Following his resignation as Prime Minister, Gordon Brown’s role in the cancellation of world debt has been praised by Harriet Harman.  In an email to party supporters yesterday the acting leader of the Labour party made an early pitch to define Mr Brown’s legacy.

She said: “for every person in an African village whose life has been transformed by the cancellation of world debt – that is Gordon’s legacy.”

But, how far has third world debt been cancelled? And what role can we ascribe to Mr Brown and his Government in leading this particular fight?

Background

Since the 1970s many of the world’s poorest countries became heavily indebted. A study by the IMF in 1998 showed that debt levels in ten of the poorest countries increased by 318 per cent in 20 years.

Debts were accrued bilaterally with sovereign governments and private creditors, and multilaterally with international bodies like the International Monetary Fund (IMF) and the World Bank.

International action to address debt levels in the third world began in 1996 with the establishment of the Heavily Indebted Poor Countries (HIPC) initiative. The programme offered qualifying countries cancellation of some debts to return their debt to sustainable levels. In 1999, HIPC was expanded to offer “faster, deeper and wider debt relief”. The UK government also upped its debt relief commitments.

In 2005, the G8 introduced the Multilateral Debt Relief Initiative (MDRI) which offered 100 per cent multilateral debt relief for countries that completed the HIPC programme. This was done under the auspices of Gordon Brown as chair of the G8 finance ministers meeting.  

These two programmes – HIPC and MDRI – have formed the core of the international community’s efforts to cancel third world debt over the last 14 years.

But, how much success have the programmes had in debt cancellation?

Analysis

Since its introduction, 28 countries, including 19 from Africa, have completed the HIPC programme. A further 12 are in the process of completing the programme or may be available for assistance.

The IMF estimated that at the end of 2007 the total value of debt relief has been $71 billion. It also estimates that as a result of the measures these countries now spend 2.5 per cent less of their GDP on debt interest.

In addition to having their bilateral debts reduced, under the terms of the MDRI these countries have had their existing debts with the IMF and World Bank cancelled.

In 2009, the World Bank estimated that so far this had wiped another $28.5 billion of debt off the balance sheets of the world’s poorest countries. In total then, around $100 billion of third world debt has been cancelled.

Exclusions

However, the programmes come with conditions and there are many low income countries which do not qualify for the HIPC programme. As the MDRI debt cancellation is dependent on completing the HIPC process this means they are excluded from both.

A report by the New Economics Foundation estimated that there are around 83 indebted countries who cannot meet the basic needs of their people. The figure is based on the $2 a day poverty line. The report suggested that based on human need, debt cancellation totalling $359 billion would be necessary to end this problem.

One of the driving forces for British and international action on third world debt has been the millennium development goals (MDGs) objective to reduce extreme poverty by half by 2015. In 2007 Mr Brown told the UN: “We did not make the commitment to the Millennium Development Goals only for us to be remembered as the generation that betrayed promises rather than honoured them and undermined trust that promises can ever be kept.”

However, a report by the Jubilee Debt Campaign argued that to meet the poverty reduction globally, at least 35 countries excluded from the HIPC scheme needed debt relief. Despite pressures, the criterion for access to the HIPC initiative has not been altered.

Conclusion

Returning to Ms Harman’s claim, it is clear that significant debt cancellation has taken place over the last 13 years. The involvement of Mr Brown in the introduction of the MDRI and his wider role as a champion of measures to tackle poverty do suggest it is something he can claim as part of his legacy.

However, debt cancellation has been conditional and latest World Bank estimates suggest that the poorest countries still have external debts of around $220 billion.

Third world debt has not been eradicated. Progress has been made but, as the IMF recently noted, the fallout of the global financial crisis runs the risk of driving up debt again among those in the third world. As, of course, it has in the UK and many of the countries of the developed world.

By Tim Swain