CSO Statement on Aid and the Debt Crisis

Monday, 01 September 2008 09:31

Debt remains a severe problem for underdeveloped countries and their citizens over two decades since the explosion of the debt crisis in the early 1980s. It continues to hinder development, consign economies to backwardness, and keep generations of people in poverty and deprivation. The rapid descent of the global economy into greater turmoil in 2008 makes the situation even more urgent. The plight of those who have long been mired in poverty is worsening and underscores the pressing need to resolve the debt burden afflicting scores of countries and the majority of people on the planet.

Debt remains a severe problem for underdeveloped countries and their citizens over two decades since the explosion of the debt crisis in the early 1980s. It continues to hinder development, consign economies to backwardness, and keep generations of people in poverty and deprivation. The rapid descent of the global economy into greater turmoil in 2008 makes the situation even more urgent. The plight of those who have long been mired in poverty is worsening and underscores the pressing need to resolve the debt burden afflicting scores of countries and the majority of people on the planet.

The United Nations (UN) Millennium Development Goals (2000) and the Monterrey Consensus (2002) are among the recent major initiatives that have drawn attention to issues regarding the financing of development. Yet progress has been scant. Most donors are still not meeting declared commitments to scale up aid and targets set for 2010 are unlikely to be met unless dramatic increases are forthcoming. Foreign capital flows have largely gone to a handful of underdeveloped countries and, even then, many times with questionable development gains. Many MDG targets are also unlikely to be achieved not just in terms of reducing extreme poverty but also with respect to heath, education, nutrition, child mortality and others.

The Paris Declaration (2005) on aid effectiveness is another recent initiative and seeks to address issues on the effectiveness of official development assistance (ODA). The PD has been endorsed by 115 donor and recipient countries as well as by 26 major international organizations so far. Going beyond a mere statement of principles the Paris Declaration (PD) sets targets and indicators in five (5) areas of concern: ownership, alignment, harmonization, managing for results, and mutual accountability. A comprehensive global process has been underway since 2005 involving the most significant official players in the aid system and CSOs.

The PD however has been criticized for its limitations in addressing fundamental concerns of development and human rights, for its failure to promote democratic ownership as central to development, and even for not setting clear or ambitious enough targets and indicators. CSOs have been active in demanding and pushing for deepening the PD and enriching it through the full participation of stakeholders so that its expressed principles are upheld and goals achieved. These concerns are raised towards achieving greater development effectiveness.

A key issue for aid effectiveness is the overwhelming debt crisis that wreaks havoc on development finance for most developing countries. Its persistence is among the greatest factors causing economic underdevelopment and social backwardness. The financial drain of debt service also sustains aid dependency as ODA becomes a ready source for government services and even for debt servicing. The debt burden is already of such a scale that it hinders attainment of the declared ultimate objectives of aid effectiveness: reducing poverty and inequality, increasing growth, building capacity and accelerating the achievement of the MDGs.

The people in underdeveloped countries have suffered trillions of dollars in debt and debt servicing for decades.  Hundreds of billions of dollars are paid annually to support the profits of creditor banks and organizations in the world’s wealthiest countries. There was a total of US$4.2 trillion in debt service just since 2000 or an average of US$530 billion over the last eight years. Yet these external debts just keep on growing and are estimated to total US$4.6 trillion in 2008 – an eight-fold increase from debt levels in 1980 – and projected to breach US$5 trillion by 2010. This causes deep hunger, poverty, misery and deprivation for billions of peoples particularly in Asia, Africa, Latin America and Eastern Europe.

Debt is a severe drain on the scarce capital and finance of countries already so lacking in these. There are national governments that spend up to half of their budgets on debt servicing at the expense of vital social services of education, health and housing, by privatizing public utilities and other services, and by heavily taxing the people. The debt is also effectively paid for through the greater exploitation of workers in factories, employees in offices, and peasants in the fields. It is paid for by stripping mountains of their minerals, uprooting forests, and exhausting fisheries. In many cases this is even with the consent or collusion of governments that prioritize debt service and repaying foreign creditors over the development needs of their citizens.

Ineffective ODA itself has long been contributing to the debt problem and escalation of the debt crisis and underdevelopment in recipient countries. Aid must be made effective to reduce the pressure of ODA loans on the already intolerable debt burden of so many nations.  The pressure of debt servicing makes countries even more vulnerable and dependent on ODA so the debt burden must be significantly eased in order for aid effectiveness reforms to take root.
Much of ineffective aid comes in the form of large infrastructure projects financed through concessional lending. There is also tied aid, technical assistance, and other aid to finance export and commercial interests. As far as poor communities are concerned, many projects have no clear development benefits for them and, on the contrary, they have suffered badly through social, economic or outright physical displacement.

ODA has made up and continues to make up a large part of the debt burden. Even if aid is given as loans on “concessional” terms these are loans nonetheless. Over US$900 billion of ODA given since 1960 have been loans which imply at least a trillion dollars in total debt service. Global ODA is heavily concentrated in the world’s five most powerful countries with the US, Japan, France and Germany together accounting for three-fourths of the total. Yet many of these loans have not gone to domestic development and have been ineffective aid.

Furthermore, the debt problem caused by ODA loans has been used by donors to impose neoliberal policy conditionalities which sustain and deepen the conditions of underdevelopment which created the vulnerability to debt in the first place. Trade and investment liberalization has undermined domestic agriculture and industry. Privatization has turned social and public services into opportunities for profit. Deregulation has unleashed unbridled profit-seeking. These have destroyed the livelihoods of hundreds of millions as well as caused chronic trade deficits and perpetual profit outflows that can only be filled in by increased foreign borrowing. This ODA has also been used as leverage to oblige governments to honor debt obligations and continue debt repayments despite the damage to local economies.

Many of these loans have just gone back to donor countries as payments for overpriced contractors, suppliers and consultants from donor countries or to domestic infrastructure benefiting donor corporations operating in the recipient country.

Current Northern government-drive debt-related initiatives such as the G-8’s Multilateral Debt Relief Initiative (MDRI) and International Monetary Fund-World Bank’s (IMF-WB) Highly Indebted Poor Countries (HIPC) initiative are inadequate. The MDRI and HIPC begin from a “debt sustainability” framework rather than a genuinely social and economic development framework. “Debt sustainability” as currently conceived is inappropriate for focusing on debt relief and economic policy interventions aimed at building countries’ ability to service debt rather than moving towards genuine social and economic progress. In part this is because the international financial institutions remain overwhelmingly dominated by the advanced countries and are used as undemocratic “gatekeepers” in official aid mechanisms.

The Paris Declaration must rather take up aid concerns from a sustainable development, human rights, gender and social justice framework. Among others this means recognizing that the amount of underdeveloped country debt and its terms constitute a severe hindrance to development, achieving human development goals, and improving the lives of billions of people. Aid can never truly be effective if the crushing debt burden remains and off-sets any potential small-scale gains along the PD’s current areas of concern. Nor can aid be considered effective if it in effect merely sustains debt service. This requires the aid effectiveness agenda to broaden much further beyond current narrow concerns of aid delivery and management.

We, undersigned CSOs working on debt cancellation and aid effectiveness call for the following:

• Absolute and unconditional cancellation of all illegitimate debt.
• Removal of all forms of policy conditionalities and tied aid
• Real commitment by donor countries to shift ODA from loans to grants.
• Increases in grants particularly for social services, rural development, gender issues, human rights concerns and the environment.
• Overhaul of the international financial institutions to make their processes more democratic and to remove their undue influence over the direction of aid.

Signed to date (as of August 29, 2008)

1. Aid Accountability Group, Bangladesh
2. AidWatch, Australia
3. Australian Council for International Development (ACFID)
4. AIDWATCH, Philippines
5. Arab NGO Network for Development (ANND), Lebanon
6. Asia Pacific Mission for Migrants (APMM)
7. Asia Pacific Research Network (APRN)
8. Australian Council for International Development (ACFID) - Australia
9. Bagong Alyansang Makabayan (BAYAN), Philippines
10. Campaign for Human Rights and Humanitarian Law, Nepal
11. CCA, Hongkong
12. Center for People’s Development and Governance (CPDG), Philippines
13. Center for People's Resources and Services, Inc. (CEPRES), Philippines
14. Centre for Organisation Research and Education (CORE), India
15. CENTRIN, Indonesia
16. Coastal Development Partnership (CDP), Bangladesh
17. Cordillera People’s Alliance (CPA), Philippines
18. Council for International Devt. (CID), New Zealand
19. Debt-Net, Japan
20. East Timor Devt. Agency
21. Ecumenical Centre for Research, Education, and Advocacy (ECREA), Fiji
22. Ekvilib Institute, Slovenia
23. Forum LSM Aceh (Aceh NGOs Forum)
24. Friends of the Earth (FOE), Japan
25. Green Movement of Sri Lanka
26. Himalayan & Peninsular Hydro-Ecological Network, Kerala, India and Kathmandu, Nepal
27. IBON Foundation, Inc., Philippines
28. International NGO Forum for Indonesian Development (INFID)
29. Japan International Volunteer Center (JVC)
30. Japan ODA Reform Network-Kyoto
31. Japanese NGO Center for International Cooperation (JANIC)
32. Jubilee Kyushu, Japan
33. Law and Society Trust, Sri Lanka
34. Lok Sanjh Foundation House, Pakistan
35. LOKOJ Institute, Bangladesh
36. National Network of Indigenous Women
37. NCPP, Philippines
38. Nepal Policy Institute (NPI)
39. NGO Forum on Cambodia
40. Network for Women’s Rights in Ghana
41. Pacific Asia Resource Center (PARC) Interpeople’s Cooperation
42. Pakistan Institute of Labour Education & Research (PILER)
43. People’s Alliance for Debt Cancellation (GARPU), Indonesia
44. Public Interest Research Group (PIRG), India
45. PRAI, Batam
46. Reality of Aid Network-Asia
47. Right to Food Movement, Bangladesh
48. Sewalanka Foundation, Sri Lanka
49. Shan Women’s Action Network (SWAN), Sri Lanka
50. Slovenian platform of NGDO (SLOGa)
51. South Asian Network for Social & Agricultural Development(SANSAD)
52. Tamil Nadu Women’s Forum, India
53. Tarabang Para Sa Bicol, Inc. (TABI), Philippines
54. Third World Network (TWN), China
55. TWN, Malaysia
56. UBINIG (Policy Research for Development Alternative), Bangladesh
57. Unnayan Onneshan, Bangladesh
58. Vietnam Union of Science and Technology Associations (VUSTA)
59. Vikas Adhyayan Kendra (VAK), India
60. Voices for Interactive Choice and Empowerment (VOICE), Bangladesh
61. Water and Energy Users Federation, Nepal

¹This statement is an initiative of the Reality of Aid-Asia Network based on the agreements of the Strategy Meeting in Manila on July 2008.  Civil society organisations that are interested in being included in the list of signatories of this statement should send an e-mail to the RoA Asia Secretariat stating this intention together with brief description of their work around debt and aid effectiveness.