Debt Relief: The Results Are In

Debt relief has allowed poor nations to pay for schools and health care instead of loan interest. A new bill in the U.S. Congress would offer relief to more countries and make lending more responsible.
Tanzania classroom

Msaranga Secondary School in Tanzania, where debt relief has helped fund 2,500 new schools.

Photo by Ron Rieckenberg

Pressure is building from civil society to build on the successes of debt relief by addressing past odious debt and creating a fairer system for future borrowing.

Today, the Jubilee Act for Responsible Lending and Expanded Debt Cancellation was introduced in the House of Representatives by a bipartisan group of Congressional leaders, including Maxine Waters (D-CA), Barney Frank (D-VT), Spencer Bachus (R-AL), and seven other Republican and Democratic representatives. The bill would increase the number of nations eligible for debt relief from 40 to 62 and create a framework for responsible lending, so countries won't get back into debt in the future.

The bill passed the U.S. House of Representatives in 2008 but did not come up for a vote in the Senate before the congressional session expired.

Debt relief works

Peter Chibize walked twelve miles from his village in southern Zambia to the nearest health clinic, unsure how he would convince the doctor to treat his chest pains, headache, and cough for free. He agonized until a nurse told him that he did not have to pay. "It was like a dream to me," said Chibize."Not to pay anything when you visit a clinic is amazing."

Before debt cancellation, even the most impoverished Zambians had to pay to see a doctor, making it impossible for many to access desperately needed care. Now, health care is free for the poorest.

This is one of the stories featured in a new report, "Debt Relief Works: The Impacts of Debt Cancellation in Africa and Latin America" by Jubilee USA Network, an alliance of over 75 organizations working for definitive debt cancellation for impoverished countries and reform of the international financial institutions and architecture.

Zambia is one of dozens of countries in Africa, Latin America, and Asia whose debt has been canceled as the result of a citizen-led global movement. Through two international debt deals in 1999 and 2005, more than $100 billion has been delivered back to the world's most impoverished countries to be used for desperately needed social services.

Debt relief now has a 10-year record of success across the Global South. Over this period, countries that have received debt cancellation have seen a 75 percent increase in spending on social services. Drop-out rates for primary school students have decreased significantly in countries that received cancellation.

In Ghana, where 30 percent of the population lives on less than $1 a day, debt cancellation has helped the government dramatically increase spending on education, health, and access to water. Primary school enrollment is now at 91 percent, helped by 268 new classrooms. Debt relief funds have also helped build 36 new health care clinics, 10 new hospital wards, and 36 water boreholes.

Tanzania has also used its debt cancellation money for education, building 2,500 new schools and putting 50 percent more children in those new classrooms than before.

To ensure that the money is used for poverty reduction, countries have to meet strict public management and transparency criteria to make sure funds are being used for poverty reduction.

The bigger picture

Many impoverished nations shoulder crushing debt burdens, often the legacy of dictators or faulty business deals. Between 1970 and 2002, for example, Sub-Saharan Africa received $294 billion in loans. It has repaid 90 percent of that sum—but because of high interest rates and other factors, $201 billion in debt remains.

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The United States faces some pivotal choices now that its brief time as the world's sole superpower is coming to a close. Becoming a good neighbor is one of them.

The principle of debt cancellation is simple: Countries that are no longer forced to use their precious resources to service their debt to wealthy creditors can instead use the funds to provide basic services, like education and health care, to their citizens.

The reality is a bit more complicated, and still imperfect. Debt cancellation has historically come with harmful strings attached—for example, requiring impoverished countries to privatize public resources, such as water and education, or to freeze all hiring and salaries for health care workers.

On an international level, the United Nations Conference on Trade and Development (UNCTAD) has set up a new initiative to establish a set of guidelines for responsible lending and borrowing. The goal is to set in place commonly agreed practices of responsibility, thus avoiding the build-up of new bad debts.

While debt relief has brought better social services to millions of people and freed dozens of countries from the chains of debt, more remains to be done. An estimated 20 additional countries need immediate debt cancellation to solve the basic development crises they face.


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