The National Catholic Review
The Editors
Crippling debt burdens accumulated over the past several decades still weigh heavily on many of the world’s poorest countries. As they struggle to repay what they owe to rich countries and financial institutions like the World Bank and the International Monetary Fund, they find themselves with inadequate resources to cover the cost of basic services for education, health, clean water and rural roads. In 1994, Pope John Paul II urged in Tertio Millenio Adviente that in the spirit of the Book of Leviticus (25:8, 10), the international debt should be reduced or canceled outright, because it seriously threatens the future of many nations. Some progress has been made through the Heavily Indebted Poor Country (H.I.P.C.) initiative of the I.M.F. and the World Bankadopted in 1996 and expanded in 1999. Kathy Selvaggio, advisor on economic justice issues at Catholic Relief Services, told America that although the levels of debt reduction have fallen short of what is needed, the money saved in debt service payments has been put to good use. She gave the example of Tanzania, which made a commitment to provide free primary education after it received debt relief, making it possible for over two million more children to attend school. She went on to say, however, that the steps toward debt relief have been insufficient.

What advocates seek, therefore, is 100 percent debt cancellation for all countries included in the H.I.P.C. initiative, as well as others that are also very poor and indebted. Finance ministers of the G-7 countriesCanada, United States, Japan, Britain, France, Germany and Italymet to discuss the debt issue in early February. Held in London, the meeting was chaired by the United Kingdom, with the U.K. serving as leader. The U.K. has been pressing for a more generous approach to debt cancellation. Unlike the United States, it believes that more than the 37 H.I.P.C. countries should be included in the cancellation process. Gerald Flood, a consultant to the U.S. Conference of Catholic Bishops, told America that other poor countries like Haiti should also be included in the H.I.P.C. initiative; but they do not qualify under the initiative’s terms, because their debts are not considered heavy enough. So far, the U.S. view is that debt forgiveness should be limited to H.I.P.C. countries, a position with which the U.S.C.C.B. and C.R.S. disagree. In either case, to receive relief, indebted nations must meet various conditions, including making arrangements to ensure that debt relief savings will be used to reduce poverty.

Most rich lender countries have acted on their own to eliminate the debts owed them. Britain’s finance minister, for example, recently announced that it will cancel Mozambique’s $150 million debt to the U.K. No concrete decisions by the G-7 countries were made in February, but another meeting is scheduled for April. So far, with the possible exception of Japan, all these countries appear to be in favor of up to 100 percent debt relief. What is unclear is how debt relief on this scale should be financed. The U.K.’s Gerald Brown has suggested that the I.M.F. use part of its gold reserves to write off a portion of the poorest countries’ debt. Some resist this approach, fearing that it might hurt the organization’s financial standing.

But generous debt forgiveness is possible, as can be seen in the fact that the G-7 and other wealthy nations agreed in a single day to cancel 80 percent of the $39 billion owed by Iraq, with no conditions imposed and even without insisting on the track record of good economic management it requires of other poor countries. As Ms. Salvaggio pointed out, it comes down to a question of political will. But advocacy groups like C.R.S. and the U.S.C.C.B. also fear that large-scale debt cancellation might tempt some creditors to seek to recoup their losses by reducing the levels of financial assistance provided to developing countries. This would amount to a zero-sum game, because the debt cancellations would result in little poverty reduction in the neediest countries.

Nelson Mandela, who was in London at the time of the G-7 meeting in February, pleaded for an end to the debt crisis as one of the steps that the developed countries could and should take. The debt crisis goes counter to the United Nations’ millennium goal of halving the extreme poverty of developing countries. The time has come for 100 percent debt forgiveness to become a reality. All it takes is an exercise of political will on the part of the world’s richest nations.

Comments

William B. Strange | 2/16/2007 - 2:17pm
Regarding your editorial “Debt Burdens and Poor Countries” (3/21), I doubt that many would quarrel with our forgiving poor countries their debt. But shouldn’t the list of poor countries include the United States? As of 2004, our public debt had soared to $7.4 trillion. And according to the Associated Press, foreign banks hold $1.96 trillion of the $4.43 trillion of U.S. bonded debt that was traded on the open market. Altogether, banks of Japan, China and Britain hold U.S. Treasury securities totaling $1.06 trillion, while other nations account for $900 million.

Is it not ironic, then, that the United States, the nation with by far the grandest debt burden of all, is included in the list of G-7 nations that contemplate forgiving other nations’ debts? In addition to the principal, if those debts heretofore have generated interest for the United States Treasury, how shall we replace those funds lost by our act of forgiveness? Shall we sell more bonds to Japan, China and Britain? Has the U.S. government used borrowed funds to make outright gifts of goods and cash to recent tsunami victims in Asia? On which of our own creditor nations may we count to forgive us our debts as we forgive those who owe funds to us—and when securities we offer for sale to our creditor nations will have fallen in value to junk-bond status?

We have failed to pay our way. Instead we have extended tax cuts and refunds to people who did not need them, and have failed to fund our budgets for decades. If taxes fall short of budget needs, count on Congress to extend our debt limit. We have waged wars too often, preferring to fund them on borrowed money, and placing on most of us but a small burden—save for countless grieving families in this land who have poured out the lives and bleeding, maiming wounds of thousands of sons, daughters, husbands and wives—like a libation upon the altar of war.

Pray that we may soon gather the courage and will to recognize and appreciate these sacrifices, and begin to pay our way—before our appetite for living and dying beyond our means will have brought this, our debtor nation, to its knees.

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