To Spain and Cameroon They are separated by just over 4,000 kilometers and more than 1.3 trillion euros of Gross Domestic Product (GDP). When the distance between the global north and south is measured in money, debt relief can help shorten it. Forgiving, exchanging or restructuring the debt can free up resources that are transformed into, for example, antiretrovirals for 30,000 HIV patients, as has happened thanks to the conversion agreement reached by both countries in 2017 and which concluded “successfully” last October. The released funds can also be used, as Ethiopia did, to remodel laboratories that help in the diagnosis of AIDS, tuberculosis and malaria, or 2.2 million mosquito nets to stop this last disease, as in the case of the Democratic Republic of the Congo (DRC).
Today, 3.3 billion people, four out of every 10, according to UN data, live in States that pay more in debt interest than they allocate to health or education. Low-income countries, according to the latest Debt Service Watch report, They must dedicate 57.7% of them to returns and interest. About them and those with middle income In 2021, an external debt of 9 trillion dollars (8.2 trillion euros) weighed, according to the World Bank, which you have to go to to get an idea of what part of that burden is in the hands of Spain, since the Ministry of Economy does not provide this information, claiming that it is not public. “That is one of the main problems that those of us who analyze the debt situation from the point of view of creditors and debtors encounter, the lack of transparency regarding the level of debt and its characteristics,” warns Íñigo. Macías, Oxfam research coordinator.
In 2021, these countries had a debt with Spain (with the State and also with private creditors) of about 7,236 million dollars (6,616 million euros) compared to 11,049 (10,098 million euros) in 2007. This form of financing can be an engine for the development of a country, but when payment obligations swallow up most of its resources, it becomes a handbrake. In this situation, or preferably before reaching it, creditors and debtors can access different relief tools. Cancellation, for example, implies the forgiveness of the amount owed or a part of it. The exchange is a similar mechanism, but it involves allocating the forgiven amount – or a part – to investments that favor development. Restructuring, for its part, is the renegotiation of payment conditions and interest rates. Spain carries out these operations through two channels: the bilateral – directly with the countries – and the multilateral.
“Bilateral management in the case of Spain is, fundamentally, through debt swaps,” says Iolanda Fresnillo, policy and advocacy director of the European Debt and Development Network (Eurodad, for its acronym in English). These exchanges, according to the expert, are complex, take time and their impact is limited. “It has been shown over the years that it is not an efficient method when it comes to really alleviating the burden of debt in the country,” she adds.
Four out of 10 people live in states that pay more in debt interest than they spend on health or education
The agreement signed with Cameroon, through the initiative Debt2Health from the Global Fund for HIV, Tuberculosis and Malaria, is an example of this type of mechanism. Spain committed to burning promissory notes for 27 million dollars (24.6 million euros) coming from official development aid and, in exchange, the African country allocated 10 of them to the Fund, which channeled them back to support programs of health and that count as the Spanish contribution to the organization. Similar swaps were made with the DRC and Ethiopia. “In the Global Fund model, donor contributions fund the core of our grants. Debt2Health is used to provide additional and complementary financing,” sources from the organization say by email, to which Spain has contributed more than 650 million dollars (593 million euros) since its creation in 2000.
Currently, another 17 exchange programs are in force with each country, one of them in collaboration with the World Food Program (WFP), worth 1,157 million euros (1,268 million dollars). With Honduras, for example, Spain agreed in this way to condone in 2007 of around 182 million dollars (166 million euros) from loans charged to the Development Assistance Fund and commercial debt. The Central American country, in return, signed to allocate 40% of the debt service to development and poverty reduction projects. From the signing of the agreement to the final certification, ministry sources say, bilateral commissions are in charge of following the course and impact of these programs.
On other occasions, Spain negotiates in a multilateral framework for his participation in the Paris Club and the Initiative Highly Indebted Poor Countries (HIPC) and the Multilateral Debt Relief Initiative (MDRI). The first is an informal organization created in the middle of the last century and in which today 22 developed countries agree on how the debits will be handled, for all of them equally. At the moment, it has reached 478 agreements with 102 debtor countries worth 614 billion dollars (560 billion euros). The HIPC was launched by the International Monetary Fund (IMF) and the World Bank, also creditors, in the mid-nineties, in re
sponse to the debt tsunami that devastated impoverished countries the previous decade. The MDRI complemented the previous one in 2005. Since its creation, according to the IMF, these programs have provided “relief” to 37 countries worth $100 billion (€91 billion).
Since 2007, a year after the approval of the Debt Law that regulated its management, Spain has signed debt operations that can be counted as Official Development Assistance (ODA) for just over 3,321 million euros, according to the Ministry of Foreign Affairs. Around 60%, 1,910 million euros, corresponds to a forgiveness to Cuba in 2016, of which around 1,700 came from two export credits and one commercial, and the rest from loans charged to the Development Assistance Fund .
Debt cancellation and swaps should be additional to official development aid commitments.
Iolanda Fresnillo (Eurodad)
“Right now, Spain is almost not paying off debt,” says Fresnillo. “But not because of a lack of will, but because it is no longer a very relevant creditor.” For José Antonio Alonso, professor in Applied Economics and development expert, the Spanish role has not been the protagonist in recent years. “But in general he has not engaged in behavior that deserves specific criticism. “It has behaved like many other creditors, trying to join more or less agreed operations.”
Room for improvement
These mechanisms can give oxygen to battered economies that sometimes have to choose between paying or serving their citizens, but their application is not without criticism. One of the main ones is the registration of debt operations as aid due to the risk of double counting that it entails, that is, that an item that was already collected as aid can be recorded as such again if it goes through one of these exchange procedures or debt cancellation. Another major objection is that it does not mobilize new resources. “We say that debt cancellation and swaps should be additional to official development aid commitments. The only way to measure this additionality is to not count it as such,” says the Eurodad expert.
In addition, it inflates the numbers, according to detractors. “It's a bit misleading,” Alonso alleges. These figures are considered new aid when in reality, he points out, what is done is to erase debtors who, on occasion, would not be able to make payments, as in the case of Cuba. “It is a bit fictitious that you forgive her, because it is not a strict exercise of generosity, but almost of realism,” he says. But the expert believes that “it is good that countries that do this exercise are rewarded” to alleviate the burden and promote development. Along these lines, Iliana Olivé, a researcher at the Elcano Royal Institute, published in 2017, after the debate arising from the registration as ODA of the condonation to Cuba, an article in which she defended that this type of accounting acted as an incentive for creditors cancel “an unpayable historical debt” that was drowning some debtors.
The OECD establishes quantitative but not qualitative parameters to report debt relief operations with certain countries as ODA. “The logic they tell you is that any economic development will lead to social development. We do not agree,” adds Fresnillo, who also points out cases of tied aid. The most recent one that he remembers is that of the Caribbean island. “A debt exchange with Cuba to clean up, let's say, arrears of interest that were used so that Spanish companies could invest in the tourism sector. “I don't know if the internationalization of the Spanish company is the best way to support development,” he adds. “Many of these operations often respond to another series of interests that go beyond the promotion of development,” points out Macías, from Oxfam.
With a new debt crisis looming, the available mechanisms can be improved, according to experts. They should be provided, they suggest, with a fairer and more efficient architecture, in which there would be a greater balance of power between creditors and debtors in arbitrated and more agile negotiations. They also propose giving more space to cancellations in a panorama in which restructuring now predominates, without forgetting the emergence of new actors such as China. “And not only China, but other countries, for example, in the Middle East, the main oil exporters,” concludes Macías.
You can follow Future Planet in x, Facebook, instagram and TikTok and subscribe here to our newsletter.
#Debt #opportunities #Spain #manages #money #developing #countries #owe
