, which assess a country’s eligibility for debt relief based on its performance on specific reform programmes, rather than its overall track record. “Floating completion points” are intended to provide an incentive to HIPCs to implement macroeconomic and sectoral reforms quickly, and also provide avenues by which the Bank and Fund can introduce new conditionalities along the way. Country specific requirements for the ten HIPC who have reached completion points show that seven are required to introduce further privatisation and sectoral reform programmes on top of already existing structural adjustment programmes.
To date, only ten countries have started to receive any type assistance under the HIPC initiative and not even one has received real debt reduction.
Stronger links between debt relief and poverty reduction: The World Bank and IMF claim that resources freed up from debt relief will be used to support poverty reduction strategies, developed with civil society.
In reality, the structural adjustment programmes imposed by the Bank and the Fund have created and entrenched poverty to unprecedented levels in over 90 developing and transition countries worldwide. Despite ample documentation and evidence of the disastrous effects of Bank-Fund programmes, the two institutions have been unwilling to introduce any fundamental changes in their thinking or approach. Their latest commitment to poverty reduction is proving to be another expensive, renaming exercise, and structural adjustment policies continue to form the bottom-line of the Enhanced HIPC framework.
The Bank and Fund claim that the bad days of structural adjustment are over and debt relief will be accompanied by nationally owned poverty reduction strategies and papers (PRSs and PRSPs). Experience thus far shows that the PRSPs are yet another resource-intensive conditionality that debtor countries must cross in order to qualify for any multilateral assistance at all. The poverty reduction strategies are certainly not nationally owned: they must be prepared according to Bank-Fund guidelines, with predetermined policy matrices that perpetuate old style Bank-Fund adjustment and reform programmes, and often conflict with nationally developed anti-poverty strategies. A senior Bank official described the PRSP-PRGF as a “compulsory programme, so that those with the money can tell those without the money what they need in order to get the money.”
Civil society participation in the formulation of these poverty reduction strategies has largely consisted of consultation meetings with prominent and well-resourced NGOs. Labour unions, peasant and fishers associations, indigenous people’s organisations and social movements have been conspicuous in their absence. Apart from over-orchestrated meetings with civil society representatives in high profile international meetings, the Bank and Fund have made few attempts to engage with ordinary people who will bear the brunt of their so called poverty reduction programmes.
Interestingly, honest assessments of the role of external debt, the impacts of past debt servicing and SAPs on highly indebted countries do not seem to be on the Bank’s and Fund’s PRSP agendas. There is much talk about debt to export ratios, the need for greater trade and investment liberalisation and competitiveness, but no mention of the need to amend international terms of trade in favour of highly indebted countries, or preferential market access in industrialised economies for the poorest countries. There is plenty of rhetoric about good governance and the need to fight corruption in debtor countries, but there are no proposals to penalise irresponsible lending on the part of international creditors, or to curb the “corporate creep” that is increasingly evident in bilateral and multilateral development assistance and credits.
The Promise Unravels
During the G-8 meetings in Cologne in 1999, G-8 members pledged $ 100 billion to finance the HIPC Trust Fund, the primary pot from which multilateral debt reductions would be made. Then in September, 1999, U.S. President Bill Clinton announced that the United States (U.S.) would write off a 100 percent of the bilateral debts owed to the U.S. by 30 of the poorest countries. This was followed by similar announcements by Britain, France, Italy, Germany Canada and Japan. Shortly thereafter, non G-8 governments also declared their commitment to debt cancellation: Australia, Belgium, Netherlands, Norway, Spain and Switzerland all announced their readiness to go beyond what HIPC promised, and cancel a 100 percent of the bilateral debt owed to them by some of the poorest countries.
Today, the promises made in Cologne ring hollow. Barely $ 3 billion of the $ 100 billion pledged to the HIPC Trust Fund has materialised and Northern governments are dragging their feet on making good their pledges of full cancellation of the bilateral debts owed to them by their poorest debtors. The worst offender is the U.S., which promised $ 600 million towards multilateral debt relief, but has come up with less than $ 70 million. The European Union (EU) and Japan are conveniently using the U.S.’s failure to delay their own contributions.
In all, there are 27 multilateral institutions that are creditors to the HIPC and have agreed to participate in the HIPC initiative. These institutions hold a total of $ 70.2 billion (about 33 percent) of HIPC outstanding debt. The World Bank group is the largest creditor with $ 39.4 billion: $ 37.1 billion owed to the IDA and $ 2.3 billion owed to the IBRD. This is followed by the African Development Bank (AfDB) which is owed $ 10.4 billion; the IMF, which is owed $ 8.2 billion; and the Inter-American Development Bank (IADB) which is owed $ 3.8 billion. The Asian Development Bank (AsDB) despite being the largest creditor in Asia, holds only $ 892 million of HIPC debt.
Among the IFIs, the World Bank and the IMF enjoy preferential status compared to bilateral and other multilateral creditors in debt repayments and scheduling. They are owed over almost $ 48 billion by the HIPC countries, and this debt, unlike bilateral debts, cannot be rescheduled or defaulted on by borrowing countries. The debts must be paid, and servicing them has cost debtor countries far more than the original sums borrowed, both in terms of the actual sums repaid as well as in terms of shouldering the social, economic and environmental impacts that debt servicing has entailed.
The World Bank and IMF have no plans whatsoever to write off even 50 percent of the debt owed to them by the poorest countries. Under Enhanced HIPC, the World Bank plans to provide relief of 25 percent ($ 600 million) of the debt owed to its non-concessionary arm, the International Bank for Reconstruction and Development (IBRD), and for 32 percent (5.7 billion) of the debt owed to its concessionary arm, the International Development Association (IDA). The IMF has proposed to relieve 37 percent ($ 2.3 billion) of the debt owed to it. The AfDB proposes to relieve 31 percent ($ 2.2 billion) of debt owed to it. The IADB proposes to relieve 39 percent ($ 1.1 billion), and the AsDB proposes to provide relief for 24 percent ($ 103 million) of the debt owed to it.
Research conducted by Jubilee 2000 shows that the IMF, the IBRD, the IADB and the AsDB could easily write off 100 percent of the debts owed to them by the HIPC through their own resources, and neither lose their triple A credit ratings, nor suffer significant losses in usable equity. Through its own resources, the World Bank could also write off two-thirds of the HIPC debts owed to IDA, and with donor funding of $ 6 billion, it could fully cancel its HIPC debt. The AfDB, with its own resources and modest donor support, could also write of a 100 percent of the HIPC debt owed to it.
Measurements of debt relief already carried out since 1996 show that the reductions obtained by the HIPC to date do not exceed 5 percent of HIPC debt in 1996, or 0.25 percent of the total debt of developing countries. The sum allocated by U.S. Congress towards the reduction of HIPC debt owed to it amounts to less than 0.05 percent of its annual spending on defense. The amount pledged by the United Kingdom (UK) over a 20-23 year period (635 million pounds) represents approximately two thousandths of the UK defense budget. According to some calculations, even if the creditor nations of the North made good on their 1999 pledges, none of them will contribute more than one percent of their defense budgets towards debt relief.
Clearly, the financial resources to fully cancel the multilateral debt owed by the 41 HIPC countries do exist among the IFIs and the Northern donor community. What does not exist, however, is the political will to let go of debt servicing as an instrument of economic domination, regardless of its consequences on an increasing number of marginalised populations in the HIPC.
Debt Relief in Perspective: Who Really Pays?
In February, 2000, World Bank President James Wolfensohn claimed that outright cancellation of the debt of the poorest countries would “screw up” the market for debt instruments. The “costs” of debt reduction and cancellation are highlighted by both, multilateral and bilateral credit agencies as the reasons for delay in implementing the HIPC initiative. But a quick look at the world debt situation shows that the debt of developing countries and among them, those of the HIPC, are miniscule compared to the debt of wealthy, industrialised countries.
In 1999, developing country debt (not counting the former Eastern Bloc) was placed by the World Bank at $ 2,060 billion, less than 6 percent of total world debt ($ 37,000 billion). The debt of former Eastern bloc countries was calculated at another $ 465 billion. The public debt of Belgium is approximately $ 250 billion, the public debt of France is $ 750 billion, the national debt of the United States is $ 5,000 billion, U.S. household debt is $ 6,000 billion, and the national debt of Japan at $ 2,000 billion. In contrast, the total debt of the 41 HIPC countries is approximately $ 200 billion (less than one percent of world debt). It is difficult to imagine how canceling the $ 200 billion owed by the HIPC would seriously affect the market that Mr. Wolfensohn is so worried about.
The debt management strategies enforced by the G-8 countries and their watchdog institutions (The World Bank and the IMF) are classic examples of how northern financial institutions and economic interests can be protected, with scant attention to the long-term impacts of these strategies on majority populations in debtor countries. Since the debt crisis exploded in the early nineteen eighties, countries in the south have paid their external creditors at least four times what was originally owed. The debt crisis heralded a new era of massive resource transfers from developing countries to the wealthy, industrialised countries not only through higher interest rates on debts, but also through a simultaneous fall in commodity prices which constituted the primary exports of many developing countries.
One of the major worries in the U.S. and Europe when the crisis broke out was that many of their largest banks were overexposed to debtors many times over total bank capital. Motivated by the desire to protect their banking systems and financial strength, the western governments (particularly the U.S.) used their control of the IMF and the World Bank to not only ensure full repayment of past loans, but to also lay the ground for a continued scenario of debt dependency through IMF-World Bank SAPs and austerity measures. Public debts incurred by developing countries to northern private banks were transformed into “official debts” to northern governments and multilateral institutions. Private banks not only got away with irresponsible lending, but were encouraged to keep lending with new guarantees and protections from institutions such as the Multinational Investment Guarantee Association (MIGA), export credit agencies and other IFIs.
The entire gamut of debt reduction measures since then, from the Brady Bonds to the current Enhanced HIPC initiative, have invariably resulted in many more gains for the creditors with little and dubious gains for indebted countries. The solution to the indebtedness of developing countries continues to be more debt, which has ballooned drastically as interest is charged on unpaid interest, and the principal remains untouched.
In the period from 1984 – 1991, developing countries paid northern creditors $ 209 billion more in interest payments and principle repayments than they received in new loans. Among the 38 countries that were identified by the World Bank as ‘severely indebted low income countries,’ total debt rose from 5 percent of GNP in 1970 to 139 percent of GNP in the late nineties. In 1999, all the developing countries combined transferred a net sum of $ 1146.6 million to the creditor nations in the North.
In 1998 alone, the 41 HIPC transferred $ 1,680 million more to the North than they received in credits. From 1992 – 1998, the World Bank and the IMF extracted more from the HIPC than they offered in loans and credits. Research conducted by Jubilee 2000 shows that 22 of the poorest HIPC transferred $ 6.8 billion to the IMF and IBRD during this period, $ 5.8 billion of which went to the IBRD. IDA transfers to these countries during this period amounted to $ 7.8 billion, with no new credits from either the IMF or the IBRD. Further, these 22 countries have had zero or negative per capita income growth over the last 35 years as a result of SAPs and debt servicing. In each of these countries, the debt owed per person is significantly higher than the annual public health spending per person. For example, in the Central African Republic, debt owed per person in $ 263, while annual public health spending per person is only $ 6; in Ghana, the debt owed per person is $ 319, while annual public health spending is only $ 7.3; in Nicaragua, debt owed per person is $ 1243, while annual public health spending is $ 18.3.
The amount of debt that the World Bank and IMF “forgive” is not simply forgotten, or absorbed as “losses” by the Bank and the Fund. The institutions have a plan to get their money back, except not directly from the debtor countries. They would be repaid from the HIPC trust fund, established specifically to finance the reductions that the Bank and Fund claim so generously. Creditor countries (who are members of the IMF and World Bank anyway) are expected to make contributions to this trust fund, which are invested by the Bank and Fund on the international financial markets. Returns from these investments would be then used to pay back the so-called “forgiven amount” to the IMF and the World Bank.
Bilateral funds allocated for debt reduction under the Enhanced HIPC initiative will not go directly to the debtor countries. In many cases, these funds will come out of the development aid budgets of creditor countries, and be used to relieve debts incurred by debtor governments to private investors and companies in the north. Many of these companies are already insured against non-payment risks through guarantees by institutions such as the Exim Bank in the U.S. and COFACE in France. Creditor countries (of the G-8) will use portions of public funds earmarked for ODA to pay these guarantor institutions to compensate the private companies for the debts to be “forgiven.” Debt to private financial institutions, then, will be paid for by ordinary citizens in both the creditor and debtor countries, while private companies get away with profits and incentives to continue business as before. In some countries (for example, Sierra Leone, Honduras, Zambia, and Tanzania), a significant portion of foreign aid is already being used to repay debts to the World Bank and the IMF.
France and Japan have demanded that the debts owed to them must be repaid and they will then donate the funds back to the debtor countries. However, Japan specifically requires that funds handed back to debtor countries be used to purchase goods and services supplied by Japanese companies. Similarly, France has been offering debt “relief” to the HIPC for several years on the condition that debtor countries privatise their public sectors to benefit French private corporations. Research conducted by the Committee for the Abolition of Third World Debt, a Belgian NGO, shows that French multinationals such as Bouygues and Vivendi have been able to purchase entire sectors of economies in the former French colonies as a result of France’s debt “relief” policies.
Thus, one way or another, through cash transfers, or through transfers of their economic and environmental resources, the HIPC themselves will repay their own debts, barely disguised as debt reduction and relief. Maintaining consistency with the earlier debt management strategies of northern financial powers, the so-called “relief” provided under HIPC will benefit the governments and private corporations of the north, rather than the people in debtor countries.
The Myth of Debt Sustainability
Debt sustainability assessments made by the World Bank and IMF have more to do with how much debt servicing can be squeezed out of a debtor country than the country’s actual ability to pay without sacrificing human and social development objectives. Under the first HIPC initiative (launched in 1996), a country’s debt was considered sustainable if it was able “…in all likelihood to meet its current and future external obligations in full without resorting to rescheduling in the future or accumulation of arrears.” A HIPC sustainability criterion in 1996 claimed that annual debt service should be between 20 – 25 percent of export earnings. In the 1999 G-8 summit in Cologne, it was agreed the debt sustainability criteria should be modified to provide “deeper debt relief” and therefore lowered. However, these criteria apply to the debt stocks of the countries, and not to the amounts that actually go towards debt servicing. As such, they are both, inappropriate and inaccurate methods by which to assess the debt burdens of the HIPC.
Nowhere in the Bank-Fund descriptions of debt sustainability do we find any substantial discussion about the economic and human development challenges faced by countries that have been servicing heavy debts for long periods of time. Debt reduction is directed towards reducing debt stocks rather than debt servicing amounts. Although debt stocks determine the amounts that go towards servicing, many HIPC have such large debts (in principal, compound interest and arrears) that only a fraction of it is actually being serviced. The impact of heavy indebtedness is felt not through these stocks, but through active debt servicing, which redirects national resources away from essential domestic needs towards debt repayment.
Debt sustainability is not simply an issue of econometric and financial indicators by which financial technocrats can determine whether or not a country qualifies for debt relief. Countries that have undergone almost 20 years of structural adjustment and heavy debt servicing obligations face not only worsening poverty conditions, but also massive backlogs of social, human, technological and economic capacity that calls for a complete rethinking of the debt sustainability criteria in the Enhanced HIPC. According to Jeffrey Sachs:
The IMF and World Bank have been mouthpieces of this deceit, with their charade of analysing the “debt sustainability” of the poorest countries. These analyses have nothing to do with debt sustainability in any real sense, since they ignore the needless deaths of millions of people for want of access to basic medicines and nutrition. Money that could be directed towards public health is instead siphoned off to pay debts owed to western governments and to the IMF and World Bank themselves.
In truth, debt will never be sustainable unless the wealthy and powerful countries stop demanding in trade and investment privileges the miniscule amounts of debt repayments that they “forgive.” Nor can these countries, or their collection agencies talk about debt sustainability when money that is urgently needed for strengthening public health systems, national food stocks and distribution systems, and clean water is diverted to servicing debts that have already been paid many times over. Talk about debtor countries needing to increase exports as a way of “growing out of indebtedness” are meaningless in the face of economic manipulations that control the values of the goods that these countries export. Rhetoric about debt sustainability becomes particularly ridiculous when on one hand a country like the U.S. trumpets its contribution towards the fight against HIV/AIDs in Africa, but at the same time, aggressively promotes the patenting of drugs by its pharmaceutical companies, thus raising the costs of essential drugs to those who need them most.
Possible Alternatives
The Enhanced HIPC is certainly not going to provide any kind of solution to the debt or poverty problems of highly indebted poor countries. Poverty is created not by debt per se (many northern countries have much higher levels of public debt than the HIPC), but by debt servicing under specific economic and political terms, which the World Bank and the IMF have mastered to perfection. It is this aspect of debt “relief” that the Enhanced HIPC misses entirely. No matter how one puts the pieces together, the final picture that emerges from the jigsaw of Bank-Fund debt relief measures is one of continuing domination of the global economy by a handful of northern countries. The HIPC initiative is simply the most recent, in a long line of instruments that the World Bank and the IMF have used to ensure this domination.
A more effective way of dealing with the chronic and expanding debt problems in the south would be to do away with instruments such as the HIPC and Enhanced HIPC altogether. If there is indeed genuine worldwide concern about growing poverty, inequality, social disintegration and environmental destruction in the world’ poorest countries, many positive steps can be taken that go well beyond the Enhanced HIPC in achieving long term freedom from the debt overhang..
The first positive step would be the unconditional cancellation of the external debt of the poorest countries of the world. The need to reduce poverty is urgent, but it will not be achieved by pro-rating debt reduction on externally imposed anti-poverty measures. Years of SAPs and debt servicing have weakened the social and economic bases of many of the world’s poorest debtors. Rebuilding this capacity is crucial for lasting solutions towards poverty elimination, but this will not happen as long as the debtor countries are increasingly strapped with debt service payments and further structural adjustment in the name of debt relief. Methods by which countries can redirect resources previously used for debt servicing towards human, social and economic development goals should be decided by citizens and their selected representatives, and not by foreign creditors, donors or multilateral agencies
The second positive step would be to abandon the neo-liberal reform agenda that currently underwrites north-south development assistance through grants and credits. In particular, trade and financial liberalisation must be curbed because of their negative impacts on the local and national economies of poor, indebted countries.
The third positive step would be to end the impunity of southern elites who have become illegally rich on the backs of their citizens (such as Mobutu and Suharto) and their accomplices in the World Bank, IMF, private banks and other international institutions. Proceedings should immediately be started to return to the respective populations their stolen wealth, much of which is earning hefty profits in northern financial institutions. This must be accompanied by the introduction of mechanisms that hold creditors equally responsible and penalise them to the same degree as self-serving borrowers, for bad and irresponsible loans.
The fourth positive step would be to introduce capital controls that prevent the unrestricted inflows and outflows of large amounts of short term capital in developing and transitional countries; an example of such controls is the imposition of taxes on foreign exchange transactions (such as the Tobin Tax) in order to protect countries from sudden financial shocks and discourage the disastrous impacts of speculative capital
The fifth and most enduring step would be to reduce dependency on foreign financing, especially loans, in local and national development. Most development priorities (for example, food security, education, healthcare, environmental protection, clean water, etc.) can be supported through domestic resources, and the use of foreign financing can be limited to those goods and services that are as yet unavailable at reasonable cost domestically. But this would then entail the reorientation of our economies from production for export to production for local/national markets, and the redistribution of land, income, and other productive assets to strengthen local and national economic capacities.
Most important, the above steps would require that we subject economic policy decisions and economic transactions to the service of people, community and society, rather than vice versa, as exists now. While the above steps would not redress all the past economic imbalances of the past, they would be a start towards achieving long term social, economic and political justice, and towards preventing the use of debt as a tool of domination by the wealthy.
