Special Report on the High Cost of Debt Relief

Last week, after years of urging by Third World advocacy organizations, the leaders of the Group of Eight industrialized nations (G8) agreed to cancel 100% of the debt owed by eighteen of the world’s poorest countries to international lending institutions such as the World Bank, IMF, and African Development Bank.

John Perkins, self-described “Economic Hit Man” whose actions once helped create third-world debt in the first place, argues that while the initiative may have good intentions, its hidden costs suggest that there’s much more at stake than is being acknowledged.   

“Debt cancellation is of course a good first step in the right direction,” says John. “But $40 billion is really a drop in the bucket compared to how much debt is still owed. Not only that, but in order to receive debt relief, all eighteen countries have been made to swallow draconian economic policies. Many were put in the position of having to privatize resources and sell them off to European and US companies—in addition to agreeing to dropping subsidies on home-grown products and ending trade barriers, while at the same time allowing the US to keep subsidies and barriers. In other words, there’s a catch—and it serves the big corporations.  What needs to happen is for Americans to get up in arms in support of true debt cancellation—get the G8 to drop the debt, no strings attached.”  

The G8’s method of drawing the line between qualifying countries and non-qualifying countries has also come under scrutiny. As the BBC reported, the small African country of Malawi, which does not qualify for initial debt relief, spends more on debt than on health—and this in a country where one out of every five people is infected with HIV.  Reuters quoted Kenyan Planning and National Development Minister Peter Anyang Nyongo as saying, “Those faithful in servicing their debt like Kenya are being ignored while HIPC (Highly Indebted Poor Countries) who have failed to service the debt are getting more attention. This is not good for Africa.”

And debt relief is, of course, only part of the equation. Another issue up for discussion is aid—while Britain, France, and Germany have committed to increasing their aid to 0.7% of national income by 2015, the US contribution remains a paltry 0.16%. The New York Times stated that the Bush administration’s approach to aid is “to focus assistance on countries that meet minimum standards of good governance and sound economic policy.” By “sound economic policy,” of course, the administration means state-sponsored movements toward privatization and “free” trade. If you’ve read Confessions of an Economic Hit Man—or even if you’ve just followed the news—you know how well that works out.

Please email Jenny Williams with comments, questions, and suggestions for future EHM alert topics.