Richest Nations Willing To Write-Off Poorest Nation's Debt - With A Catch

by Sanjay Suri

(IPS) LONDON -- The G7 finance ministers agreed June 18 to write off the debt of 18 of the poorest countries, but firm prescriptions of privatization hovered over the debt relief offer.

Finance ministers from the Group of Seven of the world's leading industrialized nations -- United States, Canada, Japan, Britain, France, Germany and Italy (the G8, minus Russia) -- agreed to write off 100 percent of the debt of 18 of the poorest countries, mostly in sub-Saharan Africa. That will amount to debt cancellation of about two billion dollars a year.

Campaigners focusing on debt relief welcomed the move. But the finance ministers' agreement contains a provision on privatization that has the potential to deliver to them more money than they wrote off.

The ministers reaffirmed in a statement at the end of their two-day meeting Saturday that "in order to make progress on social and economic development, it is essential that developing countries put in place the policies for economic growth." Among these, they must "boost private sector development, and attract investment," and ensure "the elimination of impediments to private investment, both domestic and foreign."

The ministers committed themselves to a successful outcome for the Doha Development Agenda, agreed at the World Trade Organization's ministerial meeting in the Qatar capital in 2001.

This, they said, "delivers substantial increases in market access for developing countries, establishes a timetable for the elimination of all trade-distorting export support in agriculture, and provides effective special and differential treatment for developing countries."

The commitment to "elimination of all trade-distorting export support in agriculture" stops well short, however, of an agreement to end subsidies to farmers in rich countries, estimated at more than $300 billion a year. It is these subsidies rather than specific programs to support exports that have created artificially low prices for Western produce that are choking exports from developing countries.

The ministers said they recognize that "not all countries will benefit in the short term from reductions in trade barriers." The ministers committed themselves to "provide support to enable developing countries to benefit from trade opportunities."

The ministers picked the example of Nigeria to stress that their recommended way to reforms lies through embracing the policies of the International Monetary Fund (IMF).

"Nigeria is key to the prosperity of the whole continent of Africa," they said in their statement. "We welcomed Nigeria's progress in economic reform as assessed in the IMF's intensified surveillance framework...and encouraged them to continue to reform." In turn they said, "We are prepared to provide a fair and sustainable solution to Nigeria's debt problems in 2005."

It became clear that the International Finance Facility (IFF) pushed by Britain's Chancellor of the Exchequer (finance minister) Gordon Brown had failed to win significant support from other G7 countries.

The IFF, a scheme to raise money in government bonds to be paid off through later aid pledges, was agreed as just one option. The Millennium Challenge Account (MCA) of the United States, which ties aid grants to pledges of good governance including the U.S. fight against terrorism, remains in place as the preferred U.S. way.

France and Germany are giving their backing to some of the recommendations of the Landau Report (named after French Inspector of Finances Jean-Pierre Landau), particularly its proposal for a contribution on air travel tickets to support specific development projects and to refinance the IFF.

The G7 finance ministers clearly failed to agree a unified path of movement towards the Millennium Development Goals (MDGs), set by the United Nations in 2000. Little further progress is expected on this front before the G8 leaders summit in Gleneagles in Scotland, July 6-8.

Unanimity emerged only over debt cancellation for what are known as Heavily Indebted Poor Countries (HIPC). But the small print here too indicates that this was not unanimity on unconditional support.

The HIPC countries have been told that any additional donor contributions will rest on "performance-based allocation systems," and that such action will ensure that "assistance is based on country performance."

The World Bank has been made the monitor for these countries' moves towards "good governance, accountability and transparency." These declared aims are inevitably open to endless interpretation.

The 100 percent debt cancellation further holds only for HIPCs "that are on track with their programs of repayment obligations and adjusting their gross assistance flows by the amount forgiven." That is, the debt will be "forgiven" only to countries that can show they were in the process of repaying.

While the debt cancellation will no doubt provide immediate relief, there is enough in the stated package to raise some questions what these countries may have to do next.

The finance ministers agreed that they will use grant financing to "ensure that countries do not immediately re-accumulate unsustainable external debts, and are eased into new borrowing."

On just how they proceed from here, the HIPCs may have no choice but to look to the World Bank and the IMF to show them the way.