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More debt no answer to crisis in developing countries
Author: Murat Kotan
Published: 2009-06-25
www.eurodad.org
Published in: Economisch Statistische Berichten (Economic and
Statistical Bulletin) 94 (4562)
12 June 2009: p.381 as Meer schuld geen antwoord op crisis
ontwikkelingslanden.
The crisis caused in the west does not only impact the rich
Western world. New estimates of among
others the World Bank indicate that the poverty of the more than
2.5 billion people who already live on
less than two dollars per day, will deepen; that between 2009
and 2015 infant mortality will be
between 1.4 million and 2.8 million higher than expected; that
tens of millions of people more than
expect will find themselves in extreme poverty and that the
number of people in the world that suffer
chronic hunger will increase in 2009 to more than a billion.
The governments of richer countries see the solution for
increasing poverty in developing countries
mainly in more IMF-loans and trade credits. According to
calculations by Oxfam (2009), of the 1.1
trillion dollar in measures which the G20 recently has agreed,
only fifty billion is expected to be
available for Low Income Countries, and then mainly in the form
of loans that lead to a heavier debt
burden. More debt does not form a solution for the crisis in
poor countries. On the contrary, it is rather
part of the problem.Between 2000 and 2007 the governments of low
and low-middle income countries
have paid 1.228 billion dollar in debt service, of which 140
billion dollar to the IMF and World Bank.
They will have to continue to do so in the coming crisis years.
But with the current economic crisis
these countries can not comply with their obligations to
creditors without compromising basic
provisions for their own populations. This has to an important
degree to do with negative export
shocks (Cohen et al., 2008). After many years of increasing
exports, the export of poorer countries
now falls negative as a result of the crisis (IMF, 2009).
Moreover, developing countries are now being
hit hard by withdrawing investors, a fall of more than seven
hundred billion dollar compared to 2007
(World Bank and IMF, 2009), and decreasing bilateral development
aid. The IMF and the World Bank
may be proud of their plan to make their borrowing conditions
more flexible, but this does not prevent
that during the current crisis capital in the form of principal
and interest payments flows out of
developing countries, where it is most needed.
IMF-loans and other sources of debt, as the G20 propose, are no
solution to the problems of low and
low-middle incomes countries. In fact an immediate moratorium on
debt service, a freeze on interest
and principal payments, and debt cancelation are desirable and
justified for poor countries which have
insufficient resources of their own to protect their population
against the crisis. The measuresproposed by the President of the
General Assembly of the UN on 8 May 2009, have more eye for a
sustainable solution and form a more appropriate response to the
crisis. This Draft outcome document
of the UN (2009) was to form the basis of negotiations during
the UN Conference on the world
financial and economic crisis and its impact on development on
1, 2 and 3 June, which now takes
place 24, 25 and 26 June. It proposes that the funds agreed in
April by the G20 to be channeled
through the IMF, do not come in the form of more debt but rather
be allocated as grants so as to
prevent a further increase in inequality. A moratorium on debt
service and partial debt cancelation for
countries whose debt burdens threaten to become unsustainable
due to the crisis should be
considered, according to the document. Other proposals include
that international institutions that play
a role in reforming the international economic system, must be
accountable to democratic and
representative institutions such as the UN. This includes
supervision of the IMF and the World Bank.
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Rich industrialized countries must refrain from protectionism
and ensure that bailout and stimulation
packages do not distort the economic playing field further and
lead to a further increase in global
inequality. According to the proposal large investments in
environment, food, energy, health and
education are necessary; not only to stimulate the world
economy, but also to lay the foundation for a
new durable economy, based on the needs of people and on human
rights. It is estimated that for this
an annual amount of three trillion dollar, five per cent of
world-GDP, is necessary. An immediateabolition of agricultural
subsidies in developed countries to effectively stimulate
agriculture in
developing countries, and independent supervision by the UN of
all for the international system
important institutions belong to the proposals put forward.
A proposal therefore, which helps fight the increased poverty in
developing countries as a result of the
crisis, and which can contribute to a less unequal, more
democratic and more sustainable world
economy. Unfortunately the Dutch government, which has the role
of co-facilitator of the UN-congress,
and other rich countries, have managed through enormous
diplomatic pressure to change the pro poor
and green proposals. This before they could be negotiated 1, 2
and 3 June during the UN conference;
the conference itself has been rescheduled to later this month.
A missed chance, or better said: a
large danger for a more equitable and more sustainable world
economy in which freedom from hungerand poverty is also enjoyed by
those which now lack it.
* Translation by author.
Murat Kotan
coordinatorJubilee Netherlands.
Literature
IMF (2009) World economic outlook update, January 2009.
D. Cohen, H. Djoufelkit-Cottenet, P. Jaquet en C. Valadier
(2008) Lending to the poorest
countries: a new counter-cyclical debt instrument. OECD
workingpaper nr 269.
Oxfam International (2009) What Happened at the G20? Initial
analysis of the London
summit. Oxfam briefing paper.
UN (2009) United Nations Conference, World financial and
economic crisis and its
impact on development; Draft outcome document 1.0, 8 May
2009.
World Bank/IMF (2009) Global monitoring report 2009: A
development emergency
http://www.jubileenederland.nl/http://www.jubileenederland.nl/
