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Tuesday, 21 December, 1999, 22:16 GMT
Debt: why it's written off

The UK has said it will write off millions of pounds of debt of Third World countries Rebecca Pike of the BBC's Economics Unit explains how the debt grew and why the UK has acted.

What is Third World debt?

Latest figures from the World Bank show that the world's poorest countries owe a total 124bn in debt.

That amounts to about 5bn a year in interest alone.

This is made up of two types of debt - bilateral and multilateral. Bilateral debt is owed directly to individual governments like Britain - and currently amounts to 1.9bn.

The rest is made up of multilateral debt - owed to these countries indirectly through organisations like the International Monetary Fund (IMF) and the World Bank. The announcement by Gordon Brown was all about bilateral debt.

How did this bilateral debt arise in the first place?

During the 1960s, 70s and 80s, many Third World countries borrowed money and equipment from British companies in order to build things like dams, roads and railroads.

The British government underwrote these loans and guaranteed that the debt would become its responsibility if it wasn't paid off.

These agreements became the responsibility of what is known as the Export Credit Guarantee Department, answerable to the Trade and Industry Secretary, Stephen Byers.

What does the government's announcement mean?

Last autumn the world's richest countries agreed to write off 90% of loans made to 41 heavily indebted poor countries - known as HIPCs.

Gordon Brown has announced that Britain is to write off 100% of the outstanding loans and the interest payments owed by the HIPCs.

These two gestures will cost the taxpayer 640m over the next 20 years. That's less than 1 a year for each of us.

There are though, conditions attached. Countries will have to demonstrate a commitment to spending money on poverty relief, education and health programmes rather than arms or bureacracy.

They will also have to follow certain neo-liberal economic policies laid down by the IMF and World Bank.

The government expects four countries - Bolivia, Uganda, Mozambique and Mauritania - to satisfy these conditions by January. A further 25 countries are expected to qualify by the end of the year.

What have other countries done?

Some other countries - like Canada - have also written off 100% of their bilateral debt.

In September President Clinton anounced that the United States would too, but Congress have not yet agreed to it - and look like they intend to reject Clinton's proposals.

Moreover, countries like Germany and Japan have resisted moves to co-operate on cancelling multilateral debt.

Gordon Brown said that he wants other countries to follow Britain's lead.

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See also:
18 Dec 99 |  UK
Campaigners hail UK debt deal
18 Dec 99 |  Northern Ireland
Megastars hail debt deal
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