An assessment of debt-for-education swaps. Case studies on swap initiatives between Germany and Indonesia and between Spain and El Salvador

In the light of worldwide commitments to meet global basic learning needs made at the 1990 United Nations Conference on Education for All (EFA) in Jomtien, the 2000 World Education Forum in Dakar and the 2000 United Nations Millennium Summit in New York, UNESCO has established a Working Group on Debt Swaps for Education which has met on two occasions so far, in 2006 and 2007. Drawing on experiences of bilateral donors such as Spain and Germany, this UNESCO Working Group is now promoting debt-for-education swaps, constructions whereby external debt is cancelled by the creditor in exchange for the debtor government’s commitment to mobilise domestic resources for education sector spending. The experience with debt swaps in the mid 1990s was, however, far from positive, and recent improved insight in the economics of debt relief suggests extreme caution. In reviewing debt-for-education swaps between Germany and Indonesia and between Spain and El Salvador, this paper examines to what extent these second-generation debt swaps differ from their contested predecessors. We argue that, while the Paris Declaration’s principles of policy and system alignment appear to have been fairly well implemented on education sector level in both case studies considered, it is mainly the macro-economic nature of such swaps that remains problematic. For debt relief to hold at least some promise of translating into an efficient and effective instrument of development, it should be large and comprehensive, as in the case of the HIPC Initiative and its successor the MDRI.