G8 Summit Needs to Consider Long-Term Consequences of Debt Relief


Acton Institute, July 19, Grand Rapids, MI — With this week's G-8 gathering in Genoa, leaders will be faced with demands for the unconditional forgiveness of the debt of the developing world. Economics, it is claimed, must give way to the claims of morality.

For the past 11 years, the Acton Institute for the Study of Religion and Liberty has been studying the relationship between morality and economics. The Institute believes that the strategy of unconditional debt-forgiveness proposed by many groups are flawed in design, morally questionable, and would be most likely to have negative effects upon the very countries that debt-forgiveness is intended to help.

—Unconditional Debt-forgiveness will undermine the developing nations’ reputation for meeting their contractual obligations, and consequently limit their future access to the foreign capital that they require for economic growth. A credible reputation for servicing one’s contractual obligations is a country’s greatest asset in the international financial market.

—The history of many heavily-indebted Third World countries indicates that the expectation must be that the funds released from debt cancellation will not be deployed productively—at least not without the imposition of conditions. Yet even the tough forms of conditionality applied by the IMF and World Bank in the past have proved insufficient in many cases to preclude wasteful and corrupt expenditure of loan monies. How, then, will easier conditions, let alone none at all, improve the situation?

—Debt cancellation will be not be funded by the West. Western aid budgets are at a low ebb. The resources of the multilateral agencies are also stretched to the point that their capacity to fund debt cancellation from internal resources is nonexistent. This means that the funds foregone by canceling the debts of the poorest countries will have to be raised from other aid recipients. The burden of debt cancellation will not therefore fall upon the wealthy West but upon other developing countries: not upon the poorest of the poor perhaps, but the poor nonetheless. Their aid budgets will shrink and their loan allocations will be cut. This violates some basic criteria of distributive justice.

—Corrupt dictators and regimes on extravagant weapons sales and personal luxuries have squandered much of the funds loaned in the past. Unconditional debt-forgiveness will effectively absolve them of their actions.

The Acton Institute believes that a more nuanced approach to the question of the developing world’s debts is required, not least by taking account of the moral and economic issues highlighted above.

An articulation of the Institute's work on debt relief is available in the book International Debt Relief: A Moral and Economic Challenge , available through the Institute's online bookstore or by calling the Institute directly at 616-454-3080.

About the Acton Institute
With its commitment to pursue a society that is free and virtuous, the Acton Institute for the Study of Religion and Liberty is a leading voice in the national environmental and social policy debate. The Acton Institute is uniquely positioned to comment on the sound economic and moral foundations necessary to sustain humane environmental and social policies.

The Acton Institute is a nonprofit, ecumenical think tank located in Grand Rapids, Michigan. The Institute works internationally to "promote a free and virtuous society characterized by individual liberty and sustained by religious principles." For more on the Acton Institute, please visit www.acton.org.

Interviews with Institute staff may be arranged by contacting John Couretas at (616) 454-3080 or at jcouretas@acton.org.