WPost: G-7 Offers Poor Nations Plan to Cut Debt

[Robert Weissman <rob@essential.org>]

Washington Post
Saturday, June 19, 1999
front page
G-7 Summit Offers Poor Nations Plan to Cut Massive Debt in Half
By Charles Babington
Washington Post Staff Writer
COLOGNE, Germany, June 18?The world's seven wealthiest nations pledged
today
to relieve poor countries of more than half of a crushing load of debt that
for decades has stymied their efforts to climb out of poverty.
The program unveiled today at the summit meeting of the Group of Seven
leading industrialized democracies could eliminate up to $90 billion in
debts
owed to creditor countries and international financial institutions by
nearly
three dozen impoverished nations, provided they steer the savings mainly to
education and health programs, especially AIDS prevention. Without such
relief, leaders of the wealthy nations said, the debtor countries will
continue to suffer high rates of child mortality, illiteracy and HIV
infection.
The agreement "is an historic step to help the world's poorest nations
achieve sustained growth and independence while targeting new resources for
poverty reduction, education and combating AIDS," President Clinton said in
a
statement. "It represents a sound, humane effort to promote widely shared
prosperity in the new millennium."
The so-called Cologne Initiative will reduce the debt burden for some or
all
of the 33 poorest nations, which collectively owe $127 billion to
industrialized countries and institutions such as the International
Monetary
Fund and the World Bank. If they meet the plan's conditions, they can
escape
as much as $70 billion owed to the G-7 countries over the next few years.
Other lending nations could grant an additional $20 billion in debt relief,
U.S. officials said.
The eligible debtor nations include many from sub-Saharan Africa, plus
Bolivia, Burma, Guyana, Nicaragua and Honduras. Private debt held by the
targeted countries would not be affected by the plan.
After years of debate over how to balance the conflicting interests of
poor,
indebted nations and their prosperous creditors, momentum for a major debt
reduction program has been building for months, with support from labor
unions, Pope John Paul II and even the rock band U2. Skeptics, however, say
past debt relief efforts have done little to help ordinary citizens because
the savings often were diverted to wasteful or corrupt purposes.
The Cologne Initiative hopes to avoid this problem by requiring debtor
nations to show they are using the benefits primarily for education and
health. The International Monetary Fund, which holds much of the debt in
question, will decide which nations qualify.
The new conditions, according to a White House briefing paper, require the
debtor nations to devote more resources to "health, child survival, AIDS
prevention, education, greater transparency in government budgeting and
much
wider consultation with civil society in the development and implementation
of economic programs."
Some humanitarian groups had wanted even greater debt relief from the G-7
but
hailed today's initiative because it places more emphasis on health and
education spending than on IMF-style austerity measures.
"We think it is a very large step in terms of what the G-7 are willing to
give," said Seth Amgott, spokesman for Washington-based Oxfam
International.
"It's real progress toward what the poorest countries need."
Clinton, who "was very deeply affected by his [1998] trip to Africa," was a
major backer of the initiative, said Gene Sperling, chairman of the White
House Economic Policy Council. Also supporting the effort are many
religious
and humanitarian groups that formed the Jubilee 2000 Coalition, which
promotes the new millennium as an appropriate time to redouble the battle
against world poverty.
Requiring poor countries to devote their debt-relief savings to health and
education will have two big benefits, U.S. officials said. It will help
children live longer, healthier lives and will discourage the type of
corruption and waste that gobble up money in some undeveloped nations.
"You want some assurance," Sperling said, that the savings won't go to
"somebody's pet project or nepotism."
The G-7 nations -- the United States, Canada, Japan, Britain, Germany,
France
and Italy -- launched a first round of debt relief in 1996. But only two
nations, Bolivia and Uganda, have qualified for the benefits thus far.
That's
largely because the 1996 program required debtor nations to devote up to 20
percent of their government revenues to debt service, a goal most could not
meet.
Sperling used Mozambique as an example of the new initiative's potential
benefits. The southern African nation now devotes 30 percent of its revenue
to debt payments but can cut that to 15 percent under the new program.
"That would free up $30 million of debt service per year," Sperling said.
"That would allow their health budget to be increased by 50 percent. . . .
Mozambique is a country where a very large percentage of children die
before
the age of 5."
To absorb its share of the costs incurred by the new initiative, the IMF
plans to sell up to 10 million ounces of the 104 million ounces of gold it
controls. It will invest the proceeds and direct the resulting interest
payments to the trust fund for the Highly Indebted Poor Countries, or
HIPCs,
Sperling said. He said the U.S. Congress must approve the gold sale.
The United States has made about $3.5 billion in loans to the eligible
nations and will lose about $200 million initially under the Cologne
Initiative, Sperling said. But there will be undetermined "broader costs"
via
U.S. contributions to the HIPC trust fund, he said.

? Copyright 1999 The Washington Post Company