Third World debt overshadows G-8 summit

By Charlotte Denny

LONDON: Toronto, London, Naples, Lyon and Cologne. The list of places where leaders from the Group of Eight (G-8) have met since 1988 to solve the problem of third-world debt sounds like a veritable Cook's tour, but the fine meals eaten and the air miles chalked up have resulted in very little for the countries still locked in the chains of debt.

As the G-8 gathers for its annual summit, this time on the Japanese island of Okinawa, the US$100 billion debt deal agreed in Cologne last year is starting to look rather shabby.

The G-8 promised that 25 countries would begin the debt relief process by the end of 2000, but with five months to go, only nine have qualified. Only $10 billion of the $100 billion has been delivered, and this had been agreed under pre-existing debt- cutting agreements anyway.

So what went wrong? To some extent the G-8 were victims of their own hype. What they portrayed as a historic deal was, as others pointed out, really just a slightly more generous version of the existing international debt relief program.

It was never going to end third world debt, merely massage it down to levels where the countries were judged to be sustainable again according to the criteria of the International Monetary Fund (IMF). In fact, the program aims to make poor countries solvent again so they can continuing repaying their debts to the West.

Sustainability is based on a country's ability to service its debts through export earnings, not on how poor it is. As Oxfam has calculated, even once they are through the Cologne debt process, many countries still spend more on debt relief than on health and education combined.

To take an example, Tanzania has had its debt interest payments reduced by just under 20 percent over the next three years, so it will be paying the West an average of $146 million in 2001-2003. The government spends $85 million a year on basic education -- the budget for teaching materials is just $1 a year per pupil. Meanwhile 2.2 million children are not in school and Tanzania is one of the few countries in the world where illiteracy is rising.

The Cologne debt deal was never going to end such horrendous poverty, but even by its own limited criteria it has so far been a failure. Unfortunately for the debtors, despite the promise that the G-8 would speed up the progress of debt relief, the new deal looks just as prone to delays as previous agreements.

There are several reasons for these delays, and not all can be blamed on the G-8. Several of the debtor countries are in the middle of military coups or civil wars, and the new government in Senegal has asked for a pause while it settles in.

But coups and wars notwithstanding, the G-8 must bear much of the blame.

The big idea from Cologne was to link debt relief with poverty reduction, which in theory sounds sensible. But in practice it has imposed huge burdens on countries where government machinery is already stretched to the limit.

Most already have to meet strict economic rules to qualify for assistance from the IMF and the World Bank. Now, in addition, to qualify for full debt relief, these countries have to produce a detailed poverty reduction strategy paper explaining to the West how the money will be spent. Although a draft plan is sufficient to get the process started, the drafts are proving to be large and complex documents which take a long time to prepare.

The requirement to consult widely before producing these plans and the need for speedy debt relief are mutually exclusive. Most poor countries already have their macro-economic policies dictated by the IMF, and many have been tempted to ask staff from the Washington financial institutions to write an anti-poverty plan which they know will satisfy the boards of the IMF and the bank.

The IMF is slowing down debt relief in several counties to force them to implement unpopular aspects of the fund's macro- economic reform programs.

A further reason for the delay is problems with funding. While the G-8 leaders were happy to promise enormous sums in Cologne for a special trust fund to help cover the amount needed to write off the debts owed the World Bank and IMF, they have been much less enthusiastic about writing out the cheques.

The worst offender is the United States, which promised $600 million but has yet to deliver, because Congress rebuffed President Clinton's request for the money. The EU and Japan are using the U.S. failure as an excuse to delay their own contributions.

So what should the G-8 do to break the logjam? They could simplify the process, for a start, by removing the thousands of conditions attached to debt relief.

The World Bank's own research shows that governments do not stick to reform programs imposed by donors. It is only when countries decide for themselves that they are ready to bear the pain which accompanies economic reform -- and have the political support to carry it through -- that change happens.

So does that mean we should give the money back without asking how it will be spent? There is a halfway house between loading countries down with thousands of conditions and giving the money with no strings attached.

Oxfam has suggested that any country prepared to put the savings from debt relief into a fund ringfenced for spending on poverty -- reducing areas such as education, health and employment generation should have the money immediately.

The poverty reduction strategies should not be abandoned, but they should be removed from the debt relief process to avoid the rush which is leading to countries taking off-the-peg plans from Washington. Tackling poverty is a much bigger task than simply solving the debt problem: the plans need to be carefully worked out.

The real danger the international community faces is that people have begun to believe the hype. After hearing world leaders repeatedly declare that they have solved the debt crisis, many believe the loans burden is no longer a problem for poor countries.

In fact an enormous amount remains to be done, and even if the debt crisis were solved, the more difficult task of tackling poverty would remain.

-- Guardian News Service