[stop-imf] Jubilee USA Analysis of G8 Deal: First Step On A Long Journey

[robert weissman]

The G-8 Debt Deal: First Step On A Long Journey

By Debayani Kar and Neil Watkins | June 21, 2005
Editor:Emily Schwartz Greco, Institute for Policy Studies (IPS)

Foreign Policy In Focus
www.fpif.org
Print iin PDF format: http://www.fpif.org/pdf/gac/0506debt.pdf

Jubilee campaigns and debt cancellation advocates can be proud of their
efforts. The Finance Ministers of the eight rich country governments as
represented at the Group of 8 (G-8) have announced a deal on 100% debt
cancellation of International Monetary Fund (IMF), World Bank, and African
Development Fund debt for some impoverished nations.
But much more work remains to be done to achieve the full Jubilee vision of
debt cancellation for all impoverished countries and countries in crisis,
without harmful economic conditions.

The debt deal enacts 100% cancellation to these creditors for 18 countries
in the Highly Indebted Poor Countries (HIPC) Initiative. The other 20
countries that are part of the HIPC Initiative will be eligible for debt
cancellation on much less favorable terms: only after reaching the
=93completion point=94 in the HIPC Initiative; to reach this point, these
nations must adhere to economic policy conditions which have been
detrimental to growth and poverty eradication. The HIPC Initiative was set
up by the IMF and World Bank to address the severe debt burdens of
impoverished countries. The limited debt relief delivered under HIPC create=
d
the need for this G-8 agreement.

Efforts by campaigners and people of faith and conscience all across the
U.S. and around the world over the past several years helped result in this
important first step on debt.

Precedents Set

Several important precedents were set by the G-8 agreement. First, the
principle of 100% multilateral debt cancellation was established. Up until
this point, the HIPC Initiative allowed only partial relief =96 on average =
33%
reductions in debt service payments for elgible nations.

Second, the debt stock cancellation approach won out over a more limited
approach put forward by the UK government for debt service relief. The UK
proposal would have meant 100% debt service relief rather than full stock
cancellation, and only for the next 10 years. The UK government would have
paid debt service on behalf of the impoverished nations, and then revisited
the situation in 2015. But the debt stock cancellation approach favored by
the US carried the day.

Another important step was inclusion of debt of the qualifying countries to
the IMF, which had been in danger of not being included. In April the U.S.
government had taken IMF debt cancellation off the table at the G-8
negotiations due to their opposition to utilizing IMF gold sales to finance
that cancellation. Campaigners mobilized to highlight the unacceptable
nature of this important missing piece, which helped to include IMF debt in
the final G-8 deal.
It is important to acknowledge victories when they happen. But it is
important to put the G-8 deal in proper perspective. The G-8 deal on 100%
debt cancellation, though a critical first step, falls well short of what i=
s
necessary to conclusively end the debt crisis facing impoverished nations.
There have unfortunately been many premature announcements in the media
claiming that the G-8 deal represents full debt cancellation for Africa and
the global South.

More Work Ahead

After this weekend, our work is not done. Too many impoverished nations in
Africa, Asia, and Latin America will continue to pay more in debt service
than they spend on health care and education.

Nigeria for instance will continue to spend $1.7 billion a year on debt
service payments. Last year, this amount devoted to debt service payments
was five times what Nigeria spent on education and 13 times that spent on
health. The four Latin American nations included among the 18 beneficiaries
=96 Bolivia, Guyana. Honduras, and Nicaragua -- will still pay a total of
almost $1.4 billion in debt service over the next five years to the
Inter-American Development Bank (IDB). The government of Guyana put out a
statement Tuesday urging the full cancellation of their IDB debt.

For the 20 HIPC countries beyond the 18 that have now qualified for
cancellation, it could take years before they become eligible for
cancellation. After all, it took the 18 countries included in the G-8
proposal eight years to satisfactorily implement the harmful economic
conditions mandated in the HIPC process and thereby reach =93completion
point=94. In order to progress to these points, nations must draft and have
the IMF/World Bank approve Poverty Reduction Strategy papers (PRSPs) and be
in compliance with conditions on other World Bank and IMF loan agreements,
including the Poverty Reduction and Growth Facility (PRGF) of the IMF. PRSP=
s
and PRGF loans contain hundreds of policy conditions that nations must enac=
t
in order to qualify for debt cancellation. Jubilee USA and social movements
oppose the linking of debt cancellation to countries=92 implementation of s=
uch
economic policies.

These economic policies include privatization of government-run services an=
d
other entities, increased trade liberalization, and budgetary spending
restrictions, as mandated by the IMF and World Bank. These policies have no=
t
been proven to increase per capita income growth or reduce poverty as found
in research by the Center for Economic and Policy Research. Jubilee USA and
social movements clearly call for these conditions and polities to be
abandoned.

Left Out of the Deal

Beyond the 38 countries contained in the HIPC Initiative, there are dozens
of other countries in urgent need of 100% debt cancellation that the G-8
deal leaves out. As the Jubilee Debt Campaign and Christian Aid have
identified, there are 62 low-income countries that need full debt
cancellation to meet the Millennium Development Goals (MDGs). The $56
billion in debt stock being cancelled under the current G-8 agreement
amounts to less than 10% of the total external debt of all low-income
countries that need 100% cancellation to meet the MDGs. The World Bank
itself identifies 26 middle-income countries as having =93severe=94 debt
burdens, including Indonesia and Ecuador. Governments in non-HIPC countries
such as Kenya have expressed in recent days their disappointment in being
excluded from the G-8 deal.

Jubilee South identifies many more countries that require the cancellation
of their odious or illegitimate debts. In advocating the cancellation of
Iraq=92s debt, the U.S. government had made the argument that loans contrac=
ted
by undemocratic regimes which worked to the detriment of their populations
should be annulled. This odious debt argument applies to debts contracted b=
y
the apartheid regime in South Africa, by Mobutu Sese Seko in what is now th=
e
Democratic Republic of Congo, Ferdinand Marcos in the Philippines, the
military junta in Argentina, and many more.
Some G-8 nations have argued they have limited the country list because
further cancellation is unaffordable. But resources exist to finance this
further debt cancellation.. One financing option that had been proposed by
the U.K. government was the limited sale of the IMF=92s gold reserves, whic=
h
the IMF demonstrated as being feasible in a March report. Another potential
resource at the international financial institutions is the accumulated and
future profits of the World Bank. Drawing funds from the IMF=92s low-income
lending arm is another possibility, which apparently the U.S. considered
during the course of the negotiations.

None of this should take away from the significance of the G-8 deal for the
18 countries that qualified for 100% cancellation. Debt relief to date has
worked. The limited debt relief so far has doubled poverty alleviation
expenditures in the countries that received it. Savings from debt relief
have more than doubled school enrollment in Uganda, provided 3 extra years
of school for Honduran children, and provided resources to fight against
HIV/AIDS in Mali, Mozambique, Senegal and Cameroon. 100% debt cancellation
for 18 countries means real resources for real people.
But as Archbishop Njongonkulu Ndungane of South Africa noted: =93Our object=
ive
is a clean slate - a total cancellation of odious and unpayable debts owed
by African countries.=94 The G-8 deal has fallen short on this and other
measures, and the global Jubilee movement will continue to work to break th=
e
chains of debt in the global South. While we celebrate an important step
forward, only full debt cancellation will fulfill the Jubilee vision of a
world where external debt no longer diverts resources from impoverished
people or constrains policy choices.

Neil Watkins and Debayani Kar are contributors to Foreign Policy In Focus
(online at www.fpif.org). Neil Watkins is National Coordinator and Debayani
Kar is Communications and Advocacy Coordinator of Jubilee USA Network, the
U.S. arm of the international movement working for debt cancellation for
impoverished nations. Jubilee USA is a network of over 70 religious
denominations, labor groups, environmental organizations, and community and
advocacy groups working to break the chains of debt.