Background
The background of the debt crisis is well understood: loans foisted on Third World countries in the 1960s and 70s with inadequate research, followed by interest rate rises leading to huge debt burdens, so that there was a net movement of money from poor countries to rich ones. Commodity prices crashed, reducing poor countries' income. Then IMF and World Bank structural adjustment programmes cut health and education spending, and further undermined their economies. Corruption and mismanagement were also part of the problem, but most of the factors of the debt crisis were out of the control of poor country governments.

Result
Debts became unpayable. They were rolled over and, because of interest rates, in one period for southern Africa, doubled in 3 years. The situation in some countries was so bad that they owed more in debt repayments and interest than their total income from exports. The end result was that for every $1 received in aid, poor countries were giving $3 in debt repayments. The poor were giving to the rich.

Total debts amassed by the world's poorest countries shot up from $25bn in 1970 to $523bn in 2002...despite having paid back $550bn... on $540bn of loans - they still go on paying, sacrificing both the health and the education of their people, as well as any prospect of economic recovery and growth. (BBC)

Proposed Solutions
The Heavily Indebted Poor countries (HIPC) initiative was set up in 1996 by the World Bank and the IMF to reduce countries' debts. But, despite reform in 1999, it is too slow, still requires cuts in health and education spending, and is aimed at reducing rather than removing debt, with the focus on what a country is considered able to pay, and not on what they need to combat poverty. The 18 countries that have achieved "completion point" on HIPC are those which have qualified for debt forgiveness in the latest G8 proposals. Another 9 are at the point where debt relief can start, and they are also up for debt forgiveness.

Debt Relief Works
* Benin: 54% of money saved through debt relief has been spent on health including rural primary health care and HIV programmes.
* Tanzania: debt relief enabled the government to abolish primary school fees, leading to a 66% increase in attendance.
* Mozambique: after debt relief, it was able to offer all children free immunisation.
* Uganda: debt relief led to 2.2 million people gaining access to clean water.

Some Biblical principles
We have already looked at principles regarding our need for a Biblical concern for the poor. From the Law in particular, several themes are relevant:

1. Usury: This is the taking excessive interest. It is placed alongside oppression, bribery, robbery and extortion as an offence against God (Neh 5:7-11, Ps 15:5, Eze 18:3-17, 22:12).

2. No interest was to be charged to the poor: (Ex 22:25, Lev 25:36-37)

3. Debt and slavery. There was an awareness that debt leads to slavery (Lev 15:39-55), which God was against. So, every 7 years debts were to be forgiven. And this was not a rule to be followed legalistically or manipulated, but the principle was one of generosity and open-handedness, so that there would be “no poor among you.” Deut 15:1-15. “Do not take advantage of each other, but fear your God. I am the LORD your God…..the land is mine and you are but aliens and my tenants.” (Lev 25:23)

Similarly, the year of Jubilee (Lev 25:10-54), every 50 years, was instituted by God to restore to everyone equal access to the means of production. Security against debt should not threaten someone’s livelihood (Deut 24:6). These concepts of Jubilee were of course the Christian vision behind the Jubilee Debt campaign in the 1990s.

We find the same principles in the New Testament. Matt 18:23-35 is about forgiveness of sins, but the same principles of open-handedness and generosity apply when speaking about any debt owed to us. "If you lend to those from whom you expect repayment, what credit is that to you? Even `sinners' lend to `sinners,' expecting to be repaid in full. But love your enemies, do good to them, and lend to them without expecting to get anything back." (Lk 6:32-36)

Application
I think that from this overview, rich countries can be seen to be guilty of the sin of usury in the history of the debt crisis. It could be said to have led to a de facto economic slavery, whereby nations are not free to make their own economic decisions. They have been forced to grow cash crops, adopt free-trade policies, and cut back spending on health and education, all at the insistence of rich countries.

1. Repentance and restitution. It seems to me we have a responsibility, out of the fear of God, to recognise our own role in the making of the debt crisis and accept responsibility to undo the harm of iniquitous usury by writing off the unpaid interest from debt. We have the possibility to make this verse reality: "He who increases his wealth by exorbitant interest amasses it for another, who will be kind to the poor." (Prov 28:8)

2. Debt forgiveness. We also need to be open-handed and generous, regularly writing off debt of those who are unable to pay, where debt has led to slavery. This should not be done by re-assignment of existing aid budgets, but by provision of new money. The task of calculating how much debt should be cancelled should not be left to creditors concerned mainly with minimising their own costs. Instead, we need a fair and transparent international process to make sure that human need takes priority over debt repayments.

3. Security. The writing off of debt should be done without holding "security" against debt in the form of further conditions that remove the freedom of countries to make their own decisions. Poor countries should not be forced to privatise basic services or liberalise their economies. International enforcement of free-trade policies that benefit the rich at the expense of the poor should be stopped.

4. Access to "the land". Poor countries should be given fair and equal access to the means of production - through regular assessments and adjustments of international trade laws, control of multi-national corporations, equal representation on decision-making bodies etc

5. Loans. Future help to poor countries should be through either low-interest loans or grants.

Criticism of the latest G8 proposals
* The total debt to be forgiven is about $40 billion over several years, but this actually accounts for just $1.5 billion in annual debt repayment. Full forgiveness of the debt of all 62 poverty-stricken countries would cost $45.7 billion per year, roughly 30 times the amount agreed upon by the finance ministers.

* Debt relief comes with conditionalities attached. These conditions are not against corruption, but enforced economic policies. They involve the implementation of stringent free market reforms such as health and education budget cuts, financial and trade liberalisation, privatisation and other reforms that ensure, “the elimination of impedients to private investment, both domestic and foreign”. Other countries may qualify only if they are prepared to go through the same process that the 18 countries have already endured.

* The deal did not include debts owed to the private sector nor the large sums owed to national governments.

* There have been disagreements about how to fund the debt relief. Extra money will be needed from the G8 nations so that the World Bank and African Development Bank will not have to take all the cost themselves - that could mean less new aid money being available. There has been a disagreement about whether to sell gold from the IMF's reserves to pay for debt relief, a policy which the US opposes.

Other articles in this series on:
1. Biblical attitude to the poor
2. Corruption
3. Aid and Development
4. Debt
5. Trade.

Tags: g8 poverty make poverty history africa debt