At the beginning of April we talked about why the richest countries need to cancel the debt of developing countries to fight the coronavirus. Here, we celebrate successes on debt relief since then – but add that there’s still more to do.
In the past few weeks, we’ve seen some of the richest countries in the world struggle with the coronavirus pandemic – and its effects on our health and economy.
But, says Ana Caistor Arendar, Head of Inequality Campaigns and Policy at Oxfam GB,
“At least [the richest countries] have the resources to cushion the blows (should they choose to do so).”
“Not so for the Central African Republic, which has only three ventilators for the entire population, or Kenya with only 130 intensive care beds in the whole country. Even before the coronavirus hit, 64 countries were spending more on paying back their debts than on healthcare.”
That’s why, she says, “Oxfam is joining the UN and others in calling for $1 trillion in debt relief.”
“This would include the cancellation of the debt payments for 2020, for all the countries that need it, and further cancellation of the actual debts themselves where that is necessary.”
If debt to other countries was cancelled this year in Ghana alone, “the government [would be able] to give a cash grant of $20 dollars a month to each of the country’s 16 million children, disabled and elderly people for a period of six months.”
The international press were united in the view of a need for debt relief, over 750 thousand individuals and 200 organizations are calling for debt relief. There was even a plea from Pope Francis in his Easter message.
What has been agreed so far?
The pressure in recent weeks has had a big impact.
In a nutshell, the richest countries have suspended debt payments and cancelled some International Monetary Fund (IMF) debt payments for the poorest countries.
But the details really matter, so buckle up for some debt nerdery:
The best way to understand what was agreed is to break it down into the three types of debt.
• Debt that is owed to governments
• Debt that is owed to the IMF, World Bank and others
• Debt owed to private creditors like banks and hedge funds.
If we look at 2020 alone, the 76 poorest countries are due to pay $18.1bn in debt to other governments, $12.4bn to other institutions, $10.1bn to private creditors like banks and hedge funds.
Debt owed to governments
The leaders of the richest countries (the G20) agreed to suspend debt collection from 1 May until the end of 2020 for 77 countries.
Oxfam highlights that this is suspension not cancellation, meaning it’s highly likely this will lead to a new debt crisis further down the line.
To give an idea of how many countries are in desperate need of resources – over 100 countries have requested emergency financial support from the IMF. Many of those countries will be left out of the G20 deal.
Debt owed to the IMF, World Bank or others
The IMF announced cancellation of debt payments for six months for 25 of the world’s poorest countries paid for by donors.
Oxfam’s response: Good start but it doesn’t go far enough.
It needs to be rolled out to more countries and for longer than six months.
The IMF should also pay for it using its massive gold reserves rather than from donor’s money.
The World Bank hasn’t committed to any debt relief of its own, arguing that it would damage its credit rating.
Oxfam have said that the credit rating argument is a feeble excuse for inaction. The World Bank must show leadership and cancel developing country debt payments, at the very least start with a suspension comparable to the G20 countries until the end of 2020 – an action with no impact on its books or rating.
Private debt owed to banks and others
Nothing yet, although a statement from the Institute of International Finance also encourages private lenders to suspend debt payments. The G20 agreement “calls private actors” to follow a similar path. However, this is only expected to be voluntary.
Oxfam think this should be enforced not await voluntary action.
“Looking at the positives, those countries included in the agreements will be able to redirect resources they had previously budgeted for debt payments to health and other social priorities.” Ana says.
“Thinking optimistically, suspension leaves the door open for necessary discussions on cancellation further down the line (the agreement does indeed call for a review in the coming months).”
At the meeting of G20 Foreign Ministers in July, we expect louder calls for cancellation and an expansion of the agreement to more middle-income countries.
Meanwhile pressure on the IMF should grow. As of April 13 2020, IMF gold holdings had increased in value by $19.3 billion since the start of the pandemic. This increase alone is equivalent to more than all the debt payments (approximately $12.4 billion) owed this year by the poorest countries to institutions like the IMF and World Bank.
Private debt is the weakest link of all. The UK plays a key role here. The Jubilee Debt Campaign estimates that African governments owe 90% of their government bonds under UK law. This means the UK Parliament has the power to legislate to protect these countries from being sued for default or delays on debt payments during the suspension period.
Something Non-Governmental Organisations (NGOs) should explore.
In the medium term, there’s a need for an inclusive and well-structured debt relief initiative, including an independent body that can process claims from all actors.
Ultimately, bolder action is needed and quickly.
Otherwise it’s inevitable that we will begin to see countries forced either to default or to spend vital dollars paying foreign debt collectors while their people are both sick and hungry.