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US Considering Debt Relief for Poor Countries

by Brittany Schell

WASHINGTON - Leaders in the United States Congress recently proposed a bill expanding debt relief for impoverished countries, a move hailed by development groups as progress in the fight against global poverty and unfair lending practices to poor nations.

Women beg for money on the streets of Riyadh, in 2006. Nearly 140 million Arabs live below the poverty line, according to a report by the United Nations Development Programme and Arab League. (AFP/File) What's the Story?

In mid-December, a bi-partisan group of lawmakers introduced the Jubilee Act in the U.S. House of Representatives. If passed, this bill will broaden debt relief for poor countries, reform the policies of international financial institutions, and press lenders to use responsible practices with respect to the world's poorest nations.

"As the global-economic crisis pushes tens of millions more people around the world below the global-poverty line, it is more critical than ever that Congress act on this vital legislation," said Alexander Baumgarten of the Jubilee USA Network, a coalition of groups pressing for debt relief for poorer nations. "We've seen the success of debt cancellation in the past, putting children in school, providing life-saving health services, and bringing economic opportunity to millions."

The Jubilee Act would cancel the debt of up to 22 additional nations struggling with poverty. The reduction of oppressive debt payments will help these nations meet the Millennium Development Goals by redirecting money to projects like health care, education, and clean water.

"Congressional leaders put aside partisan differences to stand together in support of the world's poorest," said Neil Watkins, Jubilee USA's executive director. "The financial crisis has slammed into the world's poorest countries and the Jubilee Act is a cost effective and proven way to help the world's poor while strengthening the United States' security." [» Get the full story from Jubilee USA Network.]


The Importance of Debt Relief

Every year, African nations pay approximately $14 billion in debt remunerations to wealthy nations and international financial institutions while receiving less than $13 billion in international aid. Agreements to cancel or reduce debts have enabled states to spend more on much-needed social programs and translated into a higher quality of life for millions of people in developing countries.

But a lot of other needy countries are still paying off debts, and the money used to pay back lenders is typically rerouted from programs intended to benefit these countries' least privileged citizens. 

According to Jubilee USA, it would only cost 40 cents per American to cancel the debt that 24 impoverished countries owe to the United States, and less than $1 more to cancel the debts of these countries to the World Bank and the International Monetary Fund.  

The Jubilee Act for Responsible Lending and Expanded Debt Cancellation passed both the House of Representatives and the Senate Foreign Relations Committee in 2008. But the legislation expired before passing the full Senate. The Jubilee Act of 2009 has been reintroduced in the House and the legislation is expected to come to the Senate floor in early 2010.

In addition to expanded debt cancellation for impoverished countries, the bill seeks to reform the lending policies of governments and international financial institutions to increase responsibility and transparency. The bill would also mandate an audit of existing debts to examine unfair lending policies and companies that profit off the debt of poor countries, known as vulture funds.

Vulture Funds Case Study: Liberia

Vulture funds prey on countries that qualify for debt cancellation by purchasing discounted debts -- reduced by the IMF or World Bank to ease the burden on struggling nations -- and then suing that nation to collect the full value of the loan, explains the International Bar Association.

In late November, a London court awarded two vulture funds $20 million in a case against Liberia -- an amount equal to the county's entire education budget and 150 percent of their health spending in 2008, reports Africa Action.

"The Liberia case is a textbook example of kicking a country while it's down. Liberia has done everything right to gain debt relief, yet our system allows an off-shore, unaccountable corporation to hold out on the deal," said Ruth Messinger, president of the American Jewish World Service, a faith-based group that supports projects to improve lives in poor countries.

The two private companies that sued the Liberian government for debt collection were the only lenders that refused to participate in a reduction of Liberia's debt negotiated last April -- a debt largely incurred during the regime of former Liberian dictator Samuel Doe.

"The final insult is that now poor Liberian people are being asked to pay back wealthy investors," said Africa Action's executive director Gerald LeMelle. The Liberian government has told reporters that the country is unable to pay the awarded judgment.

Taking Action: Change, Not Chains

Advocacy groups dismayed by the outcome for Liberia insist on the need to pass the Jubilee Act and other pending legislation, notably the Stop VULTURE Funds Act. This bill, introduced last June, would protect impoverished countries and require greater transparency by creditors suing these nations.

The Jubilee USA Network has started the Change, Not Chains Campaign to urge the Obama administration to support expanded debt cancellation. Without debt payments hanging over their heads, poor countries will have a better change to fight poverty and improve the lives of their people.

The campaign Web site states: "It is time for global change -- time for a global economy that works for all. It is time to once and for all break the chains of international debt to fight poverty and injustice."

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