Q & A: Dropping the debt

BBC News Online's Fergus Nicoll examines the arguments for and against cancelling the debt owed by developing countries.

What is the "debt crisis"?

Campaigners for urgent debt relief say that huge sums of money are going back to wealthy countries instead of feeding and educating children in the world's poorest nations.

The money was originally borrowed in the 1970s and 1980s, often badly invested or squandered, and in many cases the loan repayments are far beyond the nations' abilities to repay.

In its 1997 report, the United Nations Development Programme (UNDP) said that governments in Africa alone, if relieved of their debt obligations, could use the funds "to save the lives of millions of children by 2000".

Who has the biggest debt problem?

While every country in the world, including the USA and Japan, owes money to someone, 41 countries in Africa, Latin America and Asia have been identified as "heavily indebted".

Many have struggled for years to repay only the interest on loans that are, in some cases, decades old.

The sums involved are vast: The main pressure group advocating "dropping the debt" wants between $160 billion and $300 billion in "unpayable" debts wiped out by the end of the year 2000.

And who's owed all this money?

Debt is a millstone around the neck of the poorest countries. The debt of the 41 highly indebted poor countries now totals $215bn, up from $183bn in 1990, and $55bn in 1980.

UNDP 1997 report

The debts are mainly owed to three groups: western governments; global financial institutions, including the International Monetary Fund (IMF) and the World Bank; and private lenders.

The world's wealthiest countries exert great influence over the decisions of the institutions, because voting power is set according to financial contributions.

At the IMF, for example, the USA has 18% of the votes, while Mozambique has just 0.06%.

Who's supporting the campaign?

At the forefront of the campaign to "Drop the Debt" is Jubilee 2000, a coalition of non-governmental organisations and religious groups.

It has been highly influential, persuading the Group of Eight leading industrial countries to promise to write off $100bn of debt at the Cologne summit in July 1999.

However, the G8 summit in Japan this year will be the last push by the Jubilee 2000 coalition before it disbands at the end of the year.

Campaigners say progress has been unacceptably slow, and they are not optimistic about achieving their objective of full debt cancellation.

Religous leaders have also joined calls for debt cancellation, including the Archbishop of Cape Town, the Most Rev. Njongonkulu Ndungane; the Chief Rabbi in Britain, Dr. Jonathan Sachs and the Rt. Rev. Theodore McCarrick of the Catholic Bishops' Conference in the USA.

What about celebrities?

The Irish singer Bono and Mohammed Ali support the campaign

Many stars of music and show business have openly supported to "Drop the Debt". Among them are David Bowie, Beck, Peter Gabriel, and Robbie Williams.

At the annual British music industry awards in February 1999, Bono, the lead singer of the Irish rock group U2, took the stage with the former World heavyweight boxing champion, Muhammad Ali, who is an International Ambassador for Jubilee 2000.

Click here for a BBC interview with Bono

Is anything being done about debt relief now?

Last year, the G8 promised to write off $100 billion of the $260 billion owed to the West by the most indebted states, and promised that 25 of the 40 countries identified by the World Bank and the IMF as the worst affected would receive help by the end of this year, provided lenders were satisfied that funds would be used to reduce poverty.

However, only Uganda is anywhere near having its debts cancelled.

Since 1996, international financial institutions have been implementing a program of debt relief, the initiative on Heavily Indebted Poor Countries (HIPC, prononced "hippic").

The aim of the scheme was to cut debt to sustainable levels for countries that show a sound economic record over a six-year period.

Bolivia and Guyana have had their financial burden eased, in recognition of their efforts at reform.

But activists have expressed concern about the social effects of rigorous IMF-designed Structural Adjustment Programmes, and by what they say is the dilution of HPIC's original promise to provide the most indebted countries with the possibility of escaping the trap of severe debt.

Who's against debt relief?

The big global lenders, the IMF and World Bank, are not; indeed they are pursuing more debt relief. But they argue that cancelling debt altogether would encourage wealthy countries to stop lending and to cut aid budgets still further. They also insist that they shouldn't be blamed for the debt problem.

Some conservative opinion has been sceptical about the campaign. The London Times denounced the campaign as "a senselessly impulsive gesture", saying that "it could only ever provide a tantalisingly short-term sense of progress".

Is debt cancellation a magic solution to the world's problems?

Even the most ardent campaigners know that debt relief is not a panacea.

But activists insist that most wealthy governments have already effectively written off debts owed to them, as they know developing countries simply don't have the funds to pay them off in full.

Jubilee 2000 says: "cancelling unpayable debts would provide an essential opportunity and foundation for development".

Analysts say that, with growing international political and public opinion in favour of greater debt relief, faster and more substantial progress on the issue is inevitable.