Denmark Cancels Debts of Poorer Nations

by Thalif Deen

Countries whose debts have been forgiven include Angola, Ghana, Zimbabwe, Egypt, Bolivia and Nicaragua. The debt cancellations have accelerated since 1995 when Denmark introduced a number of criteria for writing off debts, Danish officials explained.

Any country qualifying for debt forgiveness by Denmark must be a least developed country (LDC), described as the poorest of the poor, or a Highly Indebted Poor Country (HIPC).

The definition of the two categories of countries, as laid down by the United Nations and the World Bank, takes into account population density, gross national product, external debt, and per capita incomes.

Poul Nielson, Danish Minister for Development Cooperation, says that so far, his country has cancelled about 42 percent of all development loans to developing nations. "We will continue to use these criteria in our further debt write-offs," he said.

Last month Denmark took the unusual step of providing about $11 million in financial assistance to Nicaragua so that the hurricane- hit Central American nation could pay off its debt to the Inter- American Development Bank. Since Nicaragua did not owe any money to Denmark, the Danish government decided to help write off a third-party debt.

Nielson said the decision to help Nicaragua was taken even before Hurricane Mitch hit that country two months ago. But as a result of the devastation caused by the hurricane, he said, Denmark decided to increase its funding, from a proposed $9 million to $11 million.

A major effort to cancel debts is being led by the London-based organization, "Jubilee 2000 Coalition." One of its demands is for cancellation of all debts owed by the world's poorest nations. Until recently, international institutions such as the World Bank and the IMF have argued against such action.

Gamani Corea, a former Secretary-General of the UN Conference on Trade and Development, says he simply cannot accept the World Bank argument against debt write off.

"The Bank has refused on the ground that any cancellation of debts will affect its image in capital markets and its ability to raise money," he said.

This is not a very convincing argument, Corea said, because a bank's ability to raise money does not depend on the soundness of its borrowers.

The financial strength of the two financial institutions depend on the fact that industrial nations are their guarantors, he added. "Writing off bad debts will improve their books, not make them worse," Corea argues.

A United Nations report released last October said that the world's developing nations, including the 48 LDCs, owed a hefty $2.2 trillion in external debt by the end of last year.

This was an increase of some $76 billion over the 1996 figure. The sharp increase -- which also included debts owed by Eastern European countries -- was the result of increasing economic turmoil in Southeast Asia and its far reaching impact on Africa and Latin America.