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C

HRISTIAN

E

THICS

AND

THE

F

ORGIVENESS

OF

T

HIRD

W

ORLD

D

EBT

:

A S

YMPOSIUM

STEPHEN L. S. SMITH, CHRISTOPHER B. BARRETT,

DANIEL RUSH FINN, ROLAND HOKSBERGEN

Faith & Economics— Number 35—Spring 2000—Pages 8–19.

Introduction

P. J. Hill, Wheaton College (IL) and ACE President

t the annual meeting of the ASSA in Boston, January

7, 2000, the Association of Christian Economists

sponsored a panel entitled Christian Ethics and the

Forgiveness of Third World Debt. Christopher Barrett

(Cornell University), Daniel Finn (St. John’s Univer-

sity-Minnesota), Roland Hoksbergen (Calvin College), and

Stephen L.S. Smith (Gordon College) were the panel mem-

bers, and they each gave a formal presentation summarizing

their perspective on the intersection of a Christian world-

view and the forgiveness of third world debt. A lively

discussion ensued among the panel members and between

the panel and the audience. I chaired the session and I found

both the presentations and the discussion informative and

felt it would be useful for the readers of Faith & Economics

to have access to the ideas presented there. Therefore I

suggested that we use the comments of Stephen Smith as a

basis for an ongoing dialogue on the issue and then have the

other panel participants write short comments on Smith’s

paper. The following represents that effort: Smith’s paper

followed by responses by the other panel members.

Christian Ethics and the Forgiveness of

Third World Debt

Stephen L. S. Smith, Gordon College (MA)

Our convener P. J. Hill has asked us to do something

rather difficult this morning. Thinking about Christian

ethics and debt forgiveness is difficult because in the

popular mind—certainly among lay Christians who have

stayed abreast of the Jubilee 2000 proposals—the debate is

essentially over. Debt forgiveness is a Good Thing. After

all, one of the world’s most prominent economists, Jeffrey

Sachs, has endorsed it. And the world’s most prominent

Christian thinker, the Pope, has also endorsed it. What’s left

to say.

Our topic also is challenging because it would be rela-

tively straightforward for any of us on this panel to rehearse

for you our views on the economics of debt forgiveness.

Relating Christian ethics and norms to this question is much

more difficult, especially for economists, who tend not to be

well trained in social ethics (well, I’ll speak for myself at

least). There are vexing issues here. Are Old Testament

(OT) law and New Testament (NT) ethics applicable to

contemporary societies which are neither Christian nor

theocracies. What’s the status of the nation before God as

opposed to God’s claims on individuals’ behavior.

Nevertheless we’ll plunge ahead. In my view the Bible

does provide a useful set of norms to govern thinking about

economic policy matters. The work of Oxford’s Donald

Hay and, closer to home, of John Mason and Kurt Schaefer

(whose 1990 article in CSR deserves to be more widely read

by Christian economists), among many others, provide

compelling expositions of this view. These authors don’t

recommend that the US establish Christianity as the official

religion, nor that OT law be applied literally—there’s no

danger of Muslim-style sharia here—but they do argue that

Scripture reveals basic norms against which all economies

and policies can be measured. They also argue that the

social and natural sciences provide insight about creation,

on the basis of natural revelation, and therefore have a vital

role to play in informing Christian thinking. Mason and

Schaefer, in particular, argue that the “foundations of

Scripture’s social, political and economic ethics all are laid

in the Pentateuch, and are intended to inform all peoples”

(Gen. 18:18). “The Mosaic law-code” is “the foundation for

normative Biblical insight” from which moral principles

are to be induced and held up as “light before the nations,”

though the application “should be in paradigm rather than

literal.”

What might these Biblical norms be. Justice, righteous-

A

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Smith, Barrett, Finn, Hoksbergen

ness and stewardship in all relationships and behavior are,

at bottom, the traditional Christian answers. To go from

these bedrock Biblical norms to specific policy recommen-

dations requires some kind of intermediate set of norms,

about which there is a surprising amount of agreement

among Christian scholars. (Mason and Schaefer call these

“subsidiary norms” (p. 54); Hay calls them “derivative

social principles.”) Focusing only on those intermediate

norms which seem to have the most relevance for debt

forgiveness, I would highlight the following:

1. Concern for the poor. A just and righteous society

should display “a special concern for those who are

in need because of circumstances beyond their

control,” including at least “a level of assistance

sufficient for need” (Mason & Schaefer);

2. Concern for wealth creation. A just and righteous

society should display ample opportunity for the

application of individual talents in settings which

encourage stewardship and investment for long-

term prosperity, and which honor and reward work

(Mason & Schaefer; see also Schneider);

3. Concern for the sanctity of covenants, honoring

contracts, and not bearing false witness in any con-

text (Mason & Schaefer; see also Grinols).

As proponents of debt forgiveness have used the Bibli-

cal concept of jubilee as a crucial element of their argu-

ments, what the Bible says about forgiveness and jubilee is

also directly relevant to the debate. What’s striking about

the Biblical concept of forgiveness is that it is never under-

stood unconditionally. God’s love is unconditional, and

individuals are exhorted to love one another in that manner

as well. But forgiveness is always linked to repentance and

the restoration of right relationships between the parties

involved. As one source puts it, forgiveness requires “ . . .

the repentant response which receives love, reappropriates

relationship, and experiences restoration” (Atkinson &

Field). Likewise the jubilee concept—the release of slaves

from debt—has at its core the concept of restoration of right

relationships—among families, and between families and

the land—rather than redistribution for its own sake

(Atkinson & Field). Crucially, the debt remission implicit in

jubilee restores proper relationships among all households,

not just between (formerly) enslaved families and (former)

masters.

With all this said, I turn now to consider debt forgive-

ness. Large scale debt forgiveness is not unprecedented—

the US led the way in 1989 when the Brady Plan orches-

trated the “reduction” (i.e. straight-up forgiveness) of much

Latin American debt. If anything, the debt forgiveness

envisioned today by various plans might be easier to ar-

range. The debt involved is owed to governments, the

World Bank, and the IMF, so the forgiveness they offer

could be directly covered by subsidies from rich country

treasuries. It’s not, as in the Latin case, commercial debt

owed to private banks that needed complicated, expensive

inducements to be willing to write-off their loans.

Two basic plans for debt forgiveness are in play at

present, and it will be helpful in what follows to lay out their

basic features.

First, there’s the official World Bank and IMF Heavily

Indebted Poor Country initiative (HIPC) established in

1996 and revised in 1999. It is limited to the very poorest

countries (those eligible for International Development

Association concessional assistance) and requires three

years of successful implementation of Structural Adjust-

ment Programs (SAPs) and a “proven track record in

implementing strategies focused on reducing poverty”

(World Bank). Debt reduction is phased in: there’s a 67

percent reduction in bilateral debt after year three, and 80

percent after year six, if policy is appropriate and debt is still

officially judged to be “unsustainable.” (The criterion for

unsustainability for most countries is that the net present

value of debt be 150 percent or more of exports; the ratio

may be lower for highly-open economies.) At this time

seven countries have received debt reduction. For these

countries aggregate debt service is now 27 percent less than

actual payments over 1993–98 (World Bank); the reduction

is greater compared to scheduled payments over the same

period.

Second, there are the more radical proposals of the

Jubilee 2000 campaign. The main Jubilee website (in the

UK, where the international collaborative movement origi-

nated), advocates a “one-off cancellation of the unpayable

debts of the world’s poorest countries by the year 2000,

under a fair and transparent process” (Jubilee). It advocates

a wider net of eligible countries—52—than the HIPC’s 41.

There is no mention of conditionality of any kind on this

website, though individual groups that are part of the

Jubilee coalition—especially US groups—have asked for

mechanisms to ensure that the benefits of debt reduction go

to the poor. In the US, the legislation (the “Debt Relief for

Poverty Reduction Act,” passed last October) pushed by

Oxfam-America, Bread for the World, and the Episcopal

Church among many, requires creation of a Human Devel-

opment Trust in each beneficiary, funded with debt reduc-

tion savings, to be supervised by country governments,

NGOs, business sector representatives and other civil soci-

ety institutions. The Trusts’ spending is to be dedicated to

micro-enterprise lending and basic social services. The

literature of the US groups—some of which is well-done

and informative—does not support economic policy condi-

tionality and is highly critical of SAPs of any kind (Hart &

Skipper). The US enabling legislation, however, does ex-

clude countries which “systematically violate human rights,

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support terrorism, or have excessive military spending”

(Hart & Skipper). This kind of exclusion is not mentioned

in the main Jubilee website.

Now, in light of the Biblical principles articulated ear-

lier, what are we to make of the debt forgiveness envisioned

in these competing plans. I make several propositions.

First, it matters a lot for the Christian assessment of debt

forgiveness whether such a policy is necessary and/or

sufficient for improving the economic situation of the poor

in developing economies. If debt relief is necessary for

improving the lives of the desperately poor, then it can

legitimately be viewed as a moral imperative. Western

Christians would be obligated to encourage its adoption (in

the most efficient manner, of course). If it is only a sufficient

condition for reducing poverty we would nevertheless be

obligated to consider it. If, however, debt forgiveness is

neither necessary nor sufficient for poverty reduction, the

situation is much more ambiguous. Debt forgiveness would

need to be evaluated relative to other kinds of assistance to

the poor in terms of its efficiency, its externalities and the

moral hazard it engenders.

And, in point of fact and contrary to the claims of the

Jubilee 2000 campaign, it is not at all clear that debt

forgiveness is necessary and sufficient for improving the lot

of the poor in many or even most of these poorest countries.

It may not be necessary because it may not, in fact, be debt

which prevents poor-country governments from doing the

simple, inexpensive things that would most ameliorate the

lives of their poorest. The chronic shambles of rural Kenyan

elementary schools, for instance, has little to do with paying

off debt and a lot to do with the misplaced priorities of a

corrupt political regime over the past 30 years. Likewise,

Pakistan’s problems with disease have virtually nothing to

do with debt but arise from the government’s complete

unwillingness to spend money on the rural poor rather than

on, say, their atomic bomb program.

The domestic economic policies, government aims and

capabilities, and cultural and religious values of the poorest

countries are, in fact, the linchpins of development. If these

are conducive to growth and poverty reduction, debt for-

giveness will be for many countries a “second-order” con-

cern—the country will do well over the long haul with or

without it. If domestic policies are not wisely-chosen, or if

government is not at root concerned with fighting inequity,

debt relief may not make any difference for the poor.

One way to see this is to consider the surprising fact that

the actual debt in many poor countries is quite small. For the

HIPC countries the average net present value of total

external debt is 125 percent of annual income; on average,

interest payments as a share of exports of goods and services

are only 6 percent, while total debt service payments are

only 15 percent! (1995–1997 data, World Bank 1999). This

is well within what would normally be considered afford-

able limits if an economy is managed well. That debt of this

magnitude is considered intolerable means these economies

are deeply, deeply mismanaged or afflicted with other grave

problems. Thus, unless fundamental reforms are earnestly

pursued, debt relief today sets the stage for . . . requests for

debt relief tomorrow. This is probably not wise.

Neither is debt reduction a sufficient condition for

helping the poor. There’s little reason to trust that many of

the poorest country governments really will pass the fruits

of debt reduction to the poor unless compelled to do so.

(More on this point later.)

This line of reasoning is not an argument against provid-

ing debt relief. But it means that, on balance, the fundamen-

tal Christian normative concern for the poor requires us to

evaluate the details of debt forgiveness very carefully. Debt

forgiveness per se may or may not make sense—it will

depend upon the externalities and moral hazard inherent in

any particular plan, upon the cost and efficiency of other

available policy options, and upon the mechanisms in place

to shift the benefits of debt reduction to the poor.

My second proposition: debt forgiveness is not ruled out

by the OT emphasis on respect for contracts. As business

transactions they don’t have the nature of sacred covenants.

Lending governments (and, by implication, lending na-

tions’ citizens) should bear some of the cost of making

unwise financial decisions. Part of the contract between

debtor and lender involves the lender’s assumption of the

risk that a loan will not be repaid; as Mason and Schaefer

point out, to insist that a loan always be repaid is in effect to

not fully enforce the contract and may shift the cost of the

repayment onto innocent third parties.

Proposition three: if debt forgiveness is to be provided,

significant conditions on it are vital. These are necessary as

part of the repentance which should be intrinsic to forgive-

ness. Here Christian teaching dovetails with standard eco-

nomic analysis, which of course also emphasizes the wis-

dom of putting conditions on debt remission.

Three kinds of conditionality are relevant. First, condi-

tions need to be in place to ensure that the benefits of debt

reduction really do accrue to the poor. Because this point is

not insisted on by many elements of the Jubilee campaign,

its absence gravely undercuts their work, in my view. The

nebulous statement on the main Jubilee website asking for

monitoring of governments to ensure effectiveness, for

What’s striking about the Biblical concept of forgiveness

is that it is never understood unconditionally . . .

forgiveness is always linked to repentance and the

restoration of right relationships between the parties

involved.

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instance, is patently inadequate (though, as noted earlier,

US Jubilee supporters seem to be more alert to this point).

It’s important to emphasize that this is not simply a

question of worrying about the corrupt diversion of funds

within poor country governments. It’s a question at root of

fungibility, the reality that cash-strapped governments use

the extra degree of fiscal freedom provided by official

development assistance—or, in this case, debt relief—to

fund other, perhaps less desirable, kinds of projects instead

of human and social services. Definitive studies on fungi-

bility by Dollar et al. (World Bank 1998) indicate that

fungibility is close to 100 percent on average across all

developing countries. This wouldn’t matter if country gov-

ernment priorities were the same as the priorities of creditor

nations, but that’s precisely the problem: country govern-

ment priorities in many of the HIPC nations have never been

in line with democratic, equity-oriented, and growth-friendly

principles. Sadly, even the Trust mandated in the US legis-

lation is vulnerable to this problem. What’s to enforce that

government social spending doesn’t fall one-for-one with

spending by the Trust. And for that matter, what’s to

enforce that the Trust is even funded, two or three years

hence, by the monies that would otherwise have been used

for debt repayment.

Furthermore, conditionality with respect to overall eco-

nomic policy is equally important. Appropriate policy re-

form is the prerequisite for long-term growth and eradicat-

ing both poverty and the conditions which make debt

unpayable. There is, I think, a definite moral hazard risk

here. Debt remission without stiff policy conditions will

encourage, on the margin, policies in the HIPCs which are

riskier and costlier than optimal. Some countries will be

more willing than before to put off difficult but necessary

domestic policy reforms. If anyone doubts this, simply

consider the virulence with which SAPs have been attacked,

and the half-hearted way in which they have been imple-

mented, if at all, in Africa and Latin America. (In Nicaragua,

even so seemingly sensible an IMF request as that the

government budget deficit be reduced is met with popular

cries that “neoliberalism is death.”) It is probably true that

rapid debt relief would free up some private capital flows to

the HIPCs, at least in the short run. But even here, long-term

access to private capital depends on a stable and inviting

policy environment. So on all counts it makes sense to use

the occasion of debt forgiveness as a lever for policy reform

that would not otherwise be forthcoming.

More subtly, over the long term, debt forgiveness may

make it more expensive for other poor countries to obtain

credit from official lenders like the World Bank, if these

lenders themselves must pay more for funds due to height-

ened uncertainly about HIPC’s willingness to pay. Here,

again, there may be a short-run benefit of forgiveness—new

lending would appear safer because of the elimination of

debt—but over the long haul, the World Bank and the

regional development banks—which borrow most dollars

they lend—may find themselves paying more for funds,

costs which would need to be passed on to developing

country borrowers. These problems are minimized with

heavily conditional debt forgiveness.

It is vital to emphasize that from a Christian point of

view jubilee isn’t simply about restoring relationships be-

tween debtor and creditor but about restoring relationship

across the wider economy as former debtors regain their

positions. As it is arguably policy reform which establishes

right relationships between the poor and their all-too-fre-

quently predatory state, debt remission without policy re-

form is not really a jubilee, but merely a one-time handout.

Thus the World Bank/IMF HIPC initiative, precisely be-

cause it requires a three-year upfront commitment to policy

reform and credible social safety nets, is arguably superior

on Christian ethical grounds to the Jubilee 2000 approach

which embodies no conditions on economic policy. And by

insisting on the three year performance requirement before

any debt reduction is authorized, the HIPC initiative

ameliorates somewhat the chronic problem in ordinary

structural adjustment programs of countries agreeing to

policy reforms without any intention of following through

with them.

A final kind of condition which makes sense is that no

relief be provided African countries presently at war

(peace-keeping duties excepted) or in a civil war. Sudan, in

particular, comes to mind. It is shocking that the main

Jubilee campaign website makes no explicit exception for

providing debt relief to this violent and repressive govern-

ment, or similar ones.

My fourth proposition: Christian understanding of for-

giveness and jubilee require that we in the West remain

concerned for the whole of the economic relationship be-

tween debtor and creditor nations. Thus debt forgiveness

cannot be the extent of US or G-7 policy initiative with

respect to Africa. The particular dangers to watch for here

are aid fatigue and the limited political capital G-7 govern-

ments have to spend on promoting assistance to the poor.

Because the US Congress has had specifically to authorize

forgiveness of bilateral debt—and will need to do so annu-

ally for the next three years to fulfill Clinton’s 1999 promise

to write-off all of Africa’s official debt—there could very

well be a compensating reduction in ODA disbursements.

Christian Ethics and Debt Forgiveness

. . . from a Christian point of view jubilee isn’t simply

about restoring relationships between debtor and

creditor but about restoring relationship across the

wider economy as former debtors regain their positions.

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More broadly, the political debate about debt forgiveness

could crowd out concern for ratifying the now somewhat

stalled initiative to establish free trade between the US and

Africa, which would be a real loss, in my view. Finally,

concern for debt forgiveness should not divert the West

from framing a generous assistance plan to address AIDs in

Africa. Regrettably, it may be over-optimistic to assert that

the US and other G-7 nations are capable of pressing

initiatives on all of these fronts simultaneously.

To sum up: Christian teaching offers no support for

unconditional debt forgiveness. It does, however, offer

support for highly conditioned, prudentially-managed debt

forgiveness, in the context of overall economic policies

geared to promote growth and well-being. The devil is in the

details, so to speak. Economists, including Christian econo-

mists, are left with the important work of sorting out for

church members, citizens and policymakers alike the thorny

particulars of the way ahead.

Acknowledgment

Portions of these comments appeared first in the author’s

article “A Christian Economist Looks at Jubilee 2000” in

the Gordon College newspaper, The Tartan, February 24,

1999.

References

Atkinson, David J. and David H. Field, eds. 1995. New

Dictionary of Christian Ethics and Pastoral Theology.

Leicester, UK: InterVarsity Press.

Grinols, Earl. 1991. “Directions for National Policy on

Foreign Trade: Revisionist Economics and the Applica-

tion of Biblical Principles” in Richard C. Chewning, ed.,

Biblical Principles & Public Policy: The Practice.

Colorado Springs, CO: NavPress.

Hart, Thomas H. and Jere M. Skipper. 1999. “Debt

Burden on Impoverished Countries” Washington, D.C.:

Episcopal Church Office of Government Relations.

Hay, Donald. 1989. Economics Today: A Christian Cri-

tique. Leicester, UK: InterVaristy Press.

Jubilee 2000 Coalition web site <http://www.

jubilee2000uk.org/main.html>

Mason, John D. and Kurt C. Schaefer. 1990. “The Bible,

the State, and the Economy: A Framework for Analysis”

Christian Scholar’s Review. XX:1, pp. 45–64.

Schneider, John. 1994. Godly Materialism. Downer’s

Grove, IL: InterVarsity Press.

World Bank. HIPC web site <http://www. worldbank.org/

hipc/>

_______. 1998. Assessing Aid: What Works, What Doesn’t,

and Why. New York: Oxford University Press.

_______. 1999. Global Development Finance, 1999 Wash-

ington, D.C.: The World Bank.

Debt Forgiveness and Poverty Reduction: Some

Thoughts from a Skeptical Supporter

Christopher B. Barrett, Cornell University (NY)

In the previous article, Stephen Smith offers thoughtful

arguments as to why “Christian teaching offers no support

for unconditional debt forgiveness,” but rather supports

“highly conditioned, prudentially-managed debt forgive-

ness.” In the brief thoughts that follow, I fully endorse

Stephen’s core point, even as I disagree with him on some

details of second-order importance. As appealing as the idea

of debt forgiveness may be to the Christian—indeed to

anyone espousing compassion for the poor—the connec-

tion between debt forgiveness and poverty reduction is

loose at best. As I have argued previously, the case for debt

forgiveness for the world’s poorest countries, particularly

those in sub-Saharan Africa, remains both economically

and ethically ambiguous (Barrett 1999).

Three key principles should inform Christian thinking

on this issue: (1) a preferential option for the poor, (2) the

role of mercy and extraordinary acts of grace, and (3) the

parable of the talents. The Jubilee 2000 coalition that has

spearheaded high-level pressure for radical, concerted debt

forgiveness draws heavily on the second of these, and I

applaud that movement’s courage to call for mercy. My

concern is that the most ardent supporters of radical debt

forgiveness spend insufficient time on the first or last

principles. How do we make sure the benefits of debt

forgiveness accrue disproportionately to the poor. How do

we know who will “bury” debt forgiveness funds, like the

third servant in the parable of the talents, and who will

employ them wisely, like the first servant.

Because of my own familiarity with various African

economies, I will refer particularly to the effects of debt and

the likely effects of debt forgiveness on that extraordinarily

impoverished continent. Perhaps the most essential point to

absorb is that the debt crisis in Sub-Saharan Africa is a

symptom of prolonged economic crisis, not its cause. One

must therefore beware of overselling debt forgiveness as a

stimulus for Africa. And one must use the opportunity of

debt forgiveness to tackle African poverty at its root, in

addressing the structural problems—weak education and

health systems, degraded or nonexistent infrastructure,

especially in rural areas, and underdeveloped financial

networks—that impede technology adoption, economic

growth and poverty reduction. Too many supporters of debt

forgiveness misunderstand it to be the end rather than the

start of an initiative to successfully reduce poverty.

One of the core points made in Barrett (1999) is that the

economic evidence for debt forgiveness for Sub-Saharan

African sovereign debtors is quite inconclusive. Paul

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Smith, Barrett, Finn, Hoksbergen

Krugman’s celebrated “debt overhang” hypothesis

(Krugman 1988) finds no empirical support in Africa,

unlike in Latin America. Some rather crude regression

results using 1983–92 data, the most current available when

the analysis was originally done in 1995–6, found that in

African economies external debt did not seem to serve as a

tax on either investment or growth. So the empirical evi-

dence offers little reason to believe that a reduction in either

debt stock or servicing will provide significant growth or

investment stimulus in these low-income nations. Rather,

African debt appears primarily to tax current account re-

ceipts. As overseas development assistance funds flow in,

debt servicing increases, reducing the gross transfer by

about 20 percent on average. So the real macroeconomic

problem of external debt in Sub-Saharan Africa would seem

to revolve around relieving balance of payments constraints.

Will debt forgiveness really do that. It depends very

much on the extent to which debt forgiveness—which must

be appropriated by national legislatures and the executive

boards of the multilateral agencies—is “additional” to other

aid flows. If they just substitute for one another, then there’s

no marginal benefit from debt forgiveness. That’s a real risk

today, as real aid flows have fallen by a quarter over the past

decade—and by more than that in Africa—and donors are

increasingly caught in a “relief trap” in which diminishing

aid flows are increasingly tied to relief efforts in “complex

humanitarian emergencies.” This relief trap crowds out

efforts in agriculture, education, health and nutrition, and

public works to address underlying structural impediments

that create and perpetuate vulnerability (Barrett and Carter

1999b). The pattern of emergency, response and attempted

recovery has produced a vicious cycle in which vulnerabil-

ity begets reactive relief efforts that too often further under-

mine already-fragile market and social institutions, leaving

populations more vulnerable to the next adverse shock than

they were to the first. The pressing need is for reinvigorated

and retargeted development assistance to firm up factor

markets and crowd-in investment in poor communities.

None of the debt forgiveness proposals presently under

serious consideration offers a credible strategy for ap-

proaching that goal. Indeed, with all the hype surrounding

debt forgiveness there is a significant risk that OECD

country legislatures will think remission of bilateral debt

will suffice as their contribution to combating the

widespread, acute poverty that continues to disgrace

modern society.

The best approach to debt forgiveness would be an

indefinite moratorium on debt servicing for countries will-

ing to commit to serious efforts to relieve poverty. This

could involve a sequence of renewable four- year moratoria,

renewal of which would depend on externally verifiable

improvements in social indicators (child mortality, morbid-

ity from infectious diseases like malaria or polio, school

enrollment, especially of girls, access to clean water, etc.),

with a complete write-off after twenty years’ continuous

progress. Countries would agree to a plan involving the

conversion of programmed external debt servicing into

additional local currency appropriations for public services

provision with reasonable prospects for reducing human

suffering and for crowding-in private investment. The

additionality of such funding could be assured by employ-

ing a historical benchmark (e.g., 1995–98 annual average

expenditures as a percent of GDP) not subject to strategic

manipulation by a state intent on circumventing the spirit of

the arrangement. Such an approach would create incentives

for beneficiary states to seek and find effective means to

address the problems of the poor and to pursue this course

for an extended period. It would obviate the problem of the

fungibility of debt remission.

This is where I part company with Stephen Smith, who

calls for using “the occasion of debt forgiveness as a lever

for policy reform,” where “policy reform” appears a euphe-

mism for a particular suite of growth-oriented reforms

advocated by the IMF and World Bank. While economic

growth is a necessary condition for sustained poverty reduc-

tion, it is by no means sufficient, and the growth-oriented

policy reforms of the past decade in Africa have a poor track

record in reducing poverty. Indeed, there is some evidence

from both Africa and Latin America that more heterodox

approaches have been at least as successful as the dictates of

the “Washington Consensus” in assisting more vulnerable

populations (Barrett and Carter 1998). Our commitment

should be less to any particular ideology and its associated

prescriptions than to performance in assisting the poor. So

rather than mandating the particular approach to be taken,

conditionality should instead be associated with achieving

performance targets related to improvements in key social

indicators related to the well-being of the poor, of which per

capita income is but one.

By way of a brief digression, I should note that there is

a direct parallel to lessons learned over the past two decades

in environmental management. Governments once dictated

pollution abatement technologies to firms in an effort to

curb emissions. This offered no incentive to innovate, and

generated significant costs and relatively poor compliance

records. Now, more enlightened regulators instead specify

emissions performance criteria, strictly monitored and en-

forced. The effect has been a wave of corporate environ-

mental management innovations that have generally curbed

While economic growth is a necessary condition for

sustained poverty reduction, it is by no means sufficient,

and the growth-oriented policy reforms of the past

decade in Africa have a poor track record in reducing

poverty.

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compliance costs while reducing pollution. The important

policy lesson is to set standards, monitor, and enforce, but

give the responsible parties the freedom to innovate accord-

ing to the dictates of their local circumstances. The principle

needs to be applied to international efforts to reduce

unnecessary poverty and suffering.

Under the arrangement I propose, countries that failed to

achieve real improvements in social indicators would enjoy

few benefits. The moratorium on these nations would lift

and they would again be responsible for repayment. Effec-

tively, that would mean that states not serious about poverty

reduction would, through renewed net transfers to donors,

underwrite efforts by states that are (or become) committed

to reducing poverty among their citizens. This would create

substantive, dynamic incentives for states to pursue sustain-

able poverty alleviation policies, thereby addressing time

consistency and moral hazard problems that plague many

current proposals.

Any low- or middle-income country should be eligible

for this plan immediately if it can agree to a feasible poverty

reduction strategy and verifiable targets. The only states

that should be (temporarily) excluded are those at war, with

their neighbors or their own citizens. The poor suffer

disproportionately from violence and states at war are

highly likely to divert debt remission proceeds to defense

expenditures. States at war are bad bets for debt forgiveness.

Note that this criterion leads to very different patterns of

forgiveness than presently prevail. For example, Uganda,

the first beneficiary of the IMF/World Bank Heavily

Indebted Poor Countries (HIPC) initiative, would be

ineligible at present if nonviolence were a condition. In

nations at war, assistance should flow only through

neutral charities demonstrably assisting vulnerable sub-

populations.

The problem with many current proposals—including

the legislation that passed the U.S. Congress in 1999—are

that they emphasize only the creation of “human develop-

ment funds” out of debt reduction proceeds, to be spent

ostensibly on poverty reduction. But one must appreciate

the ease with which African (and other governments) can

meet fiscal budgetary or expenditure targets without actu-

ally achieving the true, intended aim of poverty reduction.

As an example, Uganda, again, the first nation to benefit

from 1996 IMF/World Bank HIPC debt reduction initiative,

and a relatively progressive and competent state, routinely

circumvents the cap on its military spending by routing

defense funding through its police force. It would be a

terrible tragedy if debt forgiveness were to fuel further war

in Africa, where more people died in conflict during the last

century than in all the other continents combined. But

nothing in the proposals presently on the table prevents that

possibility.

Another problem, especially with the HIPC initiative

launched to great fanfare in 1996 that has since proved too

slow, too stingy, and too strict, is the reliance on satisfying

IMF conditionalities. Fiscal retrenchment and exchange

rate devaluation remain at the heart of IMF prescriptions for

Africa in its enhanced structural adjustment facility (ESAF)

programs. But the problem in Africa isn’t too much public

spending, it’s insufficient investment, whether private or

public. Where low- and middle-income countries world-

wide average net investment rates of more than 25 percent

of GDP, Africa’s is about 15 percent. Redirection of public

spending, away from pageantry and armies and toward

child vaccination, rural roads, and urban sewer and water

systems, is more appropriate than further rolling back of

states that are having a hard time already in providing basic

support services for the private sector, much less in making

significant progress in improving human welfare. Eco-

nomic growth is indeed necessary to sustained poverty

reduction. But growth is just a means to an end, not the end

in itself. Moreover, African economies are so rife with

structural failures that relatively doctrinaire, neoliberal

prescriptions often work at cross-purposes with one an-

other, sometimes promoting and sometimes retarding growth

(Barrett and Carter 1999a). The IMF’s approach in Africa

has never acknowledged these basic points, imposing con-

siderable short-term hardship on the most vulnerable in the

interest of adhering to a model that sometimes but not

always leads to better macroeconomic performance in struc-

turally weak economies. Debt forgiveness should adhere to

a true preferential option for the poor and not be just another

instrument of inducing macroeconomic reform of the sort

favored in Washington.

In summary, I am a skeptical supporter of debt forgive-

ness. If remission of the external repayment obligations of

low-income states can be structured so as to generate

sustainable increases in investment, particularly in invest-

ments directly targeted at relieving educational, health,

infrastructure and liquidity constraints that disproportion-

ately burden the poor, then the potential for doing good will

be great. But given the efforts currently agreed and under

high-level discussion, expectations for debt forgiveness’

effects should be low.

References

Barrett, Christopher B. 1999. “The Economic and Ethical

Ambiguities of African Debt Forgiveness,” Mark

Charlton, editor. Crosscurrents: International Rela-

tions in the Post-Cold War Era. Toronto: Nelson Canada

Press.

Barrett, Christopher B. and Michael Carter. 1998.

“Does It Take More Than Market Liberalization. The

15

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Christian Ethics and Debt Forgiveness

Economics of Sustainable Agrarian Growth and Trans-

formation,” in Michael R. Carter, Jeffrey Cason and

Frederic Zimmerman, eds., Development at a Cross-

roads: Uncertain Paths to Sustainability After the Neo-

Liberal Revolution. Madison: University of Wisconsin-

Madison Global Studies Research Program.

_______. 1999a. “Microeconomically Coherent Agricul-

tural Policy Reform in Africa,” in JoAnn Paulson, ed.,

African Economies in Transition, Volume 2: The Re-

form Experiences. London: Macmillan.

_______. 1999b.“Can’t Get Ahead For Falling Behind:

New Directions For Development Policy To Escape

Poverty and Relief Traps,” USAID BASIS Policy Brief,

November.

Krugman, Paul. 1988. “Financing versus Forgiving a Debt

Overhang.” Journal of Development Economics. 29, 3,

253–68.

Smith, Stephen L.S. “Christian Ethics and the Forgiveness

of Third World Debt.” Faith & Economics (this issue).

On the Rationale for Third World Debt Relief

Daniel Rush Finn, St. John’s University (MN)

Much fanfare has rightly accompanied the declaration

of the year 2000 as a year of Jubilee. Still, there are a number

of confusions surrounding the Jubilee call for Third World

debt relief that Christians need to resolve.

The most dramatic misunderstanding turns out to be one

of the lesser problems. Many advocates of debt relief

confuse the original Hebraic idea of Jubilee with that of the

sabbatical year. For example, one Jubilee website explains:

The campaign is inspired by the scriptural idea of the

Jubilee Year: periodically, every 7 x 7 years (i.e., 50

years), debts are forgiven and slaves set free, and

“liberty is proclaimed throughout the land”. Jubilee

is a time to apply self-righting mechanisms for

restoring balance to society.

1

In fact, the characteristic element of the Jubilee year was

not debt relief. Debts were to be cancelled every seven

years, during the sabbatical year (Deut 15:9; Neh. 10:31),

when bond slaves were also to be set free (Exod. 21:2). The

Jubilee had a more radical force in that agrarian society: the

return of land to its original owners, overturning of any sales

or other transfers of land over the previous 49 years.

Consecrate the fiftieth year and proclaim liberty

throughout the land to all its inhabitants. It shall be

a jubilee for you; each one of you is to return to his

family property and each to his own clan (Lev.

25:10).

In spite of this prevalent misunderstanding, the underly-

ing spirit of the Jubilee (as “a time to apply self-righting

mechanisms for restoring balance to society”) remains

critical. In our context, the return of land after legal sale is

beyond the reach of economic logic and cultural self-

understanding, but the forgiving of debts of poor countries

in our current context can represent such a restoration of

balance. Although scholars note there is no Biblical

evidence that a Jubilee ever occurred, the meaning of the

occasion can nonetheless be a powerful motive force for

Christians today.

A second confusion is vividly expressed in the talk about

support of Third World debt relief that presumes that any

debtor-creditor relation between developing nations and

industrialized nations is inherently immoral. Many advo-

cates of the Jubilee 2000 campaign excoriate the transfer of

principle and interest payments back to creditor nations.

One often hears the lament that debtors must pay back not

only the principal but also an even greater amount in

aggregate interest payments. There is, of course, an obvious

naďveté concerning discounting—one that many get over

when they sign their first mortgage and note the total value

of mortgage payments over thirty years. More important

here, however, is a critical misunderstanding concerning

borrowing by poor nations.

The ethical problem is that some talk as if Christians

(either personally or through their nation’s policy) ought

not lend money at interest to poorer people or nations

because this is inevitably unjust. As another Jubilee 2000

website puts it,

One of the closest parallels to the debt crisis is the

Atlantic slavetrade. It, too, was a system of interna-

tional oppression accepted for generations as a nor-

mal and necessary part of trade and life.

2

Often cited is the Biblical prohibition against the people

of Israel charging interest on a loan to a fellow Israelite.

Overlooked, however, is the historical fact that loans in the

agrarian world of ancient Israel were almost always loans of

necessity, made by the better-off to the poor who through

misfortune were unable to make it through the winter to the

next harvest. “If you lend money to one of my people among

you who is needy, do not be like a moneylender; charge him

no interest” (Exod. 22:25). In this context, the prohibition

against interest taking was largely a prohibition against

exploiting the desperate.

In the early Church interest taking was also condemned,

for a similar reason. As Augustine of Hippo put it, “Give to

the man and do not turn away from him who seeks a loan.

But take only so much as you have given.”

3

The treatment

of interest taking was closely identified with the more

general teaching on property holdings. God has given

creation to all humanity so that human needs be met. If I

have more than I need and you have less than you need, I,

as a steward of God’s possessions, must share my surplus

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17

with you. Augustine was quite typical of Christian leaders

of his day in asserting that “the superfluous things of the

wealthy are the necessities of the poor. When superfluous

things are possessed, others’ property is possessed.”

4

By the Middle Ages the two issues of lending at interest

and sharing of surplus were distinguished conceptually. For

example, Thomas Aquinas made a strong case for private

property. Yet he stressed that for all goods “use must be in

common,” in the sense understood a thousand years earlier

in the Christian church: that what I have in excess of what

I need must be shared if others have unmet needs—out of

respect for God’s intention in creation. Aquinas’ treatment

of interest taking, however, contains no reference to the

poverty of debtors. Instead it is based on the “sterility” of

money. Money is used up—traded away—in an exchange

(similar to how a bottle of wine is used up when it is used).

Thus to charge interest on a loan of money (or wine) would

be wrong, since charging extra beyond getting back the

things borrowed would be to charge for something that does

not exist. However, lending a house to someone for a period

of time would be different, since the house can be used

without being used up. Thus charging extra (rent) in addi-

tion to receiving the house back after that period is not

wrong. Phrasing this older view with modern words, lend-

ing capital goods can rightfully entail an extra payment

while lending consumption goods must not.

The debates over interest taking in the Middle Ages are

classic for their complexity. Yet the development of com-

mercial culture made the resolution inevitable. John Calvin,

of course, took a view of lending at interest that eventually

(over the next 400 years) won out among the Christian

churches. Lending can be a service to the borrower, who

need not be exploited in the process. Eventually even the

Roman Catholic church altered its view, in effect recogniz-

ing that, in the modern world, money is better understood as

a claim on assets. Like the house, it produces a stream of

services. Thus interest taking, within limits, is fully moral.

Even the word “usury” has changed; where it formerly

meant any taking of interest, it now means the charging of

exorbitant rates of interest. A few Christian groups (such as

the Catholic Worker movement) oppose interest taking

even today, but this is the view of a tiny minority.

Thus it is a serious problem that in talk of Third World

debt relief many Christians speak as if all interest taking

from poorer nations is immoral. It took centuries for Chris-

tians to come to appreciate the economically beneficial role

interest taking can play in the world and it would be a great

loss to forget this now. A more thoughtful Christian re-

sponse understands debt as part of a broader relation be-

tween poor and prosperous nations, where the burdens

associated with past debt may be quite moral. This will

depend on an assessment of the overall relationship—and

this requires economic (and other types of) analysis. I will

not attempt to review the economic issues here, but leave it

to the reader to recognize that nearly all nations (including

the US) have depended upon significant borrowing from

abroad in the early period of their economic development.

Turning, however, to that broader moral relationship

between debtor and creditor nations, I also take for granted

the judgment that wealthier nations, in particular the United

States, continue year by year to offer a niggardly contribu-

tion to assist in the development of poorer countries. It is in

that context that arguments for debt relief have a morally

persuasive power. Strong conditionality is necessary to

prevent the transfer of existing funds away from basic

education and health care budgets when resources become

available through debt relief. But the additional risks of

moral hazard are, on balance, worth taking in light of the

political difficulty we face in expanding other forms of

development assistance from the US government.

In sum, we need to forgive the debt of the poorest

nations, but we must exercise care as to why we do so. Doing

the right thing for the wrong reason may not hurt much

today but will lead to confusion about what truly is the right

thing to do the next time around.

Endnotes

1 http://www.jubilee2000uk.org/main.html

2 http://www.jubilee2000uk.org/main.html

3 Augustine, Sermons, 239.4, Patrologia Latina 38:1128,

and in Phan, (1984) p. 229.

4 Augustine, Commentary on Psalm 147, 12, Patrologia

Latina 37:1922, and in Phan (1984) p. 197.

Reference

Phan, Peter. 1984. Social Thought, Vol. 20 of The Message

of the Fathers of the Church, Wilmington, DE: Michael

Glazier.

“That the Work of God Might be Displayed”: Debt

Forgiveness and Development

Roland Hoksbergen, Calvin College (MI)

In a well-known story from Jesus’ final days on this

earth, Jesus encounters a man born blind. His disciples want

to know who was at fault for the man’s blindness, the man

himself or his parents. But Jesus is not concerned with

blaming anyone. Instead, he answers, “neither this man nor

his parents sinned, but this happened so that the work of God

might be displayed in his life” (John 9:3). Throughout the

biblical drama, God is not interested in explaining broken-

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Smith, Barrett, Finn, Hoksbergen

ness, but in making and working out plans for reconciliation

and redemption. This is the same task to which his followers

are called, and this is how we should approach the crisis of

debt in the Third World. The central question about debt

forgiveness is whether it will actually be a redemptive act.

Put more simply, will it do any good.

Stephen Smith addresses the issue this way by clearly

linking his evaluation of debt forgiveness to “whether such

a policy is necessary and/or sufficient for improving the

economic situation of the poor.” This approach is further

underscored in his discussion of conditionality, which he

strongly favors. I largely agree with Smith’s analysis,

though I think he is a little too quick to reject the ideas of the

Jubilee 2000 campaign and a little too supportive of the

IMF’s standard package of economic policies. If the goal is

promote good development, then good economic policy is

not enough; we must go beyond economic policies per se to

ask how we can encourage debt-ridden countries to enact

good policies of their own accord, without foreign imposi-

tion.

Smith is surely correct that creditor nations should

condition debt forgiveness on whether the benefits of debt

relief be directed toward the poor, and on the establishment

of a track record of reasonable economic policy. To some

extent we have the Jubilee 2000 supporters to thank for

raising this issue internationally and holding the IMF ac-

countable to the world’s poor, because the IMF’s new

concern for the impact of their programs on the poor has

much to do with pressure from civil society organizations

like Jubilee 2000. Still, to focus exclusively on these two

criteria runs the risk of addressing symptoms rather than

root causes, and of missing what is really important in

development. For as long as governments enact policies

imposed from the outside, especially if they instinctively

recoil at such imposition, then those policies will likely not

work very well, nor will they likely be sustainable. The key

issue is local ownership. The debtor nation, meaning not

just those occupying government positions but a significant

majority of the citizens, must own the policies in such a way

that they themselves generate the details of the policies to fit

their own exigencies. Only if this step is taken is there hope

that such policies and practices will be maintained in the

absence of foreign intervention.

This of course is nothing new. Development theorists

and practitioners have known it for years. The question has

always been how to make it happen. What is so different

about the present policy environment is that the Cold War

is over, making it possible to work toward empowerment of

the people, citizen action, civil society promotion, and good

governance without becoming inevitably tangled up in

Cold War rhetoric and conflict. I believe that the recent

emphasis on good governance and civil society provides

some hope that poor nations around the world can make

significant progress in bringing more people into the full-

ness of social, political, and economic life, and, in the

process, develop an internal ownership of policies and

practices that spread the benefits of development to all.

Let me try to express this plainly: as nations grow in their

ability to govern themselves, they will also tend increas-

ingly to develop and implement sound economic policy,

including policies directed to the poor. Essentially, this

means expanding the participation of all peoples and social

sectors into all aspects of governance. In forgiving debt,

conditions must not only address economic policies, but,

more fundamentally, how a nation is governed. This is a

central theme in two recent high profile reports on poverty,

one being the World Bank’s decennial report on poverty,

and the other being the very recently-released UNDP Pov-

erty Report 2000. Both devote major attention to good

governance and the development of civil society.

1

There are important Biblical principles at work here, one

of the most important being discernment. When someone,

or some nation, is in trouble, as nations mired in debt are,

Christians naturally respond out of love, compassion, self-

sacrifice, mercy, and grace. We want to help. But while the

aforementioned principles lead us to a desire to help, they do

not automatically tell us how. Discernment is required. And

Smith is right that the Jubilee 2000 supporters are often too

lax in doing the hard work of developing programs that

actually will help. Good intentions are not enough. We must

also construct interventions that actually carry out a re-

demptive purpose. In constructing a plan, other Biblical

principles come into play, such as human freedom, dignity,

responsibility, stewardship, justice, and accountability to

others in community. It is this set of principles that leads me

to think we should condition debt forgiveness on good

governance and the expansion of civil society more so than

on economic policies.

A few brief examples will help illustrate the point. A few

years ago I was doing a study of structural adjustment

programs in Guatemala. In a personal conversation with the

ex-minister of finance, he pointed out that his government’s

stance with the IMF had been largely one of doing the least

possible to get the loans they desperately needed. More than

that, they often enacted required reforms only to the extent

necessary to appease IMF officials (Hoksbergen and

Espinoza Madrid 1997, p. 41).

A second example comes from recent Rwandan experi-

ence. Peter Uvin (1998) points out that, even just prior to the

Smith is right that the Jubilee 2000 supporters are often

too lax in doing the hard work of developing programs

that actually will help. Good intentions are not enough.

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19

1994 genocide, the World Bank and virtually all the devel-

opment NGOs were writing positive reports about policy

changes and progress in the economic and other develop-

ment indicators they were focussing on. But Uvin argues

that all the policies and organizations were never really

“owned” by either the government or the people at large.

They were imposed from the outside and implemented only

at the margins and to the extent necessary to keep aid and

loans flowing.

Third, development scholars point out that aid and loan

flows to Africa have done much to create and exacerbate the

injustices associated with predatory states, poor gover-

nance, and their consequent poor economic policies (Bratton

and Van De Walle 1994). In this context, the IMF’s harsh

policies are seen by some as a painful but necessary step

to undercut the power of the corrupt leaders of neo-

patrimonial states.

In the first two examples, policies and programs are

“enacted,” but are not really owned. Long term develop-

ment prospects are not favorable. In the third example, it

appears that IMF programs may actually help, but only

because they impact how the country is governed, not

because their economic policies are implemented. In all

three situations, the character of the government and the

organization of the whole society behind the policies are

more important than the policies themselves.

How might debt forgiveness be structured so as to

promote good governance as well as good policy, and at the

same time respect the Biblical principles mentioned above.

A response to this question must necessarily be sketchy in

these brief comments, but I will give a few guidelines.

Debt forgiveness should be linked to the following

criteria:

A track record of achievement in traditional IMF

measures like inflation and budget deficits. Such

criteria should be fewer and more results-oriented

than is the traditional package, to allow govern-

ments discretion and leadership in achieving these

goals.

A track record of achievement in poverty allevia-

tion. This would typically include an expansion of

health and education services oriented toward the

poor. The new UNDP report notes that few nations

currently integrate anti-poverty measures into their

national planning.

Both of these criteria are consistent with a traditional

focus on economic policies. The key difference is that the

burden of policy development shifts toward national lead-

ers, thus respecting their dignity and freedom, but also

holding them accountable for results. The following set of

criteria is directed at the promotion of good governance and

expanded empowerment of all the nation’s people. Each

criterion below is designed both to promote increasing

participation of all citizens and to develop mechanisms for

holding authorities accountable to manage their trust

responsibly.

The promotion, strengthening, and inclusion of civil

society organizations. Not only should government

sponsored programs in such areas as health, educa-

tion, and other forms of development work be under-

taken in concert with civil society organizations,

these organizations also should be encouraged to

hold officials and governing agencies accountable to

reasonable standards of integrity, fairness, and

competence.

Transparency in government affairs. The practice of

so many Third World countries of budgetary secrecy

must be opened up to public scrutiny if government

corruption is to be discovered and minimized.

The development of a functional judicial system that

responds to national understandings of justice, law,

and fairness. Impunity of those in power continues to

be a worldwide problem and undermines many well-

meaning and technically well-designed policies.

Democratic choice in electing governing leaders.

Elections monitored and evaluated by international

and local civil society organizations is one mecha-

nism to ensure progress in this area.

The Jubilee 2000 campaign follows all the right prin-

ciples in terms of our call to help the poor of the world, but,

as Smith points out, its action program falls short. The IMF

program, however, by focussing more on particular policies

and technical fixes, rushes in to apply its knowledge without

adequately accounting for the needs of local empowerment

and ownership.

Development scholars and practitioners know that de-

velopment is a long, step-by-step process that must come

from within if it is to be sustainable. In our efforts to help in

a truly redemptive way, such “that the work of God might

be displayed,” we must structure our interventions so that

all of God’s people are respected and honored as image

bearers, and are thus progressively encouraged to take

responsibility for managing their affairs with justice and

righteousness. Forgiving debts without regard to the conse-

quences is irresponsible, though forgiving debts with

discernment and purpose can be a powerful force for good.

Still, as I have tried to argue, we must do it right.

Endnote

1 A draft of Attacking Poverty: World Development Re-

port 2000 has been placed on the web for purposes of

soliciting commentary. See <www.worldbank.org/pov-

erty/wdrpoverty>. The UNDP report, Overcoming

19

Christian Ethics and Debt Forgiveness

Human Poverty: UNDP Poverty Report 2000 is just out

and a summary of its themes is reported in Crossette

(2000).

References

Bratton, Michael and Nicolas Van De Walle. 1994.

“Neopatrimonial Regimes and Political Transitions in

Africa.” World Politics. 46, pp. 453–89.

Crossette, Barbara. 2000. “U.N. Says Bad Government is

Often the Cause of Poverty.” New York Times. April 5.

Hoksbergen, Roland and Noemi Espinoza Madrid. 1997.

“The Evangelical Church and the Development of

Neoliberal Society: A Study of the Role of the Evangeli-

cal Church and Its NGOs in Guatemala and Honduras.”

The Journal of Developing Areas. 32, pp. 37–52.

Uvin, Peter. 1998. Aiding Violence: The Development

Enterprise in Rwanda. West Hartford, CT: Kumarian

Press.