European NGOs on the so-called debt bubble: self-righteous, half-right

Yesterday, an umbrella group of European non-governmental organizations (NGOs) issued “EU Aid: Genuine Leadership or Misleading Figures?” (pdf), which “blow[s] the whistle on official aid statistics revealing just how misleading they really are.”They argue that the billions of euros in recent debt cancellation for Iraq and Nigeria are not aid:

Iraqi and Nigerian debt is largely export credit debt. It was issued primarily as a means of subsiding European companies operating in developing countries and never had any development purpose. Its cancellation will do little to fight world poverty.

Treating as aid the cancellation of export credits (loans given to foreigners buying domestic goods) so distorts Europe’s 2005 aid figures that “the credibility of Europe is at stake.”They got one thing right: Though the recent debt write-offs for Iraq and Nigeria were historic and necessary (and CGD played a central role in the latter), most of the debt written off never would have been repaid. So cancelling it did not put much more money into treasuries of the Iraqi and Nigerian governments, any more than forgiving the debts of a bankrupt makes him rich. Any cash transfers to Iraq and Nigeria occurred long ago—and much of the debt was just bookkeeping entries for unpaid interest and late fees. But when loans that were originally disbursed for non-aid purposes, such as subsidizing exports, are then written off, the donor-run Development Assistance Committee calls that aid in the year of cancellation.In fact, as DAC deputy director Richard Carey noted, big debt deals for Iraq, Nigeria, and the Democratic Republic of Congo, among others, are creating a “debt bubble” that is temporarily inflating official aid tallies and apparent progress toward the famous but arbitrary goal of each country giving 0.7% of its income in aid. This is why the Net Aid Transfers measure purges such debt cancellation.Passing strange, though, is that during the Jubilee 2000 debt relief campaign, essentially the same European NGOs decried the “chains of debt” that were killing 19,000 African children a day by siphoning funds away from health programs. If debt is so murderous, how can cancellation do so little good that calling it aid is an outrage? It seems the credibility of the NGOs is at stake. I doubted them back in 2000 and think they got it right the second time.My colleague Todd Moss points out that Nigerian debt relief is actually probably not inflating the European aid total of €41 billion for 2005. Just-released U.S. figures for 2005 were inflated by Iraqi debt relief ($3.9 billion), but not by Nigerian, because the Nigerian deal took effect January 20, 2006. So by “correcting” a 2006 problem by reducing the 2005 total, Eurodad is probably understating EU aid in 2005 by €4.7 billion.