FT on debt/G7/UN (fwd)

[Robert Weissman <rob@essential.org>]

Financial Times   Saturday June 12 1999


DEBT: Too much to bear
Michael Holman and Quentin Peel examine renewed efforts to alleviate the
developing world's trap

If ever there were a popular candidate for international debt relief, it
would be Mozambique, the poorest country in the world.

It has gone from being a one-party state gripped by civil war to a stable,
multi-party democracy in the past decade. And it has stuck stoically to the
terms of economic reform and monetary discipline laid down by the
International Monetary Fund.

Yet Mozambique's experience should prove a salutary tale for the Group of
Seven industrialised nations when they meet in Germany this weekend and next
to discuss the debt trap in the developing world.

For its efforts, Mozambique has qualified as one of the first countries to
benefit from the international community's much-vaunted initiative to
relieve the debt burden of heavily indebted poor countries (HIPCs).

But what should have been a model example of the benefits of a new deal for
the poorest of the poor instead stands as a stark illustration of the
scheme's inadequacy.

The HIPC deal will save Mozambique precisely $10m (£6.25m) a year out of a
burden of $120m. The remaining debt servicing cost is still twice what it
spends on  running its health service. The first world seems little closer
to finding a lasting solution to the problems of the developing one.

The plea for debt cancellation for the world's poorest countries has become
the common cause of one of the fastest growing and most persuasive
international coalitions, led by Jubilee 2000, a London-based lobby group.
It has managed to win the support of Pope John Paul, pop stars such as Bono
of U2 and sporting superstars such as Mohammed Ali. Not since the
anti-apartheid movement campaigned against white rule in South Africa has a
cause won such widespread support.

The British government was one of the first to respond. Poor country debt is
"the greatest moral issue of our day", says Gordon Brown, the chancellor of
the exchequer.

"The greatest single cause of poverty and injustice across the earth, and
potentially one of the greatest threats to peace," he said in an address
delivered in St Paul's cathedral. "We must cut the debt, and do so now."

But although terms of debt relief for HIPCs will be improved at Cologne,
differences within the G7 make it likely they will fall well short of what
the campaigners are calling for.

There is no doubt of the scale of the problem. For nearly all the people who
live in the 41 nations classified as HIPCs, life is cruel and miserable.
Four million children under the age of five will die this year of
preventable diseases - for lack of clean water and sanitation. Around 50m
children of primary school age are not in school, two-thirds of them girls.

Between them in 1997 the HIPCs owed $227bn, well beyond their capacity to
service. A quarter was owed to the World Bank and other multilateral
lenders. Most HIPCs are in Africa, where sub-Sahara external debt has risen
dramatically - from $3bn in 1962 to $250bn today.

As the debt climbed, the first world produced a series of rescheduling
initiatives, labelled according to the venue - Venice, London, Toronto,
Naples, Lyons. They have proved bewildering, complicated and time-consuming
for all concerned, involving several thousand rescheduling meetings over
past 15 years. And yet they did not resolve the problem.

"The creditors have delayed and prevaricated," says Ann Pettifor, director
of Jubilee 2000. "[They have been] spinning out the economic pain through
endless, costly reschedulings, which shifts the debt down the line for
repayment at a later date."

By the mid-1990s, it was clear that the problem required radical measures,
including action on multilateral debt servicing, which had hitherto been
regarded as untouchable: granting relief to one borrower would raise the
cost for other equally poor countries.

But the HIPC initiative, heralded as a comprehensive solution to the debt
trap, has not worked. Only two countries of the 41 (Uganda and Bolivia) have
so far received debt relief, and only three, including Mozambique, are due
to get relief this year. By 2002, six years after the start of the
programme, only seven countries will have been chosen, as Clare Short,
Britain's aid minister, pointed out in April.

Chief Emeka Anyaoku, the Commonwealth secretary-general, this week voiced
his own concerns. "In my travels I notice a sense of desperation on the part
of a number of highly indebted countries about the lack of tangible progress
in easing their debt burden," he wrote in a letter to Gerhard Schröder, the
German chancellor.

One problem with the HIPC programme is that the requirement to spend six
years under IMF supervision before qualifying is far too long. A second is
that, while HIPC is designed to reduce debt to a "sustainable" level, the
measurement is based mainly on the ratio of service payments to export
earnings, instead of taking into account a country's absolute poverty.

Cologne is expected to produce some changes. They could include a shorter
qualification period, deeper and faster debt reduction, and a more flexible
definition of sustainable debt. As a result, the number of eligible
countries should increase, and the debts of the poorest countries could be
reduced by an estimated $50bn by the end of 2000.

Chief Anyaoku is urging more radical action. "The proposals that have
emerged so far do not go far enough," he said in his letter. "For the very
poor countries the only viable answer might be a complete and immediate
write-off."

Joe Hanlon, of Jubilee 2000, shares that view. "What is likely to be agreed
at Cologne will not deliver new resources to the poor."

In the first place, he says, "the increased sums being talked about will
still write off only what is not being paid anyway".

Second, "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 to what is spent on health and
education."

Jubilee 2000 argues that the world's poorest countries should have the right
to spend what is needed to meet the internationally agreed target of halving
the number of people living in absolute poverty by 2015, before they pay any
debt service.

But the call for debt cancellation is only part of its agenda. It also
demands radical changes to the World Bank and calls for an end to what it
calls the "IMF stranglehold" on the poorest countries.

The campaign says the roots of the crisis lie in the 1970s. It blames
western banks for encouraging poor countries to borrow money they did not
need, rich countries for giving loans and not grants, as well as the rise in
interest rates at the end of the 1970s and falling commodity prices.

Jubilee 2000 wants to see an independent debt review body, which would
involve representatives of both debtors and creditors. It would hold
hearings to assess the proportion of debt which should be cancelled, based
on "human development" criteria.

Critics argue that Jubilee 2000 fails to attach adequate blame for the
crisis to African governments and their policy failures. Nor are the critics
satisfied that without much tougher conditions, as set traditionally by the
IMF, debt relief would be wisely spent.

Jubilee 2000 is also at odds with some of its fellow development
organisations, which feel the campaign is too adversarial towards the donor
countries, and not tough enough in its demands on the beneficiaries of debt
relief.

There is now a danger that Cologne, far from marking a comprehensive
solution to the debt problem, will instead widen the gap between the
governments and non-governmental organisations.

"The Cologne summit, we were promised, would mark the beginning of the end
of the debt crisis. Today the same finance ministers are displaying all the
integrity of used car salesman," says Oxfam, the international aid agency.

"Having promised more than they 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."

In April, Ms Short warned: "There is a real danger that if we go on with
HIPC as it is, people in poor countries will feel cheated because debt
relief is not providing the improved services for the poor that was
promised."

The test of the Cologne summit will be whether, when it is over, those words
still hold true.

Financial Times   Saturday June 12 1999

UN seeks new debt initiative
By Frances Williams in Geneva and Robert Chote in London

The United Nations yesterday called on Group of Seven finance ministers to
agree a programme to eliminate the debt overhang of the world's poorest
countries "once and for all".

The call comes on the eve of today's finance ministers' meeting in
Frankfurt. Officials expect the ground to be laid for a debt relief
announcement at the Cologne G7 summit next weekend, but one which will
disappoint ambitious development campaigners.

The international development committee of the British House of Commons also
warned that the current debt relief arrangements were "on the brink of
failure". The initiative was at risk of being a "rearrangement of accounts"
that failed to provide a permanent solution to unsustainable debt, it said.

In a report prepared by the UN Conference on Trade and Development (Unctad),
the UN said the criteria for receiving debt relief should be relaxed and the
relief, including debt write-offs, should bear a realistic relation to
ability to pay.

"Debt repayment should not take precedence over the fulfilment of human
needs and human rights" by squeezing out spending on education, health and
social services essential for development, it said.

The UN initiative, which Unctad estimates might cost $100bn, or about the
same as the recent US debt forgiveness proposal, would be fully funded by
IMF gold sales, a new general allocation of special drawing rights (SDRs)
and bilateral contributions by governments.

Noting that the Gulf war in 1991 is estimated to have cost $102bn, Rubens
Ricupero, Unctad secretary-general, said yesterday that mobilising the
necessary funds for debt relief was a matter of "political will".

To date only three of the 41 heavily indebted poor countries (HIPC) eligible
for debt relief under a 1996 initiative have benefited from it - Uganda,
Bolivia and Guyana - and Uganda is in difficulties again. The UN says seven
more countries left off the original list with debts totalling perhaps $30bn
should also be included.

The report proposes a relaxation in the conditions and safeguards attached
to the current HIPC initiative "to make receipt of debt relief less of an
obstacle course". It says countries should be able to qualify for debt
relief after three years on an IMF austerity programme, rather than six.

It also proposes setting a ceiling (below 25 per cent) on the share of
government revenues going in debt service, the writing off of official
aid-linked debts and  consideration being given to write-offs of government
debt to countries afflicted by conflict or disasters