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UK government response to Debt Trap campaign

Minister of State for International Development, Desmond Swayne MP, has responded to Jubilee Debt Campaign’s No New Debt Trap campaign, calling for urgent action to prevent a wave of debt crises in developing countries.

Below we respond to the claims made by Mr Swayne on behalf of the UK government.

1) The UK government says: “As you may be aware, the World Bank has identified eleven countries which have been rapidly accumulating debt since receiving debt relief.”

We say: The UK government make no mention of who has been doing the lending to these countries. For example, since receiving debt cancellation, 37% of loans to Mozambique have been from the World Bank itself, with a further 19% from other multilateral institutions funded by the UK such as the IMF and African Development Bank.

In total, since 2008, 60% of loans to low income countries have been from multilateral institutions such as the World Bank, 30% from governments such as France, Japan, Germany and China, and 10% from the private sector.

Debt-trap-map-infographic-v3

2) The UK government says: “The UK has for many years been at the forefront of international efforts to promote debt sustainability”

We say: It was in the past, but in September 2015 the UK was one of just six countries which voted against creating new UN principles on how to resolve debt crises. The UK is now at the forefront of preventing international efforts to promote debt sustainability.

 

3) The UK government says: “The provision of loans will be considered on a case by case basis and in line with international best practice, the UK will not provide loans to countries already in debt distress or those considered at high risk.”

We say: The measurements of how at risk countries are of debt distress (which means not being able to pay their debts) are only conducted for countries with a GDP per person of less than $1,000. This means the UK can lend as much as it wants to ‘middle income’ countries such as Pakistan, Jamaica and El Salvador. This position also allows the UK to lend to low income countries which are at medium risk of not being able to pay their debts.

The assessment of debt distress is carried out by the IMF and World Bank. There are numerous problems with it, including that:

  • it is a measure of how likely a country is to be able to keep paying its debt, not whether those debt payments are preventing basic public services being delivered
  • the IMF and World Bank are themselves large lenders, so it is a conflict of interest for them to assess how sustainable lending is
  • it does not include the impact of Public-Private Partnerships on debt levels

 

4) The UK government says: “the UK remains a strong advocate for responsible lending and borrowing practices”

We say: The UK government blocked the inclusion of responsible lending principles promoted by developing countries in the UN Financing for Development framework in the summer of 2015.

 

5) The UK government says: “Crucially, countries receiving support from the International Development Association (IDA) that are at high risk of, or in, debt distress, receive assistance from the World Bank only in the form of grants.”

We say: This means loans only stop being given once countries can’t pay their debts or are on the brink of doing so, it does not prevent the debt crisis arising in the first place.
For example, Ghana received $2 billion of loans from the World Bank between 2006 and 2013. At the time Ghana was declared to be at low or medium risk of debt distress. In 2015, the IMF and World Bank declared that Ghana is now at high risk of debt distress, but the damage has already been done. Ghana spent 35% of government revenue on foreign debt payments in 2015.

 

6) The UK government says: “Through DFID, the UK funds the OECD, the Global Forum and World Bank Group to support the delivery of technical assistance in developing countries to help them tackle tax evasion and tax avoidance. DFID is also engaged in, and developing, bilateral or multilateral programmes in 26 out of its 28 priority developing countries to improve their tax policy and administration capacity and is funding a dedicated DFID-funded unit in HMRC to provide direct technical assistance to partner countries.”

We say: The OECD is a group of western countries which sets current global tax rules. In the UN Financing for Development summit in the summer of 2015, developing countries pushed for global tax rules to be set in the UN instead, so that developing countries could have a say over them. The UK was one of the main countries which blocked this from happening.

 

7) The UK government says: “The UK recognises that the process for sovereign debt restructuring should be timely, predictable and effective”

We say: Even the IMF admit it is not at the moment. The UK was one of just six countries which voted against a UN resolution in September 2015 to make debt restructuring more timely, predictable and effective.

 

8) The UK government says: “We consider the IMF to be the primary forum for policy discussions in such a technical area, given both its expertise and centrality to the operation of the international system for resolving debt crises.”

We say: The failure of the IMF to resolve debt crises for the last three decades, from the Third World Debt crisis in the 1980s and 1990s, to East Asia and Argentina, to the Eurozone today, show that it cannot do so. It is not ‘policy discussions’ which are needed but action to create an independent, fair and transparent system for cancelling debts when they are unsustainable.

 

9) The UK government says:“We also strongly support the IMF’s work on the contractual framework to address collective action problems, which has the full support of the international community and involves extensive consultation with both issuers and creditors.”

We say: The IMF’s work on the ‘contractual framework’ is a voluntary proposal which even if all countries began to implement it, would only fully come into effect in several decades time, would only impact 40% of developing country international debt (and 5% of the most impoverished countries international debt) and would still leave creditors with the power to decide whether or not to cancel debt.

 

10) The UK government says: “The UK Government remains committed to addressing the issue of so called ‘vulture funds’ in developing countries, and is the first and one of only two countries to have introduced legislation to prevent commercial creditors of HIPC’s recovering an amount of debt in excess of that consistent with the HIPC initiative through its courts.”

We say: This was a major achievement which only happened because of the campaigning of Jubilee Debt Campaign. However, it happened two governments ago – in April 2010 – and only applies to the old debts of 40 Heavily Indebted Poor Countries. It does nothing to help with current or future debt crises, whether in Greece, Argentina, Jamaica, Mozambique, Zambia or Ghana.

 

11) The UK government says: “[We] continue to support international initiatives to tackle ‘vulture fund’ activity, including through the World Bank’s Debt Reduction Facility, and the African Legal Support Facility, which supports legal advice to African countries facing litigation from ‘vulture funds’.”

We say: Legal advice is helpful, but it is the law which needs to be changed.


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