Debt Relief at the Millennium

This could be the start of something big

On October 2, I was seated at a table in the Cabinet Room in the West Wing of the White House. Across the table sat President Bill Clinton; at the table’s end was Pat Robertson of the Christian Coalition. Congressman John Kasich (R-Ohio) and Bono, lead singer of the rock group U2, were seated near the president. Archbishop Theodore McCarrick, Rabbi David Saperstein, and other religious, congressional, and administration leaders filled the other seats.

It sounds like a comedian’s opening line. A bishop, an evangelical, a rabbi, and a rock star are at the White House to meet with the president. Stop me if you’ve heard this one.

The surprising reality: I was witness to a remarkable coalition of leaders brought together at a "mini-summit" about a single issue: helping some of the world’s poorest countries get a fresh start in the new millennium. The group had gathered to talk about debt relief, the biblical concept of jubilee in which slaves are freed and debts forgiven, applied to some of the poorest countries that struggle to meet payments at the cost of food, education, and health care for their people.

At the end of the meeting, the participants vowed to work with their constituencies and colleagues to make sure Congress funded the full amount needed for debt relief for 2001, $435 million, before the end of the session. With just a few weeks to go, it was a lofty task.

But the coalition knew it had a firm base of citizen support. The group that met with President Clinton did not gather spontaneously, nor did debt relief leap to the political forefront by chance. Behind both was a grass-roots movement inspired by the Jubilee 2000 campaign.

It all began with the African Council of Churches’ call for debt forgiveness to mark the millennial jubilee. In response, in 1994 activists in England launched an international campaign, christened Jubilee 2000, to push for the cancellation of poor-country debt. Pope John Paul II and Archbishop Desmond Tutu voiced their support. Over the next few years, Jubilee 2000 grew into a worldwide movement of Catholics, Protestants, and others in more than sixty-five countries.

The Jubilee 2000 idea (backed by 20 million petition signatures worldwide) was simple: poor countries owe huge debts to the governments of rich countries and to international financial institutions like the World Bank and the International Monetary Fund (IMF). The debts are so large and the interest has ballooned so incredibly that the debtor countries must curtail social programs like education and health care to service the debt. In Tanzania, for example, for every dollar spent on debt, only a quarter is spent on health care.

Much of the international debt owed by the poorest countries can never be paid-the debts are simply too great. And keeping worthless debt on the books isn’t worth anything to the governments and intergovernmental agencies that made what turned out to be bad loans. The cost of writing off bad debts is minimal to a lender nation. Canceling the debt gives poor or debtor countries a fresh start and provides crucial relief to people in great need.

The support of the United States was essential to the Jubilee campaign. Every dollar the United States contributes to a debt-relief initiative leverages an additional twenty dollars from other countries. And though the United States isn’t owed as much bilateral (country-to-country) debt as are other industrialized nations, the U.S. influence in World Bank and IMF operations is critical.

In the United States, Bread for the World, the U.S. Catholic Conference, major Protestant denominations, and Oxfam joined forces to develop debt-relief legislation and mount a lobbying campaign. The movement spread across the country as the group earned the support of U.S. religious leaders and churches. Now it was time to find voices in Congress.

First, we found conservative Congressman Spencer Bachus (R-Ala.). Bachus had never thought much about global hunger and poverty before early 1999 when he was made chair of the international subcommittee of the House Banking Committee. But shortly after his appointment, Bachus got a visit from some constituents, members of a Catholic parish and a Presbyterian church in his district. They had come to talk with him about debt relief.

Bachus was moved by the visit, and agreed to be a lead cosponsor of a debt-relief bill. And he carried the message one step further. He held a hearing on debt relief. Treasury Secretary Larry Summers has said that it was Bachus who convinced him that there was bipartisan support for debt relief, and that it was time for the U.S. government to act.

Summers prepared the U.S. proposal that President Clinton took to the summit of wealthy G-7 countries in Cologne, in June 1999. At that meeting, the G-7 nations adopted the U.S. plan, which, in response to the legislation that church groups were supporting, stipulated that debt relief would be used specifically to help poor people.

When the full banking committee met, Bachus, a Southern Baptist, held up a statement on debt relief from Pope John Paul II and said, "I haven’t read much by Catholics before, but I don’t know how any Christian could read what the pope is saying here and not agree that we need to do something about the debt of these countries. If we don’t reduce this debt, people in these countries are going to be suffering for the rest of their lives-and we’re going to be suffering a lot longer than that."

In a way, it seemed absurd: Bachus, a fiscal conservative, pleading with his colleagues to release whole countries from their contractual bonds to pay back loans. What had driven Bachus, and in time other conservative legislators like Kasich, Senator Orrin Hatch (R-Utah), and even Senator Jesse Helms (R-N.C.) to support this initiative that seems so, well...liberal?

Clearly, a moral argument is the core of the campaign. In Mozambique, half the people lack safe drinking water, two-thirds of adults are illiterate, and most children cannot go to primary school. Yet Mozambique was spending more than half its annual revenue on debt service. Those debt repayments come at the expense of needed investments in education, sanitation, and immunization.

But more than morality made debt relief palatable. For starters, much of the debt is simply unpayable. In sub-Saharan Africa, governments owe foreign creditors an average of almost $400 for every man, woman, and child-more than most Africans make in an entire year. Joao, a boy selling oranges in the interior of Mozambique, would need to sell forty-four hundred baskets of oranges to repay his share of the debt his nation acquired before he was born. A teacher in Zambia would have to pay fourteen months of her salary to fund her share of Zambia’s annual debt obligation.

In addition, industrialized nations and international lending institutions bear some of the responsibility for loans that went bad. In the early 1970s, industrial-country governments and international financial institutions encouraged poor countries to borrow heavily. Many developing countries, following the dominant development theories of that era, put great hope in grand government schemes and grabbed the opportunity such easy money presented. Some loans were wasted on projects that did not work. Some borrowed money was pocketed by corrupt officials. Some loans financed cold-war military expenses.

Western banks were glutted with revenues from oil-producing countries as oil prices rose. Commercial banks sometimes lent to poor countries that were barely creditworthy. When global recession hit in the late 1970s, demand for exports dropped and prices for agriculture and minerals plunged. Countries had come to rely on continued borrowing, but commercial interest rates skyrocketed and commercial banks curtailed lending. Basically, many debtor countries were going bankrupt. But countries can’t declare bankruptcy; their only choice is to find a way to repay the unpayable loans.

Debt relief isn’t a new concept. Over the last twenty years, banks and creditor governments have tried to address the debt problem by rescheduling loans and, in some cases, providing limited debt relief. But as interest charges were added to rescheduled loans, the debt of many of the world’s poorest countries continued to swell. In 1986, the World Bank predicted that by 1995 sub-Saharan Africa would owe $29 billion. As it turned out, by 1995, sub-Saharan Africa owed seven times that much.

In addition, canceling unpayable debt makes economic sense. Reducing debt payments should stimulate economic growth and make poor countries more attractive to foreign investors.

How do we know debt relief will be used in responsible and helpful ways? U.S. legislation and the internationally accepted plan both stipulate that countries with gross violations of human rights, blatant drug trafficking, or excessive military expenditures are not eligible. A government would need to demonstrate sound economic management.

Most important, the IMF and the World Bank are required to work together with each poor-country government-and its local citizens and nongovernmental organizations-to develop a national poverty-reduction strategy. Funds freed up by debt relief are directed to basic schooling, health care, and poverty reduction.

Anchored in support from religious groups and congressional leaders, the Jubilee proposal continued to gain momentum throughout 1999. At the annual meetings of the World Bank and the IMF that September, the nations of the world agreed on the specifics of the plan to cancel $90 billion in poor-country debt. During the meetings, Clinton challenged other creditor governments with a surprise announcement that the United States would cancel 100 percent of the bilateral debt owed it by poor countries. He then sent a request to Congress for $920 million over four years to cover the U.S. portion of the international initiative.

Despite bipartisan support, funding debt relief was still an uphill battle. With less than two months left in the congressional season, Jubilee campaigners pulled out all the stops. Bono flew to Washington for a quick press conference and some Capitol Hill wrangling in early November. Evangelical leader Billy Graham voiced his support for the campaign. Throughout the year, more than one hundred fifty thousand letters from concerned citizens flowed into congressional offices.

At the end of its 1999 session, Congress appropriated $110 million to write off debts that poor countries owe to the United States and freed up $2.1 billion in IMF resources to reduce the debts owed to the IMF. Republican leaders of Congress and Treasury Secretary Summers negotiated nineteen pages of policy agreements designed to make sure that debt relief really helps poor people and that the IMF becomes more transparent and accountable.

The Jubilee campaign proclaimed victory, if only the first step. It had pulled an obscure biblical concept into the arena of international finance. The Wall Street Journal called Jubilee 2000 a "grassroots campaign reminiscent of the drive against South African apartheid."

But 2000, the supposed millennial Jubilee year, brought new challenges. For the debt-relief initiative to move forward, Congress and the president had to agree to appropriate $435 million-four times the 1999 amount-and approve the release of the remaining $550 million from IMF gold sales to finance the plan. Other countries would provide funding too, but the U.S. contributions were necessary to keep the international initiative on track. If the United States fell into arrears, other creditor countries would reduce support as well.

Politics makes strange bedfellows. Pat Robertson, founder of the Christian Coalition, came out in favor of the initiative. In September, Bono returned to Washington, this time to meet with Jesse Helms-a legislator not known as an enthusiast of foreign aid. Talking about debt relief with the rock star reportedly brought tears to Helms’s eyes. "If I can find some way that the Lord would show me how to really help these people, I’d quit the Senate and try to do it. I told Bono that. He is working hard and I’m going to try to help him the best I can," Helms said after the meeting.

Organized letter-writing campaigns in 2000 produced an additional hundred thousand letters to Congress. Bipartisan support for the full funding of debt relief grew. At the October White House debt summit, Bono said it best: Debt relief is "the only idea that’s big enough to fill the shoes of this millennium year. I’m wondering and I’m asking people, what will we remember about the millennium year, this religious festival? Is it just going to be the good times, the boom time for America? Or is there an idea that perhaps could change the world a little bit?"

In the final days before Congress recessed for the national elections, we were still unsure what debt-relief funding Congress would agree to. The Senate Banking Committee has jurisdiction over U.S. policy toward the IMF, and Phil Gramm (R-Tex.), chair of the committee, wanted to impose yet more stringent requirements on countries applying for debt relief. Jubilee campaigners, including many church folks from Texas, lobbied Gramm. Negotiations between the administration and congressional leaders took place behind closed doors. In the meantime, we prayed.

On October 25, 2000, both the House and Senate approved the entire $435 million and $550 million in IMF funds. The changes Gramm wanted were not included in the bill. Debt relief had won again.

For the Jubilee campaigners in the poor countries, the work is just beginning. Groups are pushing from below for meaningful public discussion and for investments that will really benefit poor people. Fortunately, IMF and the World Bank are now mandated to insist on democratic discussion and poverty-reduction plans. In Bolivia, in response to this opportunity, the Catholic church convened meetings around the country to give people from low-income communities a chance to articulate their views about the country’s poverty-reduction strategy.

In Uganda, money freed up by debt relief is being used to allow more children to go to school. After public discussions revealed that more than half of the money the government disbursed for primary schools never reached them, officials agreed to radio and newspaper announcements when money is disbursed. As a result, the World Bank estimates that losses to corruption have dropped from more than 50 percent to less than 10 percent.

In the global north, Bread for the World and other church groups will continue to press the U.S. Treasury, the IMF, and the World Bank to live up to the bold policies they have adopted. Over the next two years, Congress must appropriate another $375 million to fulfill the total U.S. commitment of $920 million over four years.

Still, the debt-relief victory is reason to celebrate. Perhaps it is also the start of something bigger. Maybe we can build this diverse, bipartisan coalition into a sustained constituency to reduce hunger and poverty around the world. The Jubilee movement has shown that morality can be good economic policy, and that people of faith can win significant changes in U.S. policy. Concerned citizens can even change the rules of the global economy.

Published in the 2000-12-15 issue: 

David Beckmann is president of Bread for the World, an interdenominational Christian citizens' movement against hunger. A Lutheran pastor, he was formerly a World Bank economist.

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