G-7 DEBT RELIEF PLAN OFFER POOR ONLY CRUMBS
| When the Group of Seven leading industrialised nations, the G-7, announced its deal
recently in the German city of Cologne to write off some of the debts of 36 countries
totaling US$70 billion, the finance ministers might have expected something more than the
muted response they got from Jubilee 2000, the world's largest and most vocal campaigner
for debt relief. The plan, proposed by the world's richest countries as the best way to tackle Third World Poverty after enormous pressure from many quarters, has been attacked by the campaigners because they claim it will offer merely "crumbs of comfort" rather than releasing substantial resources for education and health. Further, Jubilee spokespersons say, it will contribute little to meeting international development targets by 2015. The international coalition of NGOs, churches and development agencies says the Cologne package will be worth an average of about US$2.83-a-person per year in each of the heavily indebted poor countries (HIPCs) - enough to buy five loaves of bread or a bag of rice. "The difference will be marginal. By canceling only the debt which is not being serviced, creditors ensure that the deal is almost cost-free to them and benefit-free to the debtors," Jubilee said in a report published in response to the G-7 initiative. In 1996, the same G-7 announced with great fanfare that it would take action to ease the debt burden for the 42 nations classified as HIPCs who then owed US$227 billion mainly to the World Bank and other multi-lateral lenders. In fact, the list was pared to 29 countries by 1997 of whom, to date, only Bolivia and Uganda, have received any benefits and the plan has even made matters worse, say critics. Most HIPCs are in sub-Saharan Africa where external debt has escalated from US$3 billion in 1962 to US$250 billion, according to the World Bank sources. Uganda, the only African country to qualify so far for the 1996 plan - Mozambique and Tanzania are due to get relief this year - has seen its benefits wiped out by a massive drop in coffee prices. Despite almost slavish adherence to International Monetary Fund (IMF) free market rules, Uganda, three years later, still spends more on repaying old debts than it does on schools and health services combined. Even the most ardent G-7 boosters of the HIPC plan in the US and Britain now acknowledge the first effort has failed and the Cologne agreement, critics say, is just more of the same. For years the US, Germany and Japan have been wrangling over how to share the costs of even this flawed attempt to alleviate poverty. "It's a cruel joke for the world's wealthy countries to protest that they can't afford to cancel the debts," says Jeffrey Sachs, director of the Center for International Development at Harvard University. "Since the HIPC initiative was launched, the stock market wealth of the rich countries has grown by more than US$5 trillion, more than 50 times the debt owed by the 42 poorest countries." There is no doubt of the scale of the problem. Britain's Gordon Brown, chancellor of the exchequer, told an audience in London's St. Paul's Cathedral that international debt "is the greatest single cause of poverty and injustice in the world today and potentially one of the greatest threats to peace." For nearly all the people in the 42 HIPCs life is cruel and miserable. Four million children under five will die this year of preventable diseases - lack of clean water and sanitation - and about 50 million children of primary school age are not in school , two-thirds of them girls. Chief Emeka Anyaoka, the Commonwealth secretary-general, voiced his concerns at the Cologne summit's foot-dragging. "In my travels I notice a sense of desperation on the part of a number of the highly indebted countries about the lack of tangible progress in easing their debt burdens," he wrote to Gerhard Schroeder, the German chancellor who hosted the G-7. He proposed more radical action, along the lines of Jubilee 2000. "The proposals that have emerged so far do not go far enough," he wrote. "For the very poor countries, the only viable answer is a complete and immediate write-off." The coalition's response to the G-7 proposals, made during the height of the Kosovo crisis and therefore ignored by most of the world's media, are that Cologne did not deliver any new resources for the poor. "The increased sums and numbers of nations will still write off only that which is not being paid anyway," a press release from Jubilee 2000 stated. "Secondly, debt sustainability remains almost entirely based on a country's export earnings. It should be based on real government budgets - looking at how much is spent on debt service compared with what is spent on health and education." Jubilee 2000's debt cancellation programme has created more world-wide support than anything else since the anti-apartheid movement campaigned against white rule in South Africa. Pope John Paul II supports it, so do many international figures including entertainers, sports superstars and non-government leaders. It also advocates that the world's poorest countries, such as Mozambique, Malawi and Tanzania in the Southern African Development Community (SADC), should have the right to spend what is needed to meet the internationally-approved target of cutting by half the number of people living in absolute poverty by 2015, before they pay any debt service. Jubilee 2000 challenged the Cologne meeting to make radical changes in the World Bank and called for an end to "the IMF stranglehold" on the poorest nations. The roots of the crisis lie in the 1970s when western banks, awash in petro-dollars, encouraged poor countries to borrow money they did not need, rich countries for giving loans instead of grants, as well as the rise in interest rates at the end of the 1970s and falling commodity prices. Supporters want to see an independent debt review body which would involve representatives of both debtor and creditor countries. It would hold public hearings to assess the proportion of debt which should be canceled, based on "human development" criteria. Critics of debt cancellation argue that there has not been enough blame attached to African governments and their policy failures. Nor are the critics, mainly northern governments, satisfied that without much tougher conditions, such as those set by the IMF, that debt relief would be wisely spent. Confrontation looms following Cologne between governments and NGOs with the former saying the campaign is too adversarial and not tough enough on the beneficiaries of debt relief while the latter accuses the G-7 finance ministers of promising the beginning of the end of the debt crisis without any integrity. "Having promised more than they ever intended to deliver, they are desperately trying to deflect public criticism through a barrage of financial data. They are involved in a grubby dispute over financing which threatens to wreck any hope of genuine progress towards debt relief," says Oxfam, the international aid agency which is a member of Jubilee 2000. If ever there was a popular candidate for international debt relief it is Mozambique. It has gone from a one-party state gripped by civil war to a stable multi-party democracy in less than a decade. It has stuck stoically to economic reform and the monetary discipline laid down by the IMF. And, for these efforts it qualifies for the 1996 debt relief plan for the HIPCs which will save it precisely US$10 million-a-year out of an annual debt service burden estimated at US$120 million. To service the remainder will still cost Mozambique twice what it is able to spend on health care. The new scheme approved in Cologne will be marginally better for countries such as Mozambique by reducing the debt-to-export ratios of all HIPCs to 150 percent from 200 percent. The amount of relief available will also be increased by calculating the entitlement to help earlier. Agreement was reached to reduce the debt-to-government revenue target from 280 percent to 250 percent. Although it does not affect Mozambique, the G-7 decided that eligibility for receiving full debt service relief would be reduced from six years to three years if policies are accepted but they would still have to wait the full six years for debt stocks to be cut to target levels. Some G-7 members, especially Britain and Canada, want multi-national corporations to contribute to alleviating the debt burdens so that countries can benefit more quickly. This would require cooperation, not only from governments, but also rich individuals and companies. One further negative implication from G-7 for some SADC countries was to use the sale of IMF gold to finance debt relief. The IMF holds some US$27 billion in gold bullion of which it would sell and reinvest up to 10 percent for the relief. For countries like South Africa and Zimbabwe with large gold mines, coming on top of the Britain's recent decision to sell more than half its reserves, could push the world price of gold below US$250-an-ounce. (SARDC). |
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