G-7 Take One Step, But Still Long Road to Debt Relief for World's Poorest

Jim Lobe

(OneWorld Washington D.C., Feb 7, 2005) Anti-debt activists Sunday welcomed the decision by the Group of Seven (G-7) wealthiest nations to provide as much as 100 percent multilateral debt relief to the world's poorest countries but warned that that much more work had to be done before that decision can be transformed into reality.
 

Among other things, the G-7 finance ministers--who met this weekend in London--could not agree precisely on how the relief will be granted or what conditions poor countries will have to meet in order to qualify.

"G-7 finance ministers have passed the first hurdle of 2005, but they need to move quickly to turn their proposals into real change for the world's poorest," said Max Lawson, senior policy advisor for Oxfam. "Two million children will die needlessly between now and the next meeting in April. If rich countries are going to keep their promises to tackle obscene poverty, they need to deliver - and deliver quickly."
 

In addition, the United States announced that it would not take part in the creation of an International Finance Facility (IFF), a "Marshall Plan"--proposed by Britain and backed by other members of the European Union (EU)--designed to double development assistance to some US$100 billion a year to sharply reduce the incidence of absolute poverty in the world's poorest nations.

"This particular mechanism does not work for the United States," said John Taylor, the Treasury undersecretary for international affairs, who represented his boss, Treasury Secretary John Snow, at the two-day meeting.

At the same time, Taylor reiterated U.S. support for total cancellation of the debt of the poorest, primarily by converting World Bank loans to grants, and possibly selling off some of the gold reserves held by the International Monetary Fund (IMF) in order to avoid appropriating new money from Congress and thus adding to Washington's yawning budget deficit. Britain and the EU countries favor a different approach.

At stake are tens of billions of dollars in debt owed by the world's poorest countries, most of them in Africa, to international financial institutions (IFIs), particularly the World Bank and the IMF. Most people in these countries live in abject poverty, often earning on a per capita basis less than US$1 a day.

In 1996, the G-7--which dominates the policy-making boards of the IFIs--launched the Heavily Indebted Poor Countries (HIPC) initiative that was designed to reduce the debt of some 41 eligible countries to more manageable levels. In exchange, the countries had to implement far-reaching reforms to make their economies more attractive to foreign investment.

So far, 27 countries--that together owed the IFIs a combined sum of $100 billion--have had their debt cut by some $30 billion resulting in about 50 percent reduction of their annual debt service payments.

While that represents substantial savings, most HIPC beneficiaries continue to pay more in debt service each year than they spend on health and education, a situation anti-debt campaigners argue is morally indefensible. In most cases, the original debt was incurred by western-backed dictators who misspent or, in some cases, embezzled the money.

"Just as the U.S. led the call for cancellation of Iraq's odious debts," Africa Action director Salih Booker said last week, "it is past time for the U.S. and other G-7 governments to recognize the odious and illegitimate nature of African countries' debts and to cancel them outright."

The London meeting, which was devoted almost entirely to the question of debt relief and enhanced aid for development, came five months before the next G-7 Summit which is scheduled to take place in Gleneagles, Scotland. The host, British Prime Minister Tony Blair, has made debt relief a top priority of his G-7 chairmanship. Most analysts believe the finance ministers assume that some agreement on both debt and enhanced aid will be announced at that summit.

In that respect, the weekend meeting, which will be followed in April by the annual spring meetings of the Bank and the IMF in Washington, marked an advance because all of the G-7 finance ministers--whose combined voting power on the two agencies' boards is decisive--agreed that they would consider providing "as much as 100 percent multilateral debt relief ... on a case-by-case analysis of HIPC."

The British Chancellor of the Exchequer, Gordon Brown, noted that this is the first time as much as 100 percent debt relief has ever been mentioned in a G-7 communiqué. "It is the rich countries hearing the voices of the poor," he said.

Brown, who brought former South African President Nelson Mandela to personally lobby the G-7 ministers, is the author of the IFF proposal, which he has described as a "Marshall Plan" to lift hundreds of millions out of poverty over the next decade.

But, while all G-7 members--which include Germany, France, Italy, Canada, and Japan, as well as the U.S. and Britain--have now agreed to 100 percent debt relief as a matter of principle, they are still short of a final agreement on how to achieve it, noted debt activists who remain cautious about the prospects for an acceptable solution.

"The declaration is short of debt cancellation," Romilly Greenhill from the British group ActionAid, told OneWorld. "We need to hold the G-7 to account on exactly what they mean by case-by-case analysis."

"Though we are encouraged to hear that for the first time the G-7 have officially embraced the call for 100 percent multilateral debt cancellation, we insist that this plan must be actual cancellation - not just debt-service relief, that it apply to all impoverished countries, and that it must come without devastating economic conditions," said Neil Watkins, national coordinator of Jubilee USA Network, a coalition of nearly three dozen development, relief, and humanitarian groups.

"We will be pressuring our government to see these commitments turned into action in the coming months," he added.

He pointed out that proposals put forward by Britain and Canada would not cancel the debt stock, but only relieve debt service payments for ten years and that macro-economic conditions that have been attached to debt relief in the past have sometimes proven counter-productive.

Jubilee and other groups claim that existing IMF and World Bank resources, if properly mobilized, could make available some $52 billion to cancel the debt without harming their own financial position or creditworthiness.

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