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“Forgive and Forget” Won’t Fix Third World Debt

When the World Bank and International Monetary Fund spring meetings open in Washington, D.C., on April 29, 2001, officials will point proudly to the roughly $20 billion in debt that they have promised to cancel since their heavily-protested meetings last year. These promises take a step in the right direction, concludes a new report from the Worldwatch Institute, a Washington-based research organization. But even full cancellation would only be a Band-Aid for a broken system.

“Before officials congratulate themselves they need to pay attention to a wider problem-how to prevent this debt crisis from happening again,” said David Malin Roodman, author of Still Waiting for the Jubilee: Pragmatic Solutions for the Third World Debt Crisis. “Hundreds of billions of dollars in unpayable loans still need to be written off. And creditors have done little to change the lending practices that created the debt problem in the first place.”

“For example, initiatives to cut debt in Tanzania from $5.7 billion to about $1.8 billion are welcome, but unless things change, the country will probably borrow enough to lift its debt back to $6 billion by 2018. It’s not enough to clean up past mistakes. We also need to learn from them. ‘Forgive and forget’ is a recipe for more debt troubles.”

Roodman calls for major reforms to prevent poorer countries from sinking back into debt. On the borrower side, these include making governments less corrupt and more accountable. On the creditor side, the reforms include:?

“Unfortunately, many official lenders seem trapped in a fortress mentality, so fearful of admitting their mistakes by openly canceling failed loans that they are prolonging the debt crisis,” said Roodman. “In a sort of money merry-go-round, rich governments, the IMF, the World Bank, and other official lenders are granting poor countries new loans to repay old ones. For every dollar they lend to low-income nations they get 83 cents right back in principal and interest payments. This makes bad loans look good and hides the full extent of failure.”

Through the enhanced Debt Initiative for Heavily Indebted Poor Countries (HIPC initiative), announced at the 1999 G-7 summit in Cologne, official creditors took a step toward ending the debt crisis in 41 of the poorest nations, offering to cancel far more debt than they had before.