Debt Cancellation for Anti-hunger Programmes: ancient money for ancient problems


Picture: 1 billion USD

Although I know that Debt Swap Schemes are not new at all and creditor countries have succeeding in getting the debt issue outside the limelight of financing mechanisms – arguing they are old claims and thus not entitled to be called “innovative” -, we cannot deny the current heavy burden of debt services in developing countries´ national budgets and, conversely, their potential to free a considerable amount of resources to be better allocated for social investments.

Some years ago, I supervised a research in the Hunger-Free Latin America and the Caribbean Initiative – where I was working at that time – on how to redirect debt swap schemes towards food security programmes, as a means to get more resources, easily mobilised and better targeted. The research was done jointly with UN ECLAC (CEPAL in spanish) and the full report and executive summary can be downloaded in the following address (in Spanish as well).

Debt services in Latin America are 3 times higher that public investment in health and nutrition, and five times higher that investment in agriculture and rural development. Therefore, the repayment of debt services (mostly capital interests) prevents the governments from assigning higher budget allocations to high impact social investments. As a token, Ecuador and El Salvador assigned between 2008-2009 more money to debt services payment than to social investments. Governmental priorities (should it be measured by the amount of funds assigned to them) are rather clear, and this is another sympthom of this perverted development system.

Several debt swap schemes have been proposed in the last 20 years, mostly addressing environmental protection and health-related activities, although the issue has been overshadowed in recent years, as other yet-to-be-approved mechanisms are catching policy and media attention (I am also a full supporter of the International Financial Tax). It is worth noting that most of the previous debt swap initiatives have never tackled the most pressing problems of the poorest and hungriest households. They were providing funds to preserve forest enclosures and National Parks (i.e. Costa Rica).             

The Latin American countries with the highest prevalence of undernourishment held a bilateral public debt of 12.3 billion USD in with OECD countries in 2006. Therefore, bilateral debt cancellation schemes of just 20% could provide more than 2.5 billion USD for food security programmes (2.5 times the money depicted in the picture above). A huge amount of money compared to the current food security budgets currently allocated (with Brazil being an exception).

In any case, a big chunk of these bilateral debts would never be cashed, as those are long-term debts coming from many years ago and expiry dates being extended to decades ahead. These anti hunger financing scheme, although not innovative in itself, has never been proposed for anti-hunger programmes, and it would provide additional (but not fresh) funds in an age of financial constraints. Governments wouldn´t need to provide fresh funds, just to authorise a 20% of repayment services to stay in the countries and to be assigned to food security programmes. The donor country (the creditor) would account this money in its Overseas Development Assistance bil and the recipient country (the indebted) would have more freed money to allocate to budget-based food security projects. That is a win-win solution for the hungry people and their governments, although not so well perceived by the western private banks that hold a big share of national debts.