To Washington Legislators: Unconditional Debt Relief is Not the Answer for Africa’s Development.

Tuesday, July 8, 2008

DEBTAhead of the G-8 meeting in Japan, we the undersigned write to announce our opposition to H.R. 2634, Jubilee Act for Responsible Lending and Expanded Debt Cancellation of 2007. Foreign aid is a key component to impoverished nations’ attempts to achieve economic growth and development. Unconditional debt relief, as called for in the Jubilee Act perpetuates poverty rather than alleviating it. In fact, it rewards past reckless behavior. It is akin to wiping out a person’s credit card debt then allowing them to continue to use it, with no penalties.

There are many tools available to low income countries attempting to ease their debt burden. However, countries that choose to rely solely on debt relief and loan forgiveness will find themselves stuck in an endless cycle of debt accumulation followed by debt relief. While well intentioned, legislation like the Jubilee Act only contributes to this cycle.

Africa has received more aid than any other region in the world in the last fifty years, yet remains the poorest region in the world.[1] To break this cycle, debt relief must be reserved for countries that meet pre-determined conditions, including a democratic government, commitment to transparency, accounting of how aid money is utilized and commitment to eliminating corruption.

The Jubilee Act includes no such provisions.  In 2006, the Republic of Congo, a country with 5 percent annual growth and billions in oil revenue, was granted Heavily Indebted Poor Country (HIPC) status and received approximately $3 billion in debt relief.[2] Yet its President, Denis Sassou-Nguesso spent hundreds of thousands of dollars in hotel bills, paying for most of it in cash.[3] Still, the country remains eligible for debt relief under the Jubilee Act.  

Providing debt relief to countries which refuse to adopt political and economic reforms only worsens irresponsible spending and corruption. In 1998 Ethiopia’s total external debt exceeded $10 billion, mostly to the World Bank and US and European creditors.[4] The next year the country was spending $1 million per day on a war with neighbor Eritrea, while the average Ethiopian lived on less than $1 per day. Under the HIPC initiative Ethiopia’s external debt was halved, yet only four years later its debt was back over $7 billion.[5]

The U.S. government sponsors numerous aid programs, such as the Millennium Challenge Corporation, which require countries to meet certain conditions to qualify for debt relief. Passage of the Jubilee Act would undermine these efforts, providing unconditional debt relief to countries without holding governments accountable for actions that lead to their indebtedness in the first place.

On its surface, the Jubilee Act may appear to have the best interests of aid candidates in mind. However, history has shown that unconditional debt relief will lead to the same problems resurfacing in the future. It is important that this legislation not pass in its current state. If the U.S. government truly wants to alleviate poverty and foster development in low income nations, it must require candidates to uphold democratic principles, establish rule of law, increase transparency, adopt free and open markets and eliminate corruption in order to be eligible for debt relief.

We encourage you to support economic growth and development in Africa and we encourage you to help low income countries reduce their reliance on foreign aid. A significant step in helping these countries must be taken by voting against HR 2634 if no additional conditions are attached.