As the financial crisis leads us into a deep recession at home, what impact is the economic downturn having on the world’s poor, and in particular what might be the consequences for developing country debt?

This report is intended as a wake-up call to anyone who thinks the developing world debt crisis has been resolved. In fact, it assesses fears of a new debt crisis, as serious as that Jubilee Debt Campaign was set up to combat, spreading to nearly 40 countries. 38 of the 43 countries that the World Bank calculates are most vulnerable to the economic crisis already required substantial debt cancellation before the current crisis, in order to meet the needs of their people. As their situation considerably worsens, many more countries could join them.

This should not come as a surprise. Debt relief to date has not only cancelled too little debt for too few countries, but has made very little attempt to implement the sort of structural reform which would end the rule of global finance. In fact, the same reckless and irresponsible lending which created the developing world debt crisis in the 1980s, is also behind the current financial crisis that the whole world is now experiencing.

In particular:

• Zambia, which has already received debt cancellation once, could soon face a debt-to-export ratio of 300% – double that deemed sustainable by the World Bank and IMF – because of the slump in copper prices;
• The Philippines has $8 billion of short-term debt which will come to maturity in the next year. But the country is already suffering from a credit squeeze, which could make re-financing this debt impossible;
• Bangladesh, which depends heavily on exporting garments to Europe and North America, will suffer a major fall in demand which could lead to a debt-to-export ratio of almost 170% – again unsustainable even by the World Bank’s own narrow criteria.

The IMF and World Bank, which are being called on to help solve the crisis through greater lending, have themselves often been central to the problem of debt, the increased dependence of Southern countries on export industries, and the liberalisation of finance which has increased countries’ vulnerability to international financial flows. As such, it is impossible to see, without really radical reform, how these institutions can play a constructive role in bringing the crisis to a sustainable and just solution.

We believe the solution lies in far-reaching reforms of the global economy which would ensure more responsible, sustainable and just lending whilst also reducing the dependence of developing countries on international capital, namely:

• Wider, deeper debt cancellation, amounting to at least $400 billion – a fraction of the bail-outs and stimulus packages recently proposed in the West;
• Radical reform of the World Bank and International Monetary Fund including removal of economic policy conditions from lending and debt relief, allowing countries to make their own policy choices, and full democratisation;
• Internationally agreed responsible lending standards which would bind governments, multilateral institutions and private lenders;
• A Debt Tribunal to ensure a fair and open work-out process for debts at a global level;
• Efforts to assist developing countries in raising more domestic finance, for example by tackling illicit capital flight, so they are less dependent on the debt cycle in the long-term.