Debt Cancellation

On Wednesday evening, the House of Representatives passed Rep. Maxine Waters’ bill, (H.R. 4573)- the Debt Relief for Earthquake Recovery in Haiti Act. It passed under what is known as ‘a suspended rule’ meaning that it is not considered controversial, so the vast majority of the House Members voted for it. This legislation directs the Secretary of the U.S. Treasury to seek the cancellation of Haiti’s $1.2 billion debts to the World Bank, the International Monetary Fund (IMF), the Inter-American Development Bank (IDB) and other multilateral development institutions. It also directs the Secretary to urge other bilateral, multilateral, and private creditors to cancel all debts owed by Haiti to such creditors. We expect the Senate to take up and pass the Waters bill in the next few weeks, so President Obama can sign it into law.

The voices of ONE members and our partners are being heard loud and clear on Capitol Hill. We will keep monitoring the progress of this legislation, and its implementation, when it becomes law.

On Friday the U.S. Senate passed, by unanimous consent, the Haiti Recovery Act (S.2961), introduced by Senators Chris Dodd (D-CT) and Richard Lugar (R-IN). The bill addresses the long-term needs that are critical to Haiti’s recovery, particularly its governance and public infrastructure. The bill does 2 specific things:

1) It instructs the Treasury Secretary to direct America’s representatives at each of the multi-lateral financial institutions to advocate within institutions:

a. relieving Haiti of its outstanding international debt– currently totaling over $1 billion– as well as any additional debt incurred in the aftermath of the earthquake. It also encourages these institutions to make future financial assistance available to Haiti in the form of grants, rather than loans.

b. the provision of debt service relief for all payments remaining on the date of the enactment of the Act.

2) Directs the Secretary of the Treasury to advocate the creation of an international infrastructure fund for Haiti to invest in electric grids, roads, water, sanitation facilities, and other critical infrastructure projects.

Debt relief and grants to rebuild Haiti’s lost infrastructure are critical to its recovery. We congratulate Senators Dodd and Lugar and the United States Senate for their bi-partisan cooperation to pass this important legislation. Stay tuned for news on the progress of similar legislation in the House.

ONE’s Senior Director of Government Relations Tom Hart has a piece today in The Hill, a widely read publication in Washington, looking back at ONE’s “Drop Haiti’s Debt” campaign, and where things currently stand.

You won’t find a better summary of both the campaign and the road to the full cancellation of Haiti’s debt. Tom will also be testifying on Capitol Hill today at a hearing on Haiti debt relief– we’ll have more on that shortly. Tom’s article is posted in full below:

In the hours and days after Haiti was devastated by a powerful earthquake, rescue workers, elected officials, commentators, experts and activists alike expressed the importance of being as committed to long-term help to the Haitians as we were to the saving of lives in the immediate aftermath.

While nearly two months has passed since the earthquake and most of the camera crews have moved on to other things, the long-term rebuilding is just beginning. Capitol Hill will soon consider a large package of assistance for Haiti put together by the Administration. Thankfully, cancelling Haiti’s debt to international institutions is expected to be part of this package. This is a sensible and effective piece of the puzzle backed by the Treasury and key leaders on the Hill such as. Rep. Gregory Meeks, Rep. Maxine Waters, Rep. Spencer Bachus, Senator Chris Dodd, Senator Richard Lugar and others.

Today, Rep. Meeks will lead a hearing on debt relief for Haiti. I’m honored to testify on behalf of the global anti-poverty organization ONE in support of erasing the country’s $1 billion debt.

Most of these loans were made since 2005, with the bulk coming from the Inter-American Development Bank. They were made based upon positive assumptions about the country’s future exports, future growth and its ability to pay them back. The IMF projected 4.5% annual growth rates, and for exports to grow consistently. Over the past six years, HIV prevalence dropped from 6% to 2% and investments in education were going up. And then of course, these assumptions about growth, exports and ability to repay were shattered as a result of the earthquake. For example, a loan for a road that is now destroyed cannot generate the economic returns to pay the loan back.

Holding Haiti to its international debts not only ignores the change in its economic ability to repay, it would diminish the impact of outside assistance for reconstruction. If Haiti is still burdened with old debts, some of our assistance would be turned around to make loan payments. This “revolving door” of assistance – donor assistance turned into debt payments to donor-led multilaterals – defies common sense.

Immediately following the earthquake, ONE , joined by partner groups Avaaz.org, Jubilee USA and Oxfam International, launched a campaign to convince international creditors to cancel Haiti’s $1 billion debt and, equally important, ensure that all new aid come in the form of grants, not debt-incurring loans.

The “Drop Haiti’s Debt” campaign culminated in ONE’s delivery of more than 415,000 signatures from around the world to the Finance Ministers of G7 countries who were meeting in a small town in Canada’s arctic north. That same day, Canadian Finance Minister Jim Flaherty announced the G7’s endorsement of debt relief. With the world’s largest donors in agreement, now the institutions need to approve and take action.

Fortunately, the United States has already forgiven Haiti’s debts and our assistance now comes only in the form of grants. But Haiti’s other creditors, including the Inter-American Development Bank, International Monetary Fund and World Bank— have yet to forgive all of Haiti’s debt.

Treasury Secretary Tim Geithner has indicated that the United States will work with partners around the world to relieve all debts accumulated by Haiti. The IMF and the World Bank have issued similar public statements. The two countries who hold Haiti’s bilateral debt, Taiwan and Venezuela, have also made encouraging remarks.

As these international lenders work to reach a final agreement, ONE encourages Congress to approve the debt relief anticipated in the Administration’s Haiti reconstruction request. This is a critical hand up to a nation just beginning a long climb to recovery.

Michèle Bertol, a Haitian Canadian and ONE member hands over 400,000 petitions urging the cancellation of Haiti’s debt to Canadian Finance Minister James Flaherty’s Chief of Staff Derek Vanstone at the G7 finance ministers meeting in Iqaluit, Canada on February 6, 2010. Michele is joined, from left to right, by fellow ONE members Vanessa Griffin, Jean-Sébastien Icart and Erin Faulks. The petition, which can be found at one.org/haiti, was signed by over 200,000 ONE members and nearly 200,000 Avaaz members globally. Michèle also delivered Haiti debt petitions from Oxfam International and Jubilee USA.

Thanks to the more than 400,000 who signed the petition worldwide, the cancellation of Haiti’s debt may be all but a formality at this point.

Yesterday, at 4 p.m. EST, four ONE members delivered the petition signatures to the G7 finance ministers at their summit in the small Arctic Canadian town of Iqaluit.

The petition was signed by over 200,000 ONE members and, in partnership with the organizations Avaaz, more than 400,000 people across the globe.

The delivery was led by Michèle Bertol, a Haitian Canadian and ONE member who is the director of planning for Iqaluit and who has lived in the town for 20 years.

Just before the scheduled delivery, Canadian Finance Minister James Flaherty, speaking on behalf of all the G7 countries, issued the following statement:

“The earthquake caused unprecedented damage that requires exceptional measures. We agreed that the debt should not be a burden that will weigh on the recovery of the country. We are committed in the G7 to the forgiveness of debt. In fact all bilateral debt has been forgiven by G7 countries vis-à-vis Haiti.

The debt to multilateral institutions should be forgiven and we’ll work with these institutions and other partners to make this happen as soon as possible. We discussed the long term reconstruction assistance that Haiti will need as it emerges from the current urgent situation as a result of the earthquake.”

Though the $1 billion in debt is still not yet technically cancelled, the G7 countries (the United States, Canada, United Kingdom, Germany, France, Italy and Japan) hold considerable influence over the international lending institutions that must ultimately and officially cancel Haiti’s debt. We at ONE now feel confident that the full cancellation of Haiti’s debt is closer to being a done deal than ever before — and we hope the details will be hammered out quickly.

And it’s all thanks to the hundreds of thousands around the globe who stood up for the people of Haiti to make this happen.

UPDATE 1/25/10: Our newest numbers now put Haiti’s debt at $1 billion.

On Friday afternoon, ONE launched a campaign to encourage the world to drop Haiti’s $890 million in debt — and just a few days later over 70,000 people from across the globe have already added their name.

If you haven’t already, please sign that petition now, and if you have, please forward it along to your friends.

For a country like Haiti —- the poorest country in the Western Hemisphere —- a natural disaster can reverse years of development gains. Before the earthquake hit, the country faced tremendous challenges. But it had also found great reason to hope. Recent years had brought a more stable government and tenuous gains in the fight against poverty. The country had also reached a significant milestone in the debt cancellation process: $1.2 billion owed to bilateral and multilateral institutions had been completely dropped, erasing most -— but not all -— of Haiti’s debt.

With aid now pouring in, it’s time to make sure that our support helps the Haitian people realize their dream for a stronger, more secure nation. While the Haitian and other governments work together on the initial rescue and relief efforts, we can help lay the foundation for a smooth recovery and rebuilding effort. First, the international community should cancel Haiti’s $890 million in remaining debt. This will help ensure that future dollars go towards rebuilding a stronger Haiti, not to servicing old debts.

Our global community must also ensure that any emergency earthquake assistance is provided in the forms of grants, not debt-incurring loans. By providing grants, Haiti will be able to invest all their resources into education, health, the economy—rather than repaying new IOUs.

Thankfully, the United States has already forgiven Haiti’s past debts and now only gives assistance in the form of grants. We need Haiti’s other creditors -— the International Monetary Fund, World Bank, Inter-American Development Bank, and countries like Taiwan and Venezuela —- to follow this lead and do the same.

Check out this partner post on the debt relief and the Jubilee Act from our friends at Jubilee USA Network.

Imagine that your family has barely enough money to scrape by. A school sits down the street, but fees make it too expensive for you and your siblings to attend—so you’ve never been able to go to school.

But then imagine that one day the government announces that it has cancelled those school fees. You can go to school. You finally have the chance to learn everything you wanted to know.

This is the reality in Tanzania. Thanks to debt relief savings in 2001, three million more children have enrolled in school, 2,500 new schools have been built and 28,000 new teachers have been recruited.

Today we have an opportunity to extend these benefits to millions more around the world.

After months of anticipation, the Jubilee Act for Responsible Lending and Expanded Debt Cancellation was introduced late yesterday by Representative Maxine Waters (D-CA), along with Finance Committee Chairman Barney Frank (D-VT), Ranking Member Spencer Bachus (R-AL), and seven more Republican and Democrat members of Congress. This encouraging bi-partisan effort by Congressional leaders was an important step in continuing the fight to end global poverty.

This bill would give much-needed debt cancellation to 22 additional impoverished countries left out of previous debt relief deals. It would also help put an end to harmful economic conditions and allow for an audit of past illegitimate debts.

Last year, while the Jubilee Act passed in the House of Representatives and the Senate Foreign Relations Committee, it didn’t pass the full Senate in time. But today, passage of the Jubilee Act is more urgent than ever—this year, 100 million people were pushed back into poverty due to the economic crisis.

Let’s pass the Jubilee Act in 2010 and help millions more enjoy school for the very first time.

-Hayley Hathaway, Operations and Communications Coordinator, Jubilee USA Network

For those unfamiliar with the term, certain countries are considered Heavily Indebted Poor Countries, or HIPC. These are countries that are eligible for special assistance from the International Monetary Fund and World Bank.

The annual “HIPC Status of implementation” report was published a couple weeks ago. There’s some very interesting information here:

In total 35 out of 40 HIPCs have qualified for assistance; 26 have reached completion point. Of the five remaining pre-decision point HIPCs only the Comoros might reach decision point in the next 12 months. The other candidates are either not working towards reaching decision point (Eritrea, Kyrgyz Republic) or find themselves in a governance situation that does not allow progress (Somalia and Sudan). So it will be interesting to see which countries can reach completion point. Given the status of implementation we can estimate this will be Afghanistan and Republic of Congo (Brazzaville) in 2009 as well as Liberia in the first quarter of 2010. Progress of the single biggest debtor at decision point, the Democratic Republic of Congo, is currently stalled, because the Bretton-Woods institution considers its debt sustainability threatened by the DRC’s plan to take a multi-billion dollar loan of the Chinese EXIM-Bank.

For the 35 post-decision-point HIPCs, poverty reducing expenditures between 2001 and 2008 increased by 2 percentage points of GDP, on average, while debt service obligations declined by the same percent. The total amount of debt cancellation now stands at $117 billion, out of which $72 billion was cancelled under HIPC and $45 billion was cancelled under MDRI – the Multilateral Debt Relief Initiative (all in nominal terms). This is an increase of roughly $5.5 billion in cancelled debt ($3 billion under HIPC and $2.5 billion under MDRI) since last year. The number of post-completion-point countries that are at risk of re-incurring unsustainable debt (especially due to the global economic crisis) has increased from four in 2008 to five now.

This last point is showing the importance of continuing and expanding the initiative. Post completion point countries must have a chance to maintain bearable levels of debt, even when shocks, such as the global economic crisis, occur. This can be done firstly, by providing grants rather than loans. Otherwise, financing the achievement of the MDG’s in many countries will be tantamount to reaccumulating unsustainable debt.

Secondly, a sovereign debt workout mechanism is needed. This is a comprehensive way to preserve the achievements of debt relief. Governments in the South and civil society have long been calling for such an “international insolvency procedure” for states. It would be applied by a panel similar to the arbitration panel structure of the World Trade Organization (WTO).

-Andreas Huebers

I recently attended a very interesting congressional briefing titled “The Global Financial Crisis and Africa: How to Avoid a Renewed Debt Crisis?” hosted by partner organizations Jubilee USA Network, the Evangelical Lutheran Church of America, the American Jewish World Service and the Episcopal Church. The conversation focused around how to preserve the achievements that many African countries have made over the last five or so years (with help from debt relief and increased trade) in light of the current global financial crisis. One of the measures suggested was that the International Monetary Fund (IMF) direct revenue from its upcoming gold reserve sales to developing countries.

As explained by Matthew Martin, Director of Debt Relief International, countries freed from odious debt have been able to invest in national poverty-fighting strategies such as lowering the barriers to healthcare and education by reducing user fees and improving infrastructure. In turn, debt relief empowers countries to be less dependent on foreign assistance in the future. Hon. Timothy Thahane, Minister of Finance and Development Planning for Lesotho, shared how when Lesotho received debt relief from the United Kingdom, they immediately redirected monies previously spent on debt relief service to vulnerable populations by providing free primary education, school feeding programs, and antiretroviral drugs for persons living with HIV/AIDS.

All this was somberly put into context when Thahane explained that the gains in employment and revenue due to debt relief and increased trade vis-à-vis the African Growth and Opportunity Act (AGOA), are currently threatened by the global financial crisis. The World Bank has estimated that an additional 53 million people will be forced to live on less than $1 per day as a result of the global economic downturn. The decline in commodity prices, remittances, and demand for exports has already had a dramatic effect throughout the continent. For example, the downward trend of car manufacturing in the U.S. has led to a significant decline in steel exports, which has impacted steel-producing African countries such as Guinea, Liberia and South Africa. Similarly, the sudden decline in demand for textile exports, led to a loss of 12,000 jobs in Lesotho, which impacts 40,000-50,000 lives.

Vitalis Meja, Program Director of African Network on Debt and Development (Afrodad) warned that the economic situation will make it very difficult for African countries to achieve the Millennium Development Goals (MDGs) and called on donor countries to resist reducing Official Development Assistance (ODA). Meja called for the reform of lending practices and joined the other panelists in asking the IMF to allocate revenue from its gold sales for debt relief and grants for the world’s poorest countries, which would help them weather the current economic crisis and avoid falling back into another debt crisis. Lesotho would be one of the countries that would directly benefits.

More information about the IMF gold sales and its potential to help low-income countries can be found in briefings prepared by ONE and Jubilee USA.

-Margaret McDonnell, US NGO Partnerships & Faith Relations Team

After freeing itself from a civil war, Liberia is now freeing itself from another major impediment to its development: a mountain of foreign debt. Little more than a year ago, Liberia’s foreign debt totaled $4.9 billion, equivalent to 700% of Liberia’s national income. This basically means all Liberians would have had to work for seven years without eating drinking or consuming anything just to pay off their debt to foreign creditors (and this is excluding the interests due during these seven years).

The country has chosen another path and embarked on a series of steps for which the support of creditors is indispensable.

The first step was taken when the country reached decision point under the “Highly-Indebted-Poor-Countries”-Initiative in March 2008. Liberia was originally named as HIPC-eligible but, due to its 14-year civil war, progress was limited. Under the leadership of President Ellen Johnson-Sirleaf, Liberia worked with major creditors to clear past debts, and at the same time creditors built in flexibility for Liberia in allowing a Staff-Monitored Programme of the IMF to count towards the requirement that countries demonstrate a track record of working with the international financial institutions. Although there were costly delays, the flexibility of the IFIs has offered essential support to Liberia at a turning point in its political and economic history. This first step only affected government-to-government debt.

This debt buyback is a second important step to ensure the economic viability of the country. As around 25% of the debt of Liberia was held by private creditors (hedge funds for a large part), it was essential to tackle this category of debt as well. With the financial support of the Worldbank and bilateral donors, Liberia has bought back the commercial debt that it owed to private creditors.

The third step, which has yet to be taken, is the completion point under the Heavily Indebted Poor Country (HIPC) Initiative. Liberia’s foreign debt is now down to $1.8 billion (still standing at around 250% of its national income). Most of this remainder will be cancelled when Liberia reaches its Completion Point. The creditors and above all the Worldbank, should continue to be flexible. They are setting and interpreting the triggers, which will decide when Liberia reaches decision point. One year has now passed since Liberia reached decision point. This means the minimum time any one HIPC country has to stay at decision point level is now over.

Therefore, the buyback is a good reminder to allow Liberia to take the third step and to rid itself of a debt burden that impedes the development of this increasingly stable post-conflict country.

Andreas Huebers

Liberia bought back $1.2 billion in debt today at a 97% discount, “the steepest ever negotiated on developing country commercial debt.”

From the World Bank:

“The deal was concluded with the payment of $38 million to retire 25 outstanding commercial claims. The World Bank contributed half of this money through the International Development Association (IDA) Debt Reduction Facility, and Germany, Norway, the United Kingdom, and the United States contributed the other half.

“The successful resolution of this inherited debt, which had ballooned through interest and penalty charges during a period when my country was wracked by civil war, is an important step on our road to recovery,” said Liberian President Ellen Johnson Sirleaf. “This puts us on a firmer footing to attract investment and accelerate economic growth.”

Expect more from ONE soon on this amazing update.

-Virginia Simmons