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Jubilee Debt 'Lift the Lid on Bad Loans' Campaign

January 2008

I share your concerns about the debt burden that some poor countries face. All loans made by the UK government are made to internationally recognised governments, are bound by legal contracts and are recognised in international law. These debts must be dealt with properly, according to applicable laws.

We believe that debt relief should be provided on the basis of a country’s economic situation rather than on their history of poor or corrupt governance. Many countries that have a history of poor governance are now middle-income countries. If we cancelled debts for such countries, the full cost would have to be met from DFID’s aid budget, diverting vital resources away from poorer countries. Creditors might also refuse to lend to developing countries in case loans were later declared “illegitimate” and cancelled. This would be a bad outcome for developing countries trying to reduce poverty through access to international financing.

I agree with you that unpayable debts should not hinder the poorest countries from making progress towards poverty reduction. The main international debt relief initiatives (Heavily Indebted Poor Countries Initiative and Multilateral Debt Relief Initiative) have delivered over US$ 100 billion worth of debt relief for 32 countries and more are still able to qualify. Any country can also receive assistance with its debt payments from the Paris Club of government creditors.

We work to avoid future debt problems by promoting responsible lending. For example, we have worked with other donors and international financial institutions to improve the Debt Sustainability Framework. This framework helps countries manage their debts. It ensures that those which may be vulnerable to debt problems receive assistance on appropriate terms from international financial institutions.

Many richer countries have Export Credit Agencies offering new lending. Within the Organisation for Economic Co-operation and Development (OECD), we have agreed guidelines on lending to poor countries. The UK has even stricter lending policies. All of the UK’s export support to poor countries is carefully examined, taking into account a country’s debt position, the impact of the new borrowing on this and what the funds will be used for. We only agree a proposed project if it contributes to a country’s economic and social development.

I hope this is helpful.

Yours sincerely,

Douglas Alexander
Secretary of State for International Development