[stop-imf] Debt forgiveness gathers steam

[robert weissman]

Christian Science Monitor

from the September 30, 2004 edition


Debt forgiveness gathers steam
Wealthy nations will discuss absolving poor countries of loan payments at
Friday's G-7 summit in Washington.

By Abraham McLaughlin | Staff writer of The Christian Science Monitor
JOHANNESBURG, SOUTH AFRICA =ADIt's an idea that's been throbbing in the hea=
rts
and minds of liberal activists, antiglobalization campaigners, and rock sta=
r
Bono for years: Canceling 100 percent of the massive foreign debts owed by
the world's poorest countries, thus freeing them to spend millions on
healthcare, education, and other poverty-busting plans, rather than just on
interest payments for their massive loans.

But it's rarely had much serious political support. Until now. Suddenly bot=
h
the Bush administration and British Prime Minister Tony Blair's government
are behind the idea. And it's on the agenda as G-7 finance ministers meet
Friday in Washington.

The Bush team's interest seems to have grown out of its campaign to cancel
Iraq's $120 billion debt. If oil-rich Iraq deserves to be freed from its
burden, the argument goes, so do the world's poorest nations. Also, backing
a plan to help impoverished millions in a single stroke fits with President
Bush's "compassionate conservative" agenda, and could impress swing voters
in time for the election.

Observers don't expect a final plan to emerge immediately. But there's
widespread agreement that the growing momentum means some form of
unprecedented action is inevitable.

"This is the farthest we've come toward 100 percent debt cancelation," says
Salih Booker, head of Africa Action, a Washington advocacy group involved i=
n
the fight against apartheid in South Africa in the 1980s.

By backing the idea, the US and British governments have changed the terms
and momentum of the debate. For one thing, after long discounting it, the U=
S
now supports the doctrine of "odious debt" - that nations shouldn't have to
repay debts incurred by deposed despots who didn't have popular support.

It's an argument Mr. Booker and others have used for years. "When a tyrant
goes, his debt should go with him," Booker says, arguing that the notion
applies as much to Mobutu Sese Seko in Zaire (now Congo) and Gen. Sani
Abacha in Nigeria, as it does to Saddam Hussein and Iraq. (The Congo now ha=
s
$9.3 billion in debt; Nigeria, $30 billion.)

The 30 or so poorest nations - most of them in Africa - have a total of
roughly $200 billion in debt. The movement to cancel it has been gathering
steam of late. This week, for instance, Britain announced a unilateral plan
to cancel $180 million of poor-country debt per year. And the 1996 Heavily
Indebted Poor Country (HIPC) Initiative, under which rich nations have
agreed to cancel $110 billion in debt, has so far gotten rid of about $31
billion of debt in 27 countries.

Backers point to major impacts of the HIPC program in poor countries.
Tanzania, for instance, used the money that otherwise would have gone to
service its debt - about $80 million a year - to boost education spending
and eliminate school fees. Some 1.6 million children have returned to
school, according to DATA, the debt-relief group founded by U2's Bono.

But some worry that 100-percent cancelation could spark a welfare-like
dependency among poor nations. "It would certainly have an enormous short-
term impact," says Harry Zarenda, an economist at Witwatersrand University
here. "But what's worrying is the establishment of a precedent - that
countries would expect the debt to always be written off."

It would also be unfair to less-indebted nations, observers say. And it
won't necessarily solve the problem. All around Africa, governments rely on
foreign donors to supply big chunks - sometimes two-thirds or more - of
their annual budgets. Canceling their debt wouldn't likely staunch that
demand.

And then there's the sticky question of how to pay for it. That's what the
ministers from the US, Britain, Canada, France, Germany, Italy, and Japan
will debate starting Friday.

As British Chancellor of the Exchequer Gordon Brown sees it, it's as easy a=
s
a little accounting change by the International Monetary Fund (IMF), the
Washington-based organization that's bankrolled by rich countries and
facilitates poor-country loans. The IMF has one of the largest stashes of
gold in the world, some 103 million ounces. It currently values this gold a=
t
the 1971 price of $40 per ounce. But today's market value is about $400 per
ounce. Revaluing the gold and selling a portion of it would give the IMF an
extra $42 billion to work with, according to its website.

As for the rest of the needed funds, Britain advocates that rich nations
step up unilaterally - as it has - to fill the gap.

That's where it's currently at odds with the US, which prefers that the IMF
use its own funds - including money coming in from loan repayments - to fun=
d
the cancelation. "The Bush administration is quite keen on multilateral
solutions when it comes to spending money on poor nations," notes John
Williamson, a senior fellow at the Institute for International Economics in
Washington. Critics, including Europeans, worry that this will eventually
impoverish the IMF and impair its future ability to help poor nations.

The Bush team is reportedly also pushing for all future IMF money to be
given out in the form of grants, not loans. This would, the logic goes, mea=
n
poor countries wouldn't have to worry about loan repayment. But Europeans
are resisting the idea, because over the long term it risks shrinking the
IMF's ability to give out funds. If it doesn't have loan money being repaid=
,
it won't have money to give.

Regardless of what form it takes - and who pays for it - most observers
figure some form of major debt cancelation is coming. Britain is expected t=
o
champion the cause when it assumes the presidency of the G-7 in 2005. And
with an Iraq-debt deal still being worked out, the US is likely to continue
pushing for poor-nation debt action, too.

Given how debt is dragging down poor nations' poverty-fighting efforts, and
how much political will is behind cancelation now, Mr. Williamson says:
"Something extra will have to be done."