Wed, 05 Apr 2000

Debt crisis spawns many words, little action

By Larry Elliott

LONDON: There are many irritating aspects to the so-called Third Way, but what particularly grates is its endless capacity to spawn meaningless catchphrases. Right up there when it comes to vacuity is "rights and responsibilities", the notion that in a something-for-something world you only have rights if you show responsibility.

The philosopher kings of the Third Way are inordinately fond of this phrase, and there is no doubt that it sounds fine in theory. Translating the theory into practice is quite a different matter. With BMW's decision to sell its UK subsidiary, Rover, you don't need to be a philosopher king to understand that in a world of footloose capital, BMW has the rights and Rover workers bear the responsibility.

An even more egregious example of the shortcomings of "rights and responsibilities" comes from the failure of the rich creditor nations and the multilateral institutions to make good their pledges on debt relief. With a few striking exceptions, developing countries have put their economies in order, have pledged to use debt relief on anti-poverty programs and have agreed to independent auditing to ensure that funds do not end up in Swiss bank accounts. So, plenty of responsibility. Now they expect something in return.

Sadly, this is not happening. Amid an orgy of self- congratulation last year, world leaders announced that the original heavily indebted poor country initiative (HIPC) was too limited and too slow. The answer was HIPC2, which would be faster and more generous, and would apply to more countries. But nine months on from the Cologne G7 summit and six months after the details were sorted out at the annual meetings of the World Bank and the International Monetary Fund (IMF), it is clear that the souped-up HIPC2 looks very much like HIPC1.

In Britain, at least, alarm bells have started to ring. At the end of last year, the chancellor of the exchequer, Gordon Brown, said he hoped to see four countries through HIPC2 by the end of January, 11 by Easter and 26 by the end of the year. Not a single country had been granted debt relief by the end of January, only three have received it now and a maximum of five will have been processed by the time of the spring meeting of the World Bank and the IMF later this month. Brown and Clare Short, the development secretary, accept that at the present rate of progress there is not a chance of getting two-thirds of the 41 eligible countries into the process by the end of the year.

Brown and Short are not to blame for this. Indeed, Britain's record on debt relief -- under the Conservatives as well as Labor -- has been admirable. The real problem is in Washington, where the attempts of the U.S. treasury to throw sand in the wheels of the HIPC process are being aided by the institutional torpor and rigidity of the World Bank and the IMF. As an added complication, it is Japan's turn to chair the Group of Seven this year, and Tokyo had to be dragged kicking and screaming into supporting HIPC2.

The danger now is that the whole process starts to unravel. Japan has put a miserly US$10 million into the HIPC trust fund, which is supposed to be raising cash so that the World Bank and the regional development banks can write off their share of the debts owed by some of the world's poorest countries. The Clinton administration has only managed to persuade Congress to stump up two-thirds of the $600 million pledged by the White House last year, so the European Union will not release the $1 billion it agreed to find from the European development fund.

Later this month, there will be an opportunity for another bout of rich-country grandstanding at the UN conference on education in Senegal, when fountain pens will be flourished with elan so that politicians can sign up to targets for ensuring primary education for every child on the planet by 2015. But at the moment this looks like a case of putting the cart a long way before the horse.

Debt relief is obviously not the only factor necessary for developing countries to build up a basic social infrastructure, but it is a key ingredient in any realistic package. As the UN secretary general Kofi Annan says: "Let us be clear that without a convincing program of debt relief to start the new millennium, our objective of halving world poverty by 2015 will be only a pipe dream."

The campaigning movement Jubilee 2000 says that the five countries that will have scraped through HIPC2 by Easter -- Uganda, Bolivia, Mauritania, Mozambique and Tanzania -- will have had their debt burden reduced by 40 percent on average rather than the 90-100 percent writeoff that was promised. The quintet will still be paying more than half a billion dollars every year to foreign creditors -- almost as much as they spend on healthcare. Uganda has one of the highest levels of HIV infection in the world, which has already orphaned one million children. In Bolivia, 60 percent of the population has no access to basic sanitation; Mauritania has an adult literacy rate of only 62 percent. Everybody knows what has been happening in Mozambique. Try telling the people there about rights and responsibilities.

Finding a way out of this mess does not require rocket science. Clare Short has been warning for months that the HIPC2 process has been dying on its feet because countries are being forced to submit absurdly detailed anti-poverty programs before they secure debt relief. She says that all countries need at the outset is a rudimentary road map, and that the rest can be inked in later.

The Americans seem intent on slowing up HIPC2 at every turn. While the Clinton administration has made the right noises about debt relief publicly, inside the World Bank and the IMF it has been pernickety about conditions that countries will have to abide by if they are to receive debt relief, arguing that states should have poverty reduction plans in place for a year before anything happens.

Annan will throw his full weight behind the campaign to speed up HIPC2, with a call for donor countries and the international financial institutions to consider wiping off their books all official debts of the heavily indebted poor countries in return for those countries making demonstrable commitments to poverty reduction. He will also outline a new approach under which there would be immediate cancellation of the debts owed by countries that have suffered major conflicts or natural disasters, expanding the number of countries in the HIPC scheme by allowing them to qualify on grounds of poverty alone, pegging debt repayments at a maximum percentage of foreign exchange earnings and establishing a debt arbitration process to balance the interests of creditors and sovereign debtors and introduce greater discipline into their relations.

But none of this will happen without political will. Now is the time for some real leadership that accepts that everybody has the right to clean water, basic healthcare and an education, and those with the power and financial clout have a responsibility to ensure that they get them.

-- Guardian News Service