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Debt Cancellation Fact Sheet

1. What is the problem?

Debt levels of the poorest countries of the world have increased dramatically in recent years. These debts threaten to undermine economic and social development prospects. Many sub-Saharan African countries spend more to service debt than they spend on health care and education. For example, Tanzania has a per capita income of only $636, with 50% of the population living below the poverty line. In the last fiscal year, debt servicing absorbed one third of the entire government budget, four times what was spent on primary education and nine times spending on primary health care.

As Southern governments increase exports of natural resources and commodities to pay the rising debt, environmental devastation increases. This situation is increasingly becoming financially unsustainable. Debtor countries are trapped on a debt treadmill, forced to take new loans to service old ones or risk default and potential economic collapse.

2. Which countries need debt cancellation?

The current campaign is focusing on approximately 50 poor countries, 37 of which are found in Sub-Saharan Africa, whose foreign debt is deemed to be unpayable. Countries most in need of debt cancellation are ones in which incomes are less than $2,000 per capita, and which spend an exorbitant amount of their export revenues or government revenues on debt payments.

Each country’s situation is different in determining "unpayable debt". The debt that our campaign seeks to cancel includes:

  • Debt which cannot be serviced without placing a severe burden on impoverished people;
  • Debt for which the principal has already been paid;
  • Debt for improperly designed policies and projects; and
  • "Odious Debt" contracted by despotic and repressive regimes (e.g. apartheid-era South Africa).

3. How much is owed by these countries? To whom is it owed?

The total long term debt of the 50 countries eligible for debt relief is approximately US$309 billion. Approximately 1/3 of this total is owed to multilateral bodies such as the World Bank (WB) and the International Monetary Fund (IMF). The rest is owed to governments and private creditors.

This amount seems large but must be considered in relation to the huge amounts which indebted countries have already paid to service these debts. From 1981 to 1998, developing countries paid over US$3 trillion to their creditors in interest and principle payments.

The debt crisis has been exacerbated by plummeting commodity prices, the major source of revenue for the poorest countries, and by high interest rates, both of which poor countries have not control over. Most importantly, the debt of these countries effectively has been paid many times over, but because of high debt servicing costs, their debts still remain.

Individuals can go to a bankruptcy court to have debts wiped out, and a company can seek protection from its creditors while it renegotiates its finances, but there are no options like this for poor highly indebted countries.

What would it cost?

Cancelling debt will require a mix of donor initiatives. The World Bank could write-off debt with money already set aside for loan loss provisions and by using some of its reserves. The International Monetary Fund (IMF) could sell a modest amount of its gold stocks, worth in total between $25 and 40 billion, to finance debt relief. Canada’s Finance Minister, Paul Martin, supports such a sale.

How much is owed to the Canadian government?

Canada is owed approximately Cdn.$1.2 billion by the 50 countries on the Jubilee / CCIC list. Most of these debts are owed to the Export Development Corporation or the Canadian Wheat Board.

For Canada, this is not a huge amount of money. Canada has the opportunity to exercise leadership on a global scale by cancelling these debts. Through accounting procedures, the cost of cancelling this debt could be spread over several years. Debt cancellation does not require a tax increase.

There are precedents for debt cancellation. In 1989, the Canadian government cancelled Cdn. $672 million in debts owed to the Canadian International Development Agency (CIDA) by Commonwealth and Francophone countries. In addition, between 1992 and 1996, Canada cancelled Cdn. $239 million in non-aid debts for Egypt, Cdn. $24.8 million for Tanzania, and Cdn. $64.2 million for Côte d’Ivoire.

Cancelling this debt is counted as part of Canada’s Official Development Assistance (ODA). However, NGOs are calling for a special Parliamentary Jubilee Debt Provision to cancel outstanding debts, so as not to distract from the urgent necessity to rebuild the annual budget for Canadian development assistance dedicated to long term poverty reduction. Both are essential components in the campaign to end poverty.

4. Aren’t there existing plans to deal with this debt crisis? What is the Highly Indebted Poor Country Initiative and how does it work?

In October 1996, the International Monetary Fund (IMF) and the World Bank, responding to years of public and NGO advocacy efforts, approved a program of debt relief (not cancellation) for poor countries. The program is called the Highly Indebted Poor Country Initiative (HIPC).

Many creditor countries resisted an agreement on HIPC, with the result that HIPC debt relief is partial and does not become reality for most countries for many year years. During a six year period, a country agrees to implement a World Bank/IMF structural adjustment program (SAP). At the end of the first three years, called the "decision point", creditors analyze the country's debt problem and determine whether the country can do without further assistance, or how much debt relief is needed to reach a "sustainable" debt level by the "completion point" in three more years.

What is a "sustainable" debt load as defined by HIPC?

"Sustainability" for HIPC is the level at which a country is able to meet current and future debt obligations without compromising economic growth, rescheduling its debt, or failing to pay. However, NGOs have argued that the measure for debt cancellation efforts should be the ability to address the injustices which created debts in the first place (e.g. odious debt), and the ability to meet urgent human priorities (universal basic education and basic health for example), not the ability to continue to pay debt servicing costs.

Debt relief under HIPC has been too little, too late. Only 10 of 41 HIPC eligible countries have even been assessed thus far. Despite debt relief of US$1.4 billion for Mozambique in June 1999, their debt service payments will not substantively decrease. In effect the HIPC deal only cancels the debt which the country was not servicing anyhow.

NGOs have also criticized the high level of conditionality for HIPC, where countries must implement "successfully" at least two IMF-monitored structural adjustment or austerity programs over 6 years. These programs have been widely criticized as worsening poverty and inequality, having a particularly negative impact on women and children.

5. What is the Canadian government’s position on debt cancellation?

Canadian government action on debt cancellation takes place in multilateral fora, relating to the HIPC, the Paris Club (dealing with bilateral debt), and the G8 meetings. Compared with other creditor countries, Canada has been somewhat more progressive on debt issues. Finance Minister Paul Martin has indicated an interest in further debt cancellation action. In particular, he has spoken about the need for debt cancellation in sub-Saharan Africa. As well, he supports selling of some of the gold stocks of the International Monetary Fund (IMF), in order to pay for debt cancellation. At the same time, though, the Canadian government remains supportive of HIPC as the vehicle for debt relief, and believes that HIPC should be accelerated.

6. How can debt cancellation benefit the poorest and those most in need of justice?

The economic impact for the countries receiving cancellation will be positive, as they will then have more money to spend on healthcare, education and public works. These programs will improve the health and well-being of citizens and will also create jobs.

NGO partners in the countries eligible for debt cancellation take the position that each country needs to decide for itself how resources freed up through debt cancellation would be used to benefit the poorest in their countries. In many countries, there are proposals to set up multi-sector groups, including women’s groups, anti-poverty groups, educators, health providers, and churches, which would work with government to ensure that money is reinvested where it is most needed. These groups will require support and resources in order to carry out this important work.

The debt cancellation campaign calls for the elimination of the Structural Adjustment Programs (SAPs) that currently accompany HIPC debt agreements. SAP’s have required indebted countries to reduce funding for health and education services, government spending, and to eliminate subsidies for many essential products. SAP’s have been a huge burden, particularly for women, because they have made it more difficult to buy food and forced families to take more responsibility for health care.

7. Is debt cancellation enough?

Debt cancellation is only one step in the long road to eliminating poverty and establishing more equality between people in the developing and developed world.

NGOs are proposing protocols to share the risk of investment between creditors and debtors and to deal with situations in which countries are technically bankrupt. An international insolvency tribunal could act like a bankruptcy court here in Canada, and require imprudent lenders to share a cost of the debt restructuring. This could also help to deal with concerns regarding unwise lending and corruption.

Proposals have also been made for instituting controls with as a small tax on capital flows (the Tobin Tax), with the proceeds used to finance social and economic development.

NGOs are urging the Canadian government to commit at least 0.35% of Canada’s Gross National Product to Official Development Assistance by 2005, as part of progress towards the international target for aid of 0.7% of GNP. This goal means an average annual increase of Cdn. $175 million in the budget for the Canadian International Development Agency (CIDA) and development cooperation.

For more information:

This fact sheet is based on a series of 7 fact sheets produced by the Canadian Ecumenical Jubilee Initiative and material from the Halifax Initiative. The Jubilee fact sheets and further information on the campaigns to cancel debt can be found by visiting the Web Sites of the Canadian Jubilee Initiative ( ), the UK Jubilee Initiative (, the CCIC in common Campaign (, and the Halifax Initiative (


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