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Aid, Debt & Development

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DEBT Is the UK Government doing enough?
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A recent briefing paper from the Department For International Development (DFID) has reiterated the government's commitment to reduce extreme poverty through debt relief. The countries that qualify for this debt relief package (worth US$100 billion) are exclusively Heavily Indebted Poor Countries (HIPC). You can view the full report here.


2nd February 2006 - STWR

To qualify for the debt relief, all HIPC have to develop a somewhat controversial "poverty reduction strategy" according to IMF guidelines and must specify exactly how the debt relief savings are used. Under the revised framework, countries can qualify for this relief with lower "Debt to Export" and "Debt to Government Revenue" ratios than before, thus increasing eligibility for other countries. However, the relief is given in stages, with the majority of relief provided only after HIPC governments have implemented reforms that have been agreed with the IMF and World Bank.

It is clear that debt relief is an important weapon in the fight against poverty, and indeed the UK government does seem committed to achieving the Millennium Development Goals target of halving poverty by 2015. On the other hand, the government has also agreed that as things stand, these targets will not be met. Along side this there are still concerns that the HIPC initiative is not available to enough poor countries, that the relief takes too long to materialise, the amount of aid is too little and that it is therefore not creating a significant impact on global poverty.

The briefing paper shows that "debt stock" has reduced by on average two thirds for the 27 countries that have qualified for the relief. Unfortunately there is a disproportionately low impact on the amount spent servicing the remaining debt, which has only reduced by a third on average. It is a commonly stated fact that the servicing of a country's debt requires greater levels of finance than is spent by its government on key areas such as education and health. So is the British Government going far enough if they want tackle poverty and achieve the Millennium Development Goals?

What is the alternative?

The Jubilee Debt Campaign (JDC) and the World Development Movement (WDM) have published a report proposing that the UK government should cancel all multilateral debt to HIPC as well the already agreed bilateral debt cancellation. You can read the full report, "Call For Change", here.

The report argues that total debt forgiveness would only cost the government 1.3 billion, which is less than £3 per annum, per person, over 10 years. Ireland has already committed to such a strategy; clearly it is the only way in which the Millennium Development Goals could be reached by 2015.

It is fair to say that the UK government has stepped up its efforts in this area, they are the 2nd largest donor to the HIPC Trust Fund, and UK official development assistance (oda), will increase next year to 0.4% of GNI. Yet this is clearly not enough in the face of the extreme levels of poverty and hardship experienced by millions around the world. The report by the WDM and JDC puts forward a reasonable and convincing argument for cancelling UK's share of multilateral debt to HIPC, there by reducing poverty and allowing these countries to be more effective within the global economic community.

We believe that debt relief is a crucial step towards the creation of an equitable global economy, but more must be done to increase the availability and amount of relief as well as its positive impact on the receiving countries basic needs and economic prospects. As such the cancellation of our portion of bilateral and multilateral debts seems an inexpensive and effective way of reducing global poverty. We invite our viewers and members to review these two reports and to voice your views and comments about them.