IFI-induced debt catastrophes?

30 September 2010

Natural disasters in Haiti and Pakistan have heightened calls for larger debt cancellation, rather than new IMF loans, and for a rethink of the sovereign debt system.

Even before massive August floods pushed more than 10 million people to need emergency assistance, calls were mounting for debt cancellation for Pakistan. A July report from UK NGO Jubilee Debt Campaign, Fuelling injustice, noted that “Pakistan, a country where 38 per cent of small children are underweight, spent nearly $3 billion servicing debts last year – almost 3 times what the government spends on health care.”

After the catastrophe, the World Bank increased the amount of its existing loan to Pakistan from $900 million to $1 billion. The IMF agreed a new emergency assistance loan of $450 million with rapid disbursement. However, it refused to soften the conditions on Pakistan’s more than $10 billion two-year Stand-by Arrangement, which was agreed in November 2008 and has not been fully disbursed. The Fund suspended programme reviews and disbursements until a later date because of the disaster, but Pakistani officials have continued to disagree with the Fund over conditions on tax reform and fiscal deficits. With the new loan, Pakistan now owes the IMF more than $8.3 billion, about 14 per cent of its total external debt, but is not eligible for the IMF’s existing debt cancellation processes because of its status as a middle-income country.

rejected any form of pretended debt relief

An end August conference of NGOs, social movements, and political parties in Pakistan called for full cancellation of the country’s foreign debts. Abdul Khaliq, of NGO CADTM Pakistan, wrote: “Time and again, countries facing tragedies are forced by international financial institutions and donor countries to mortgage their future as they borrow for relief and recovery efforts.” He argued that “instead of accepting new loan offers, the democratically elected government of Pakistan should request help and grants at the same time as demanding total and unconditional cancellation of its foreign debt.”

Relief, but not for women

In response to the agreement to provide debt relief to Haiti after its massive earthquake in January (see Update 69), the IMF’s board has now agreed to the creation of a Post-Catastrophe Debt Relief Trust. The June agreement agreement “allows the Fund to join international debt relief efforts when poor countries are hit by the most catastrophic of natural disasters.” Eligible countries are able to get two years relief of debt repayments, as well as, “full cancellation of a country’s stock of debt to the IMF … in cases where the disaster has created substantial and long-lasting balance of payments needs, and where the resources freed up by debt stock relief are critical for meeting these needs.” The IMF set up the trust fund with $422 million of its own resources. The board agreed to cancel $250 million worth of Haitian debt in July, including the emergency assistance loan granted in January, but simultaneously approved another loan of $60 million which Haiti will start repaying in 2016.

Malya Villard-Apollon, leader of the Haitian women’s organisation KOFAVIV has raised international attention to problems in the Haitian resconstruction efforts: “conditions in the displacement camps, following the January 12 earthquake, have exacerbated women’s vulnerability to rape. Women and girls live in constant fear for their safety.” However, US NGO Gender Action found that over 50 projects and programmes either approved or proposed by international financial institutions all “fail[ed] to address Haiti’s escalating gender-based violence, despite international mandates made by the UN Guiding Principles on Internal Displacement, UN Security Resolution 1325, and other internationally recognised standards.”

Dealing with sovereign debt

At a gathering of social movements from Latin America and the Carribbean in Managua in June, participants rejected “any form of pretended debt relief, launched by Northern governments and their international financial institutions, that involves new indebtedness, conditionalities, and obligations based on the expropriation of our natural resources.” They called again for “participatory and comprehensive audits of the debts claimed from our countries.” In August, Jubilee South and other organisations called for a global week of action against debt and international financial institutions in mid October.

The UN Conference on Trade and Development met on responsible sovereign lending and borrowing in China in early September. The UN Department of Economic and Social Affairs’ consultation process on debt aims “to continue to foster mutual understanding among members of all relevant stakeholder groups (governments, international organizations, private sector and civil society) in identifying issues in external debt, both for middle-income and low-income countries that need policy action to make crisis prevention and management policies more effective and to ensure debt sustainability.” After consultations last year in New York and Geneva, held a meeting in early September in London focussed on banks and financial institutions. UN DESA hopes to develop consensus on proposals that can “lead to the orderly working of the international financial architecture for debt.”