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G-7 debt plans disappoint

by Abid Aslam


Washington, Jun 18 -- Leaders of the 'Group of  Seven' (G-7) industrial powers have yet to finalise plans to ease the burdens of their poorest debtors - which has cast a shadow over their Summit with Russia this weekend.

The G-7 and Russian leaders will be meeting in Cologne, Germany, and while Kosovo is expected to dominate the agenda, they are due to approve plans to bolster the much-vaunted 'Heavily Indebted Poor Country' (HIPC) debt initiative.

The scheme, set up in 1996, has been the first to bring together government, commercial, and multilateral lenders such as the International Monetary Fund (IMF) and World Bank.

But three years later, only Uganda, Bolivia and Guyana have been approved from a list of 42 potential beneficiaries. Guyana has yet to receive any relief.

Uganda's benefits have been wiped out by a drop in world prices for coffee, its chief export. Officials and observers alike have said this highlights a basic problem with the debt plan: the amount of relief provided was trimmed because creditors had unrealistic expectations of what the East African country could earn from its exports.

Even the World Bank and IMF have acknowledged that the initiative "may not be significantly reducing debt service from the current levels paid" and could actually increase Burkina Faso's and Mali's repayments.

In Cologne, officials expect "agreement on a programme that will provide much greater relief, more quickly, to a broader range of  the poorest developing countries," says Timothy Geithner, U.S. Treasury Undersecretary for international affairs.

This follows years of wrangling over how to share the costs of  relief. The United States continues to joust with France and  Japan over how much they should chip in.

"It's a cruel joke for the world's wealthy governments to protest that they can't afford to cancel the debts," says Jeffrey Sachs, Director of the Centre for International Development at Harvard University.

Since the initiative was launched, "the stock market wealth of  the rich countries has grown by more than five trillion dollars, more than 50 times the debt owed by the 42 poor countries," notes Sachs, a former 'shock therapy' economic reformist. He now advises Jubilee 2000, the International debt-relief coalition.

Total HIPC debt comes to about $216 billion but much of it has been unpayable for years.

Consequently, "we are really talking about little more than $100 billion that needs to be cancelled, along with the unpayable part," says Mark Weisbrot, research director at the Washington-based Preamble Centre.

"When their big banker friends were in trouble in the Asian financial crisis, it took only a few months for the G-7 leaders to come up with this kind of money."

So why the fuss over a seemingly small sum?

"As the abolitionist Frederick Douglass put it a century and a half ago, 'power concedes nothing without a demand'," says Weisbrot.

"Through their control over the debt, the creditor countries and their international financial institutions are able to determine the economic and often the political destiny of more than a billion people," argues Weisbrot.

"That is why HIPC's crumbs are only dispensed after the IMF has certified that the subject country has gone through six years of structural adjustment."

Full details of the latest G-7 proposals remains secret but the plan outlined by finance ministers last weekend appears to double the amount of debt that wealthy creditors are willing to write off.

Officials say they would also decide more quickly whether a country has taken the IMF's prescriptions for economic restructuring long enough to qualify for relief - although there is no guarantee that actual benefits will be delivered any sooner than the current six years.

Despite the apparent generosity, "these proposals do not go beyond that which is already not being paid. The G-7 are still offering debt relief which is cost-free, because the debt would never be paid anyway," according to Jubilee 2000.

"Such cost-free (debt) cancellation is also benefit-free," the non-governmental coalition says. That is because the goal of the initiative remains 'debt sustainability' and this "will continue to be defined as the level of debt service that the poorest countries can be forced to pay."

Worse, the initiative could be leading borrowers deeper into debt, according to the Washington-based Development Group for Alternative Policies (DGAP). An analysis of official data for 71 developing economies in 1980-95 shows that two-thirds saw their debt levels increase under structural adjustment programmes.

"It's not a strong enough correlation to be predictive, and factors such as trade and access to private capital clearly play a role," DGAP Executive Director Doug Hellinger acknowledges.

"But the connection is strong enough to indicate that through the continued imposition of adjustment, they are creating conditions that could push these countries further into debt."

Debt-relief campaigners also are troubled that the G-7, under pressure from Jubilee 2000 and others, has put forward plans to finance debt relief by selling about 10% of the IMF's gold reserves.

This is because proceeds from the sale would be invested and about two-thirds of the resulting interest churned into the Enhanced Structural Adjustment Facility (ESAF). The IMF uses its soft-loan window to finance economic restructuring in the poorest countries.

"Their good intentions will be cancelled out by the damage wrought by structural adjustment if the money goes to ESAF," according to the U.S. 'Fifty years is enough' network.

The IMF counters that its economic prescriptions, however painful in the short run, will enable governments to make better use of  their debt relief over the long haul. (IPS)

The above article by the Inter Press Service appeared in the South-North Development Monitor (SUNS).

 


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