How does it work? Changemakers position. Past action and results.
This debt is creating and sustaining poverty in the world as resources are transferred from South to North. This prevents development, because this money could be going to education and health instead. Many of these loans have been given to undemocractic regimes and for use in bad projects, meaning people in the global South are being forced to pay for their own oppression. Creditors (lenders) are using developing country debt and conditions set on the loans as an effective means to control the policies of the South. Thus, creditors undermine democracy and autonomy in debt-ridden countries. It is necessary to confront the debt crisis and simultaneously prevent new debt crises from arising.
Developing country debt has long been on the agenda for Changemaker and we have had many campaigns and victories along the way. Debt is a complicated issue and it’s important to be educated on the lending process and the institutions involved.
Illegitimate debt
Changemaker believes that much of the developing country debt is illegitimate. Illegitimate debt has arisen as a result of irresponsible and immoral lending policies. Creditors have in many cases acted irresponsibly. They have loaned money to undemocratic regimes, morally reprehensible purposes and for projects that do not create development.
According to the British organization "Drop the Debt" about one-fifth of loans were used for weapons, often to prop up repressive regimes. This has been possible because the debtors (borrowers) at the international level are not protected. Changemaker believe that creditors themselves must take the consequences of this irresponsible policy, the illegitimate debt must be deleted immediately and the liberated funds should be given to the people.
Institutions involved
World Bank:The World Bank was created in 1945 to provide long-term economic aid to investment. Their activites are focused on developing countries, particularly making leveraged loans. The Bank is owned by its member governments, which subscribe to its basic share capital and have votes proportional to its shareholding. The World Bank consists of two financial institutions: The International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA). IBRD works with middle-income countries and creditworthy poorer countries by giving them loans and provide development assistance. IDA was created in 1960, and provides economic aid and technical assistance to the 82 poorest countries in the world. IDA provides loans that have a long payback time and very low rate compared to other banks.
IMF: The International Monetary Fund (IMF) was created for two reasons: To manage a stable international system of exchange, and to provide short-term loans to countries that were in payment imbalance. The IMF provides additional development policy advice to its member countries, technical assistance and training, and acts as an international ???. Member countries subscribe to the Fund by contributing to a pot in which loans are taken from. This contribution determines how much a member country can borrow from the International Monetary Fund, and is the basis for the number of votes in the fund.
Both of these organizations are undemocratic, because representation is based on the amount of money a country can contribute. The rich countries are therefore making decisions which affect the poor countries the most.
Conditionality
Conditions given on loans to poor countries are not always good for the countries who must follow them. These conditions may in fact contribute to poverty. When the World Bank and IMF issue loans to developing countries, conditions are always attached. Conditionality does not have to be negative, and can often be relatively neutral, but historically its implementation has had many negative impacts for the countries who follow them. The biggest example of this is the Structural Adjustment Programs (SAPs) from the World Bank and IMF.
SAPs were introduced in reaction to financial crises in the 1970s as an attempt to rescue poor countries by giving them loans with conditions meant to alleviate poverty. Conditionality is not in itself a bad idea, but the conditions that were imposed were harmful to the developing countries' economy, infrastructure and population. For example, there were requirements that a country privatized health and education sectors or liberalized trade policies. The results were poor. People had little food and no access to medicine and school, and it was the poor in these countries that were hit the hardest.
World Bank and the International Monetary Fund have received a lot criticism for structural adjustment programs, and in 2002 introduced Poverty Reduction Strategy Papers (PRSPs) as a replacement.
Debt relief arrangements
Heavily Indebted Poor Countries(HIPC) initiative and the MDRI (Multilateral Debt Relief Initiative) are debt relief mechanisms through the IMF and World Bank. They calculate how much debt countries are unable to pay, and delete the portion of the debt that is considered to be unmanageable.
Debt relief through the HIPC initiative and MDRI is not sufficient. The debt reduction has been low, slow-paced and only given to a few countries. The criteria for debt relief is small and the aid given so narrow, that these meager debt reductions only serve to legitimize other debts. The HIPC initiative is not an adequate solution to the current debt crisis, and must be replaced by a debt relief scheme which is based on the principle of illegitimacy.
HIPC and MDRI also require that the borrower prepare plans for poverty reduction, known as PRSP (Poverty Reduction Strategy Paper), to obtain debt relief. Changemaker believes that the ideals behind the PRSP are good because they involve civil society to a greater extent and give nations greater ownership of poverty strategies. Unfortunately, experience shows that the performances of the PRSP are far from sufficient. Guidelines that were designed for these applications is similar to the structural adjustment programs from the 1980s and in many cases, these programs have had very negative consequences for development in the debt-ridden countries. The real influence of civil society, parliaments and government in developing countries have over the design of poverty strategies is not sufficient, and PRSP have not so far helped to change the power relations between developing countries and the international financial institutions substantially.
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..in a Debt Court: Changemaker wants an international debt tribunal outside the traditional justice system, in which the parties entrust the final decision in the dispute to an independent and neutral panel of judges. The aim of such a mechanism is to create a fair process in which the unequal balance of power between creditor and debtor are equalized. If the court deems debt to be illegitimate, it must be deleted completely and immediately, without conditions. This will set important precedents for the use of the concept of illegitimate debt in practice.
..in Debt Audit: The government must conduct an objective and comprehensive debt audit in order to investigate whether it might have given ilegitimate loans. Norway must on its own initiative conduct an immediate and unconditional debt relief if the loan is considered illegitimate. If the Norwegian government conducts this process, and advocates it in international forums, other countries may conduct their own debt audits.
The government must also review and revise the current policy regarding lending to ensure transparency and to prevent the disorder are given loans in the future. Focus should be on the needs of the borrower, not the interests of Norwegian industry.
..in Norway’s role: Changemaker believes that the deletion of the Norwegian ship export debt in 2006 was groundbreaking internationally because it was deleted on the basis lender responsibility. This action helps to set a precedent for debt relief in other countries. It is important that Norway continues to take initiative to investigate this further and promote it internationally to a greater extent. Norway must be a leader and take the lead in the work of illegitimate debt. We believe that Norway should take the lead internationally to put in place a working group in the United Nations that can work for the international rules for responsible lending and the cancellation of illegitimate debt.
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1996: Changemaker, together with Aksjon Slett U-landsgjelda (Action: Delete the developing country debt), pressured Norway to be a pioneer in global debt relief. Norway was the first country which called for 100% debt relief and was followed by most western countries.
1999: Changemaker, together with other groups, collected 150,000 signatures for the cancellation of poor country debt in Norway as part of an international Jubilee 2000 campaign, which garnered a total of 25 million signatures. That same year, the G8 promised to deliver $100Bn of debt relief.
2003: Changemaker reframed the issue as “Dictator Debt” to reflect how loans are often given to dictators, and therefore the people of developing countries are forced to pay for their own oppression. We collected 2500 pictures of people dressed as dictators and presented them to then minister of International Development Hilde F. Johnsen. The minister said she was glad that Changemaker was engaged in the debt issue and said that illegitimate debt would be discussed very soon. We consider it a victory that the Norwegian authorities recognized dictator debt as illegitimate debt.
2005: Norway itself has provided loans that are illegitimate. In the 1970s, the Norwegian shipyard was in crisis because there was low demand for boats. In order to solve the crisis, Norway gave loans to poor countries to buy norwegian ships. The ships were not equipped for the new conditions, and many of them sank or were unusable. In 1999, we had a campaign where Norwegian youth folded paper boats to encourage that the debt for these ships be deleted. Former minister of International Development Hilde F. Johnson agreed that the debt was illegitimate, but did nothing.
So in 2005, we took up the issue again, with our “Bury the Ships” campaign. We went around the country encouraging people to draw the buried ships, and ask that the debt for them be erased. We collected well over 1,000 and sent them to the Minister of International Development, Erik Solheim. In addition to this broad support, we wrote editorials in local newspapers stating our beliefs. Solheim acknowledged Changemaker’s work in a press conference where he announced that he would eliminate the ship exports debt.
2006: After many years of intensive work, the illegitimate Ship Exports debt was removed!
2007: The World Bank and the UN begin to work on illegitimate debt
2008: Norway’s government begins work on a task force in the UN to look at the question of sustainable debt, illegitimate debt and responsible loaning.
2009: When the new government released its plans for the next term (Soria Moria II), it’s debt policy word-for-word matched the requirements from our debt campaign in 2008!
* The fall of 2009: Requirements from the debt campaign, 2008, came into government policy: “(roughly translated) The government will seek international debt relief mechanisms for the treatment of illegitimate debt, a binding international regulations for responsible lending and implement a Norwegian debt audit. Costs of debt relief should not displace the Norwegian development assistance.” This was a major political victory!
Currently, Changemaker is celebrating Norway’s commitment to debt relief but is not becoming complacent. We must keep up pressure until the plans are implemented and continue to research and campaign so that Norway remains a frontrunner in illegitimate debt relief!
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