Arjun Karki 
 
MAY 07 -
As world leaders prepare to discuss the issues and challenges facing the Least Developed Countries (LDCs) next week in Istanbul, Turkey, one issue that rich nations would like to see off the table has been haunting the poorest parts of the world for a long time.

The huge burden of debt has perpetually dragged down growth in LDCs. In today’s international economic order, the LDCs are caught in a vicious debt trap that has sapped their energy.

The four dozen LDCs in the world have total external debt stock of US $155 billion and are forced to pay over US $6 billion every year to service debt repayments. In many LDCs, more money is spent on debt servicing than on essential services like healthcare, drinking water and energy. This drives a huge chunk of their scarce resources away from areas where they could have been much more productively spent.

There are some startling facts that justify the call for the debt cancellation.

More than half of the total population of LDCs still lives in extreme poverty, with large numbers of malnourished children, high maternal mortality rates and constrained access to water, sanitation and energy. The annual US $6 billion that LDCs pay to rich creditor countries and institutions could have been used to alleviate poverty and the consequent human misery.

More Developed Countries (MDCs) and multilateral agencies have been making public vows to fight against this poverty, but this amounts to little more than lip service. Until and unless they decide to cancel those debts, LDCs will continue to face hardships in the cause of reducing poverty and boosting development.

Uncertainties in domestic production, volatility in international prices and exchange rates and deteriorating terms of trade make the debt burden of LDCs unsustainable. This burden exacerbates the poverty trap—diverting resources from their investment on essential services and infrastructure. In short, the LDCs will never be able to ‘graduate’—the ultimate objective set out by the United Nations. Only a handful of nations have achieved graduation since the UN’s LDC classification came into effect.

When the UN first classified some countries as LDCs in 1971, there were 24 nations described as very poor and vulnerable. In the subsequent decades, instead of reduction in that number, it has doubled.

There are now 48 countries including 33 in Africa, nine in Asia (including four in South Asia), five in the Pacific and one in the Caribbean region described as LDCs—countries that have per capita income of less than US $745 and are economically vulnerable.

Post 1971, only three countries—Botswana, Cape Verde and the Maldives—have been successful in graduating away from the LDC category. Sikkim also graduated by default when it became a state within the Republic of India in 1975.

Point of departure

If more countries are to graduate, there must be integrated efforts on the part of LDC governments, MDCs as well as civil society organisations. The point of departure could be the end of the reluctance shown until now by the rich countries to cancel the debts.

It is often argued that rich countries are against unconditional cancellation of debt because that could lead to resources being misused on corruption, military or grandiose projects. But this concern cannot be justified since even without the unconditional cancellation of debt, these problems exist.

In recent times, there have been some efforts from developed nations to address the debt burden of LDCs, but they were often ill-conceived. The Heavily Indebted Poor Countries Initiative and Multilateral Debt Relief Initiative only ended up providing new ways for rich countries to further indebt poor countries by imposing strict conditionalities which they had to fulfill in order to qualify for debt relief measures.

The increasing weight of external debt on LDCs also flies in the face of commitments made by the MDCs to help pull them out of poverty trap. The Overseas Development Assistance (ODA) commitment to give 0.15-0.20 percent of Gross National Income expressed by OECD countries in the Brussels Programme of Action for LDCs lies unattended—the average figure given is only 0.09 percent.

Even if the ODA increase were implemented, it would be meaningless unless MDCs agree to overhaul the entire aid delivery system. There is a need for richer countries to provide more and better aid in the form of untied grants and other financial resources to invest in productive capacity and human development.

In the Fourth World Conference on LDCs which begins in Istanbul this week, the LDCs along with the civil society forum will put forth the demand for immediate and decisive steps for debt cancellation.

As Nepal is currently the chair of the LDCs, it is leading the negotiations on behalf of LDCs as well as G-77 countries in global dialogue on the outcome document of the conference. Being an LDC burdened

with a great deal of debt itself, Nepal has allocated Rs 18 billion—nearly six percent of its total budget outlay—to pay the principal and interest. As such, Nepal is in a unique position to push this issue at the global high table. Success on this front can give a tremendous boost to Nepal’s standing at the global arena.

But Nepal’s efforts alone will not be enough. The entire LDC community must coalesce to force developed countries to help erase human misery. To this end, help from emerging economic giants like India and China will be vital.

It is important that governments are not allowed to remove the difficult decisions from the agenda. The new Programme of Action for LDCs must include a comprehensive agreement on debt cancellation.  The people of LDCs deserve nothing less.

Karki is chairperson and spokesperson of the UN LDC-IV Civil Society Forum and the International Coordinator of LDC Watch

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Source: The Kathmandu Post ( 2011-05-08)