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Third of debts owed by poor countries to UK is interest on loans

www.guardian.co.uk

Publishing Date: January 22nd 2012

A third of the debt owed to the UK by some of the world's poorest countries consists of interest on the original loans, a figure that third world debt campaigners have condemned as "ridiculously high".

Around £2.34bn is owed to the UK by 24 nations – including Sudan, Somalia and Zimbabwe – £825m of which is interest, UK Export Finance, which insures British business dealings abroad, has disclosed following a freedom of information request.

The Department for International Development (DfID) came under fire earlier this month from anti-poverty campaigners for admitting that cancelling debt would contribute towards the 0.7% of GDP aid target.

Critics claim that including the cancellation of debts, which the government never anticipated being repaid, in future aid spending is misleading. However, DfID maintains that this definition of aid is consistent with international standards.

Sudan owes the UK £681m – of which £508m is interest – dating back to 1984, when the country defaulted on its payments. Sudan, then under the rule of dictator Gaafar Nimeiry, benefited from deals with UK businesses backed by the government when the country was an ally of the west during the cold war.

Zimbabwe's bill to the UK totals £196m, of which £81m is interest, while Somalia is in the red to the tune of £51m, £35m of which is interest.

Tim Jones, senior policy officer at the Jubilee Debt Campaign, a pressure group calling for an end to third world debt, urged the government to "come clean and audit all the debt claimed by UK Export Finance".

"Any debt cancellation for Sudan is not aid. The debt comes from loans to win business for Britain in the cold war," he said. "Most of the debt is made-up money based on ridiculously high interest rates. The debt should be cancelled because it is unjust and un-payable, not used to meet targets and massage figures."

The Jubilee Debt Campaign estimates that if Sudan enters the international debt relief scheme in the next two years, as is expected, cancellation of its debt by 2014 would account for 7% of the UK's annual aid budget.

Liberal Democrat MP Malcolm Bruce, who is chairman of the international development select committee and supports enshrining the aid budget target into law, says a new bill on overseas aid – currently being pursued by the international development secretary, Andrew Mitchell, can clear up the issue.

"I think it's completely right to highlight this and ask questions and try and get this clarified," said Bruce. "It's all very well, you can write off debt and use it to meet the aid target for a year and you've got a boost but it's difficult to maintain the 0.7%, so you can't do it every year because there isn't enough debt to write off – fortunately.

"So the money still has to be found in the long run and I think that's another issue. In my mind, it's another argument in favour of having legislation so that these kind of issues can both be debated and clarified in law." The international development minister, Stephen O'Brien, denies the department is massaging the aid figures.

"Debt cancellation has always been part of Britain's official development assistance and related aid targets, and is totally consistent with the internationally recognized definition of aid monitored by the Organization for Economic Co-operation and Development," he said in a statement.

"By freeing countries such as Sudan from these outstanding arrears, we are making sure their own resources are released from repayments into productive investment to support much-needed development.

"If critics think it a practical proposition, given Britain's generous and principled stance on international development, to take this funding from another budget – perhaps education or state pensions? – at such a difficult time for hard-pressed families in Britain, then they should have the courage to say where the axe should fall."

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