IPS: G-7 DEBT REDUCTION PLANS DISAPPOINT (fwd)

[Robert Weissman <rob@essential.org>]

Inter Press Service 
June 18, 1999

ECONOMY: G-7 DEBT REDUCATION PLANS DISAPPOINT 

By Abid Aslam 

WASHINGTON, Jun. 18 -- Leaders of the "Group of Seven" (G-7) industrial
powers have yet to finalize 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 program 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 Center 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 canceled, along
with the unpayable part," says Mark Weisbrot, research director at the
Washington-based Preamble
Center. 

"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
programs. 

"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 percent 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 canceled 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.