On this spread you'll find out how cancelling the debts of poorer

Cancelling debt - the good news

countries helps to reduce the development gap.
Debt
Many poorer countries are in debt, and the sums of
money they owe are huge. But how did they get into
Cancelling $1.5 billion of Uganda's debt has had a major positive impact on the
country's development, as the table shows.
How poorer countries got into debt
A In the 1970s, international banks lent large
amounts of money to poorer countries to build
IMIMM111111111111 During and after
cancelling debt
Progress in Uganda

debt, and what has it got to do with development? The

box on the right will help to explain.
Debt and trade
Central America once had about 500 000 km' of
rainforest. By the late 1980s, more than 80% of it had
gone. Every year, more than 800 km' of rainforest are
cut down in Honduras — to be replaced by ranches,
banana plantations and small farms. The connection
between the rainforest and debt is this:
• The trees that are cut down provide hardwood. This
is sold overseas to earn foreign money to repay
Honduras's debt.
• The new fruit plantations also earn money to repay
the debt.
Every year, 20% of the money Honduras earns from
exports is spent on debt repayments.
Cancelling debt
In July 2005, ten Live 8 concerts were held around
the world at the same time, and the photo shows just
one of them. They were part of a campaign to Make
Poverty History and cancel world debt. A few days
later, at a meeting of the G8 (the world's eight richest
countries), an agreement was made to cancel all debts
(worth $40 billion) owed by 18 Highly Indebted Poor
Countries.
But, two conditions had to be met before the debts
were cancelled:
• Each government had to show that it
could manage its finances, and that it
wasn't corrupt.
• It also had to agree to spend the
expensive infrastructure projects, like dams and
power stations.
B By the 1980s, interest rates had more than
doubled. This increased the amount of money
which poorer countries had to find to 'service'
their loans (or debts) — in other words, to pay
back some of the original loan amount, plus
interest.
C Many countries couldn't afford to pay their debts,
so the unpaid interest was added to the original
loan amounts — and their debts began to grow.
D In return for reorganising the debts to make
them more manageable, the banks expected the
governments of the indebted countries to cut
spending. In Uganda, for example, the biggest
cuts were to healthcare and education — crucial
for a country's development.
The Highly Indebted Poor Countries (HIPC)
are a group of 38 of the poorest countries with the
greatest poverty and debt. They include Uganda
and Honduras.
JOIN THE GLOBAL CALL TO ACTION AGAINST POVERTY
.
• I. • 1 t
. • Jo.purS . .
. 1 .
Population using an improved water source (%)
60
Population undernourished (% of total population) 24 19
Spending on education (% of GDP) 1.5 5.2
Adult literacy rate (% aged 15 and older)
56.1 66.8-1.1
Percentage of income from exports (plus net income 81.4
9.2
from abroad) spent on debt repayments
Conservation swaps
Conservation swaps, or debt-for-nature swaps, are a way of tackling debt, and
benefiting nature and conservation at the same time. The most common type of
debt-for-nature swaps work like this. A country (the creditor) which is owed money
PERU
by another country (the debtor), cancels part of the debt in exchange for the debtor
country's agreement to pay for conservation activities. NGOs like the WWF often
help to arrange the swaps.
Debt-for-nature swaps
protect Peru's endangered
forests
In 2002 and 2008, Peru and the
USA agreed to a debt swap worth
almost $40 million. Peru agreed to
conservation activities to preserve
more than 27.5 million acres of
endangered rainforest. The rainforest
provides a habitat for many rare
species, including jaguars and pink
river dolphins.
11. The pink river dolphin, one of the rare
species whose habitat has been preserved
due to debt-for-nature swaps
I.

saved debt money on education,

healthcare and reducing poverty.
By 2008, 27 of the 38 HIPC countries
had met these conditions, and had had
$85 billion of debt cancelled. The bad
news is that African countries still owe
$300 billion, and there's little chance
that they'll be able to repay it.
1. . .... . . YOUR QUESTIONS
1 Add these to your dictionary of key terms: Highly Indebted Poor
Countries, conservation swaps (debt-for-nature swaps).
2 Draw a flow chart to show how poorer countries got into debt.
3 Describe two ways in which debt can affect the environment.
4 Explain how Uganda's development has benefited from debt
cancellation.
Hint: Use the information in the table, and give figures in your
answer.
5 Work with a partner to produce a PowerPoint presentation on the link
between debt and the development gap.

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