Campaigners warn of new ‘Global Debt Crisis’
In the same week that Gordon Brown announced a World Bank fund for vulnerable countries [1], our new report finds that at least 38 of world’s most vulnerable countries risk spiralling debts due to financial crisis.
It proposes alternative methods of helping those countries deal with the financial crisis without increasing long-term debt.
In the report, ‘A New Debt Crisis?’ , published today, we warn that the significant falls in income and falling currencies expected in 2009 will seriously damage developing countries’ ability to service and refinance their debts [2].
Of the 43 countries which the World Bank judges to be most vulnerable to the financial crisis, 38 had what we judged to be ‘unpayable debts’ before the crisis [3].
JDC believes that at least $270billion needs to be cancelled to allow those countries to fight poverty.
In particular:
- Zambia, which has already received debt cancellation once, could see its debts become twice the level deemed sustainable by the World Bank and IMF;
- The Philippines has $8 billion of debts that come up for repayment this year – something they may find impossible if the credit squeeze continues;
- Bangladesh, which is dependent on income from exporting garments to Europe and North America, is likely to suffer a major fall in demand which could make its debts unsustainable even by World Bank criteria.
The report lays the blame for the crisis at the failure to make radical changes to the international financial system after the first Debt Crisis and calls for these changes to be made immediately.
It demands a new wave of debt cancellation, led by an international ‘Debt Tribunal’ [4], internationally binding responsible lending standards, and reform of the global tax system to allow developing countries greater independence from global finance.
Sarah Edwards from Jubilee Debt Campaign said: “This is a wake up call to anyone who believes that the ‘Third World Debt Crisis’ has been solved.
"The failure of the West to learn the lessons of that crisis, which in many ways mirrors the financial crisis the whole world is now experiencing, means that many countries are still suffering from debts arising from reckless lending 30 years ago.
“The funds which the Prime Minister announced earlier this week could make matters worse – they are likely to include new loans, with harmful conditions attached, when we should actually be cancelling old debts, without those conditions.
“We need a radically new international lending system, if we are to come out of the current financial crisis sooner rather than later.”
>> DOWNLOAD THE REPORT (PDF , 853k)
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[1] On 9 March Gordon Brown announced the UK would contribute $250million towards a new World Bank vulnerability fund which they hope will raise $5-6 billion altogether to spend on countries suffering for the financial crisis over the next 3-4 years. Campaigners are concerned that the amount is too small, that it will be conditional on economic reforms and that a significant proportion is likely to take the form of non-concessional loans.
[2] The ‘Third World Debt Crisis’ refers to the accumulation of debts, rapidly rising interest rates and falling commodity prices, which led many developing countries close to defaulting on their debts in the 1980s. Many countries spent huge sums of their budgets on debt servicing throughout the 1980s and 1990s, and some still spend more on debt servicing then on health, education and social services.
[3] World Bank statistics from The Global Economic Crisis: Assessing Vulnerability with a Poverty Lens, World Bank, 2009. Debt relief calculation based on research by new economics foundation, 2008.
[4] A ‘debt tribunal’ is a proposed arbitration mechanism, at an international level, which could resolve sovereign debt crises and disputes in an open, impartial and transparent way, looking into debt legitimacy as well as the ‘payability’ of debts.
