G7 debt deal - more cash, but strings still attached

Last month, world leaders meeting at the G7 Summit in Koln, Germany, agreed on a debt package that only a few years ago would have been unthinkable. But, despite promising wider, faster and deeper debt relief, the Koln debt deal contained one glaring fault. As long as relief is tied to harmful IMF structural adjustment programmes, debt relief is in danger of making poor people poorer, warns Bethan Brookes of the World Development Movement.

AS 40,000 noisy campaigners from all corners of the world gathered in Koln for a mass human chain demonstration in support of debt relief, reports coming out of the Summit meeting on exactly what had been agreed were confusing. In an apparent attempt to placate the crowds, the figures on the amounts of debt relief agreed were heavily massaged - a shame because the real figures weren't actually that bad. While they could obviously always be better, the G7 leaders demonstrated a more realistic understanding of the magnitude of poor countries' debt, recognising that they had underestimated the amount of money needed for debt relief - and doubling the figure on offer.

But while the Koln Communique offered a step forward in providing more resources for poverty reduction, the G7 agreement contains one tragic flaw which threatens to undermine the provision of any new resources, effectively booby-trapping debt relief. Despite paying lip service to the need to address the link between debt relief and poverty reduction, the final Communique remains steadfast in tying debt relief to the implementation of economic reform programmes designed by the IMF's Enhanced Structural Adjustment Facility (ESAF). Evidence has repeatedly shown that all too often the real effect of structural adjustment programmes is to push the poorest members of society ever deeper into poverty, with a devastating impact on their lives.

Designed to restructure and stabilise debtor country economies, the central aims of structural adjustment programmes (SAPs) are to enable countries to repay their debts through the generation of hard currency, and a sustained increase in economic growth. In an extension of the prevailing market-led model, the policy packages favour trade liberalisation, cuts in government expenditure, privatisation and deregulation.

But respected commentators from both North and South are attesting to the damage caused by the imposition of such an assault course of structural reforms.

Already stretched poor families are finding themselves increasingly margi-nalised as they struggle to balance household expenditure. The loss of jobs as a result of massive retrenchment drives and the privatisation of state industries has often decimated household incomes, at the very same time as prices have spiralled due to the removal of government price controls on basic goods. Cuts in government spending have brought 'user fees' for social services, often putting health care and education beyond the reach of many poor people.

The first country to receive debt relief under the Heavily Indebted Poor Countries (HIPC) initiative, Uganda is often hailed as an IMF success story. But Judy Kamanyi of Action for Development in Uganda says that for many of her country's poorest people, Uganda's structural adjustment programme has brought untold misery. 'For many poor people, the conditions of IMF structural adjustment programmes are hurting, not working. If world leaders are serious about poverty reduction, they should stop tying debt relief to harmful polices. SAPs must be reformed,' she says.

Not only are SAPs evidently making life worse for many of the world's poorest people, but they are also undermining the capacity of Southern governments to set their own priorities.

'Third World governments trying to reduce poverty have had their efforts undermined by the IMF,' says Charles Abugre of Third World Network.

The imposition of inflexible, 'blue-print' reform programmes and the failure of the IMF to take into account specific national, political, social and economic restraints have repeatedly resulted in the adoption of inappropriate and unrealistically ambitious targets, weakening the government's ability to set its own development strategies.

An external evaluation of the IMF ESAF programme undertaken in1998 was highly critical of the lack of government ownership of adjustment programmes. It concluded: 'Many finance ministers and senior officials with long experience of Fund negotiations complained of what they perceived as 'imposition', and the absence of choice in the way the Fund programmes are negotiated.'

Not only are SAPs failing the poor and undermining democracy, but in many cases they are also missing the IMF's own measure of success - economic growth. An internal review of the IMF by its own staff showed that the average rate of growth for ESAF countries was zero per cent, compared to a non-ESAF country growth rate of 1%.

Progress on agreeing wider, faster and deeper debt relief

The G7's stubborn insistence on tying debt relief to IMF structural adjustment programmes in the Kon debt deal undermines the Summit's offer of new money for relief.

Figures coming out at the conference on the actual amount of money on offer were confusing, and claims that $100bn of the poorest countries' debts would be written off were misleading. Less than half of this is new money. The rest includes over $50bn which debtor countries were already due to get - about $22.5bn through the main debt relief initiative currently on the table, the HIPC, and $30bn through the old 'Naples terms' agreement, which deals with bilateral, country-to-country debt.

The new money that was agreed by the G7 amounted to an extra $25bn for the HIPC initiative, effectively doubling the amount of debt relief available under HIPC to $50bn in total. In addition, the G7 also called on all creditors to cancel overseas development assistance debts (loans made at such a low rate of interest that they are effectively counted as aid), which it is estimated would provide an extra $20bn for debt relief for the poorest countries.

As well as offering some increase in resources available, the G7 also made a commitment to wider and faster debt relief. Changes in the eligibility criteria will mean that more countries - about 36 (increased from 29) - will now get debt relief. The proportion of both export earnings and government revenue that it is deemed countries can afford to pay in debt servicing has now been lowered.

The Koln debt initiative also made a commitment to ensuring that eligible countries receive faster relief. Currently, countries are not eligible for debt relief until they have implemented six years of IMF ESAF programmes. In an effort to speed up the process, the Koln debt initiative suggested that countries should now start to get debt relief after three years of structural adjustment as opposed to six. However, full relief will only be given after the country complies with further IMF conditions, however long that takes. The bottom line is still very firmly: no structural adjustment programme, no debt relief.

In offering wider, deeper and faster debt relief, the G7 Communique offers a fairly good start. More money will now be made available to more countries, faster. But it is just that, a start.

The role of the G7 Communique is to offer a statement of political will - not of commitment. The leaders have proposed that more 'concrete proposals' are to be drawn up between now and the World Bank and IMF annual meetings in Washington this September. Crucially, the Koln Communique does not make clear how this scheme will be paid for, merely stating that 'we stand ready to help with financing solutions'. Detailed commitments are likely to be discussed at the IMF/World Bank annual meetings. Equally crucially, despite their encouraging words on reducing poverty, the G7 leaders remain seemingly intransigent on their adherence to linking debt relief to damaging IMF adjustment programmes.

Cutting the strings

Debt relief is not an end in itself. It is rather a means to poverty reduction. While any increase in resources for debt relief made available as a result of the G7 Summit will be welcome, injections of new cash are only part of the solution.

Opa Kapijimpanga of the African Network on Debt and Development warns: 'HIPC countries are by definition the poorest in the world. There is a perverse and cruel irony in any debt relief scheme that depends on governments implementing policies that push their people even deeper into poverty.'

Structural adjustment programmes are failing the world's poor: they are in danger of ensuring that debt relief fails the world's poor too. If the G7 leaders are really serious about poverty reduction, they must stop using debt relief as a sugar lump to force countries to swallow poisonous IMF reform packages. (Third World Resurgence No. 107, July 1999)

The World Development Movement is a London-based lobby and campaigning organisation which undertakes research and advocacy on policies to support the world's poor. Its 'Stop Sapping the Poor' campaign calls for a fundamental reform of the IMF's Enhanced Structural Adjustment Facility. WDM is part of the Jubilee 2000 coalition.

For more information on WDM's campaigning work, please contact campaigns@wdm.org.uk, call +44 171 274 7630 or visit the website on www.wdm.org.uk