The much vaunted programme of debt cancellation, rubber-stamped at the G8 summit in Gleneagles in 2005, provided no new money or impetus for development for poor countries. Instead, it has helped to entrench Western control over the developing world and has written real development off the agenda.

Debt relief was originally the World Bank’s baby, and it was the Bank that encouraged non-governmental organisations (NGOs) to campaign on the issue. In other words, debt relief was inspired by the very financial institution that so many campaigners vilify. Indeed, debt relief was made acceptable by NGO input and marketing. At the G8 summit, debt relief was promoted as a step forward. The Multilateral Debt Relief Initiative launched at Gleneagles involved the G8 leaders agreeing to cover in full the losses of the International Development Association, the International Monetary Fund (IMF) and the African Development Fund – losses incurred as a result of 100 per cent debt cancellation. But beneath the glamour of the Live 8 jamboree, and Bob Geldof’s proclamation of ‘mission accomplished’, all that world leaders effectively did was agree to cover the international financial institutions for loss of income. Effectively, the G8 bought the debt and bailed out their own banks. This, it turns out, was then classed as additional aid to the developing world.

But what are the results of debt relief for the developing world? Formally announced in 1996 by the IMF and World Bank, the original Highly Indebted Poor Countries initiative (HIPC-1) aimed to reduce to ‘sustainable’ levels the external debts of the world’s poorest countries. But in essence this meant that it sought to stabilise poverty more than eradicate it. The very idea of lending presumes a certain level of development on the part of the borrower, who will then be able to repay the debt. The HIPC initiative signalled a de facto renunciation of the idea that investment leads to economic growth. The major concern of the Western development community had become how to manage countries who were already deemed to have no prospect of growth. But no longer having the power of the donor’s position, the Bank needed to find new ways to regulate poor countries.

In 1997, Christian UK-based NGOs (Christian Aid and CAFOD) along with Oxfam formed the Jubilee 2000 coalition to campaign for debt cancellation for the poorest countries (Donnelly 2006). It is worth briefly reflecting on the cooperation between financial institutions and NGOs. Following the disastrous legacy of the 1980s ‘structural adjustment programmes’ enforced by the Bank, with austerity measures producing mass unemployment and poverty, debt relief seemed to offer a new way forward. The debt relief idea helped to bring the NGOs on board to the Bank’s development projects, thereby providing a much needed moral boost for the deeply unpopular international financial institutions. Despite the renunciation of structural adjustment, developing countries still had to satisfy the standard conditions as applied to structural adjustment (privatisation, liberalisation and fiscal rectitude). NGO criticism of these stringent conditionalities led to HIPC-2, with its ‘pro-poor’ emphasis on refocusing the ‘Bank’s mission away from any association with society wide development towards a focus on the poorest and most marginalized people in poor societies’ (Pender 2002: 107).

As a result of NGO pressure, more developing countries became eligible for HIPC-2 debt relief, and new conditions were applied. Qualifying countries now had to draft what were known as Poverty Reduction Strategy Papers (PRSPs). These had to demonstrate that the funds no longer required to service debts would be spent on poverty reduction programmes. But with no new funds available, and spending on the productive economy proscribed by the programme, the PRSPs posed a problem for countries that could not afford to repay their debts in the first place (Ben-Ami 16.6.2005). How were countries supposed to fund the new Western emphasis on poverty reduction? In effect, the poverty reduction framework forces qualifying countries to raise taxation and ensure any revenues that they can scrape together are then allocated to poverty reduction. As Kwesi Pratt, editor of the Ghanaian magazine Insight explains in ‘Damned by debt relief’, developing countries like Ghana are effectively being told ‘You owe us so much, we are not going to take the money from you, you generate the money yourself through taxation, through your productive activity, don’t pay it to us, keep it, but we are going to tell you how to invest that money’.

Ghanareaching its HIPC completion point meant it would not have to pay a portion of its debt servicing repayments for the next 20 years. For Ghana this amounts to an average of $120 million per annum which it does not have to pay to the multilateral creditors (approximately $6 per annum per person in Ghana). But the programmes that have been funded by debt relief are spartan, if not downright derisory. Small loan schemes of £5 to £40 are advanced to street traders (only women) to expand their supplies. Meanwhile, as Ghana advanced towards HIPC completion point, one of the country’s few major industries and providers of properly salaried jobs, VALCO, collapsed, alongside Ghana Airways. Most NGOs did not bat an eyelid as these major industries and employers shut their doors.

While banners were raised for debt forgiveness, an impossible burden was placed on developing countries to raise funds for the World Bank’s poverty reduction programmes. Aware of the possible unpopularity of donor diktat, British prime minister Tony Blair’s Department for International Development (DFID) has been at pains to point out that poverty reduction strategies are written and authored by developing countries themselves. ‘The basic principle of the PRS approach is national ownership. A Government will only implement policies in which it believes, so the Poverty Reduction Strategy Paper (PRSP) has to be written in country, by its government’ (Department for International Development 2005). In Ghana’s case the PRS involved targeting water, sanitation, education and health as key areas for spending. These are in fact DFID’s priorities for all HIPC countries. Unsurprisingly, it is impossible to find any country qualifying for HIPC with a so called ‘nationally owned’ poverty reduction strategy, with anything more ambitious than these priorities set out by DFID, or in the UN’s Millennium Development Goals. In practice, every ‘nationally owned’ poverty reduction strategy has to rubber-stamp donor prescriptions.

Neither DFID nor the Bank deny that growth is a key component of combating poverty. However, there is certainly no expectation that poor countries should become rich. In other words, growth has been redefined to mean success in reaching the Millennium Development Goals. But these only sum up the low horizons enshrined in Western-dominated development thinking. Halving extreme poverty, not becoming wealthy; improving access to potable water, not providing infrastructure for piped water and flushing loos; universal primary education, not universal access to university, and so on. Major industrial development is definitely not on the cards – community-led, small-scale, ‘participatory’ schemes are where it’s at. This is what’s known as ‘pro-poor’ growth. Not only are poverty reduction strategies a retreat from serious development, more importantly they guarantee that the poorest countries will never enjoy Western standards of living.

Most NGOs are critical of the conditions attached to the HIPC initiative. Yet in every case, the conditions that the NGOs attack are the remnants of the old structural adjustment programmes – namely, privatisation and fiscal rectitude. What they have championed, endorsed and wish to deepen are the poverty reduction conditions. But it is not hard to see that this is the most damaging aspect of the whole debt relief phenomenon. Poverty reduction strategies have created a new regulatory framework that gives Western donors the authority to police every aspect of life in the poorest countries, even down to local sanitation policies. ‘Inclusive’ local committees in the poorest villages are co-opted to monitor paltry handouts for a small school building or a bore hole. Assisted and monitored by NGOs funded by the World Bank, this is what it means to encourage ‘civil society participation’. With their backs against the wall, the poorest are the least likely to question anything which may provide a few pennies. But as NGOs increasingly call the shots on behalf of the poor, national political institutions are seen as at best irrelevant and more commonly the cause of poverty. In local communities, national politics and elected politicians are further demeaned as the lack of debt relief funds encourages assumptions of corruption and misspending. At the national level, not only are the democratically elected governments in HIPC countries undermined by donor tutelage, but they are obliged to consult unelected and unaccountable NGOs every step of the way.

Debt relief has damned the poor. With NGOs as its salesmen, debt relief has forced developing countries into a corner, where they are denied political autonomy, their governments are undermined, their politics demeaned, and serious growth is off the agenda. It is high time to damn debt relief.

Ceri Dingle is director of WORLDwrite. Steve Daley is director of TRASNA AN Domhain Go Leir

Ben-Ami, D. (16.6.2005). Doing the sums on debt. spiked.

Department for International Development (2005). Heavily Indebted Poor Countries (HIPC) Initiative – Frequently Asked Questions. Department for International Development. 1 September.

Donnelly, E.A. (2006). Proclaiming the Jubilee: The Debt and Structural Adjustment Network. UN Vision Project on Global Public Policy Networks.

Pender, J. (2002). ‘Empowering the poorest’ in D. Chandler (ed) Rethinking Human Rights: Critical Approaches to International Politics. Basingstoke, Palgrave Macmillan.