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Africa: Postponing Debt Decisions
AfricaFocus Bulletin
Feb 8, 2005 (050208)
(Reposted from sources cited below)
Editor's Note
Finance ministers of the G7 group of the world's richest countries,
meeting in London from February 4 to 5, stated their willingness to
consider "as much as 100 per cent multilateral debt relief" for the
poorest countries. They also asked the International Monetary Fund
(IMF) to consider how it might contribute to financing such debt
relief. In theory, these could be significant steps forward. In
practice, the G7 countries remain deeply divided. They disagree
both about the political urgency and about the possible mechanisms
for acting to free up more resources to fight global poverty.
The most striking disagreements are between London and Washington.
British Prime Minister Tony Blair and Chancellor of the Exchequer
Gordon Brown both see political advantage in being seen to do
something about African poverty. In official Washington, however,
fighting poverty, whether at home, in Africa, or elsewhere in the
world, is hardly visible on the radar screen. President Bush and
other top officials are particularly hostile to multilateral
programs or to any implication that, as Nelson Mandela stressed in
a speech at Trafalgar Square on February 3, overcoming poverty is
not a gesture of charity but an act of justice.
G7 disagreements on how to finance debt relief focus not only on
how much debt to cancel, but also on who should pay, whether
additional aid resources should also be provided, and how any new
mechanisms would affect the influence of existing bilateral
agencies and international financial institutions. NGOs lobbying
for debt cancellation also stress that no G7 government has yet
acknowledged the damaging effects of inappropriate economic
policies imposed by creditors.
This issue of AfricaFocus Bulletin contains a roundup of excerpts
related to the issue of debt cancellation and the G7 finance
ministers meeting, with references to the sources for full text in
each case. Included are excerpts from (1) a summary analysis in
Timesonline, (2) the summary of a joint policy paper from
ActionAid, Cafod, and Oxfam issued just before the meeting, (3) a
press release from Jubilee USA Network following the meeting, (4)
the ministerial communique, and (5) a post-meeting statement by
U.S. Under Secretary of the Treasury for International Affairs John
Taylor.
Previous issues of AfricaFocus Bulletin focused on Africa's debt
are available at http://www.africafocus.org/debtexp.php
++++++++++++++++++++++end editor's note+++++++++++++++++++++++
Africa hoping for scraps from scrapping
by Gary Duncan
Timesonline February 07, 2005
[Excerpts. See http://business.timesonline.co.uk for full text.]
Gordon Brown is good at putting on a brave face when confronted by
disappointing news. It is just as well. ...
The tirelessly ambitious Mr Brown has spent weeks in detailed
diplomacy and painstaking groundwork to try to ensure that the G7
talks he chaired in London emerged as a triumphant staging post in
Britain's campaign to bring relief to a stricken Africa. He even
drafted in Nelson Mandela to bend the ears of his fellow ministers.
Then, on the very eve of the gathering, America delivered the
bitter blow of sending a substitute, John Taylor, in the place of
its Treasury Secretary, John Snow. Worse still, the substitute then
delivered a blunt US repudiation of the Chancellor's key proposals
within hours of arriving in London. On Friday night, Mr Brown's
grand designs appeared to be coming apart at the seams.
By the close of the talks on Saturday, though, a compromise had
been cobbled together. ... a programme for further research and
negotiation through the spring which the Treasury optimistically
regards as an "action plan".
Certainly, Mr Brown has extracted from his counterparts a new
commitment to debt relief, with agreement that the world's poorest
nations should have as much as 100 per cent of their liabilities
written off. In the circumstances, that was an achievement. But
note that, thanks to Japanese intransigence, the G7's pledge is for
"up to" 100 per cent relief. Note too that at the somewhat teutonic
insistence of the unenthusiastic Germans, this will be now be
considered only on a case-by-case basis.
The reality is that while the G7 now agree that something must be
done about Africa, they remain deeply divided over what. ...
There is no consensus and much conflict. Like the separate
realities of Africa and the West, the competing approaches taken by
G7 members remain worlds apart. No amount of rhetoric can bridge
the gulf. ...
Time is running short if Britain's presidency is now to deliver
tangible results for Africa worthy of the vaulting ambitions
espoused by the Government. With the G8 summit of G7 leaders plus
Russia's President Putin set for July, the Treasury and No 10 need
to make substantial progress on the nitty-gritty of real proposals
(and real cash) by the spring. ... Africa's poor, meanwhile, can
only wait for some scraps to emerge from the fighting among the
world's richest countries.
Do the Deal: The G7 must act now to cancel poor country debts
Joint NGO Briefing Paper, February 2005
ActionAid, CAFOD, and Oxfam
http://www.oxfam.org.uk/what_we_do/issues/debt_aid/g7_deal.htm
Summary (excerpts)
Every month rich country leaders delay a deal on debt cancellation,
the poor pay with their lives. ...
Every week, poverty kills more people than the Tsunami. A child
dies every three seconds through preventable diseases. Yet at the
same time the poorest countries in the world routinely spend more
on debt repayments than they do on health. In 2002 low-income
countries paid out $39 billion in debt repayments to rich country
creditors - the equivalent of $100 million every day. In that same
year, despite the billions living in poverty, the millions out of
school, and the thousands dying daily, they received only $17bn
billion in grant aid.
On Friday 4th February 2005 the Finance Ministers of the G7 will
meet in London. These seven men have the power to make a decision
which would end the crippling debt burden of the poorest countries.
G7 leaders have made warm speeches about the importance of solving
the debt problem. The time for talking is over. The world is
watching - and the time to act is now.
Following massive campaigning by the Jubilee movement worldwide,
rich countries agreed to some debt cancellation in Cologne in 1999.
Sadly, more than five years on, it is clear that the debt problem
is far from being solved. While the Heavily Indebted Poor Countries
(HIPC) initiative has delivered almost $30bn of debt
cancellation and pledged to deliver more than $20bn more, only 7
countries have actually seen their debts brought down to levels
considered 'sustainable', even according to the narrow and
inadequate criteria of the HIPC initiative. Even those
countries that have qualified for debt relief are still paying
$2.8bn a year to their creditors, 15% of their revenues and in many
cases more than they spend on education or health.
Debt relief works. The debt relief that has been delivered so far
has had a massive positive impact on fighting poverty. Debt relief
in Tanzania enabled the Government to make primary education free.
This meant over 2 million children can now go to school. In Benin
debt relief is paying for staff at rural clinics across the
country, and in Mali the debt relief dividend has allowed the
recruitment of 5000 community teachers.
When politicians want to act, they can. Rich countries can and do
find the money. In one day in November 2004, rich countries agreed
to cancel a total of $31 billion of debt owed by Iraq. This is more
than all the HIPC debt relief granted to all the poorest countries
in the world in the last five years.
At the same time the IMF is also sitting on a huge pile of gold it
neither needs nor uses. These 100 million ounces are worth over $45
billion dollars, but are valued by the IMF at $8 billion. Revaluing
or selling this gold would immediately release vital resources to
finance debt cancellation.
Debt campaigners worldwide have consistently argued that poor
country debt will only truly be 'sustainable' if debt service
payments do not compromise the ability of such countries to meet
the internationally-agreed Millennium Development Goals (MDGs).
Recently this position was fully endorsed by the report of the UN
Millennium Project under Jeffrey Sachs.
What this will mean for the majority of low income countries is
100% debt cancellation, plus significant increases in aid, if the
MDGs are to be met. Set by this standard, the progress made to date
through the HIPC initiative remains woefully inadequate.
The UK Government announced last September that it will pay its
share of the debts owed by 21 poor countries to the World Bank and
African Development Bank until 2015, and will push for the
revaluation or sale of IMF gold to fund IMF relief.
This step is welcome, as it releases vital resources for these
countries to spend on fighting poverty. The rest of the G7 should
follow suit immediately. However, the proposal should also be
expanded further to more than just 21 countries, and involve debt
stock cancellation rather than just debt service relief. It should
also use resources that are additional to existing bilateral ODA
budgets. Lastly it should not be subject to countries having to
implement risky and unproven policy conditions in order to access
the relief. ...
Recommendations
- 100% multilateral debt cancellation must be provided now to all
low-income countries which need such relief in order to meet the
MDGs, under a fair and transparent process.
- Debt relief should not be financed out of existing aid budgets,
but from new donor contributions, and the sale or revaluation of
IMF gold.
- Debt relief should not be confined to HIPCs, but should also be
extended to other poor countries that need debt relief in order to
meet the MDGs.
- There should be an end to harmful economic policy conditionality
associated with debt relief. Debt relief should be provided to any
country able to use such relief to meet the MDGs.
- In countries where human development needs are greatest, and
where the feasible tax base is narrow, future aid flows should be
in the form of grants rather than loans for the foreseeable future.
- In future, a fair, transparent and comprehensive international
insolvency process should be created to allow creditor and debtor
countries to resolve debt crises without compromising the ability
of poor countries to meet the basic social needs of their people,
and without forcing poor countries to repay what the insolvency
process determines to be odious debts.
Jubilee USA Network Reacts to Outcome of G-7 Finance Ministers
Meeting in London
February 5, 2005
Contact: Neil Watkins, National Coordinator Jubilee USA Network
(202) 783-0129, 202-421-1023 (mobile) http://www.jubileeusa.org
[Excerpts. See http://www.jubileeusa.org for full text.]
Washington - As G-7 Finance Ministers concluded their meeting in
London today, Jubilee USA Network was encouraged that learn
ministers have indicated their willingness to provide as much as
100% multilateral debt cancellation, a long time demand of the
Jubilee USA Network. But the group cautioned that the plan must be
broadened and that critical questions about the initiative must be
addressed as the upcoming April IMF/World Bank spring meetings
near.
The communique released by the G-7 today indicates that the G-7
have agreed in principle to 'provide as much as 100% multilateral
debt relief' and that the G-7 asked IMF Managing Director Rodrigo
de Rato to bring proposals on how to finance debt cancellation for
discussion at the April spring meetings of the IMF and World Bank
in Washington.
...
Jubilee USA Network indicated several key benchmarks that must be
addressed as discussions on debt cancellation proceed leading into
the April IMF/World Bank spring meetings, including:
- 100% cancellation. There must be full (100%) debt stock
cancellation for impoverished nations. Proposals put forward by the
UK and Canada would not cancel debt stock, but only relieve debt
service payments for 10 years.
- Leave no country behind. The G-7 communique indicates that there
"will be a case-by-case analysis of HIPC countries" for
consideration for 100% cancellation. It is critical that debt
cancellation apply to all impoverished nations, not simply those
that qualify for the IMF/World Bank¹s HIPC Initiative.
- No economic conditions on debt cancellation. Debt cancellation
must come without externally imposed conditions on impoverished
nations. Civil society in impoverished nations must be empowered to
ensure accountability in the use of funds released by debt
cancellation.
- IMF/World Bank Must Pay Their Fair Share. The IMF can sell gold
and raise more than $35 billion to finance cancellation of IMF and
World Bank debt. The World Bank can mobilize at least $17 billion
in accumulated and future profits for debt cancellation. These
sources of finance must be tapped if there are to be enough
resources to extend cancellation to a broad range of countries.
...
Also newly available on the Jubilee USA Network website
http://www.jubileeusa.org/sonyreport.pdf
A January 2005 briefing report by Sony Kapoor on World Bank
Resources and Debt Cancellation. The report, noting that the World
Bank is one of the most resource-rich financial institutions in the
world, shows that the Bank could generate as much as $17.5 billion
from internal resources for debt cancellation without any
significant impact on its operations or credit ratings. The Bank,
Kapoor notes, has net income of $600 million a year from its
lending operations to middle-income countries, and some $37 billion
in capital reserves. Its equity to loan ratio is far greater than
other highly rated banks, and could easily draw on its capital if
there were the political will to do so.
+++++++++++++++++++++++++++
G7 Finance Ministers Conclusions on Development
London, February 5, 2005
[Excerpts. See http://www.g8.utoronto.ca for full text.]
...
7. The Enhanced HIPC Initiative has to date significantly reduced
the debt of 27 countries, and we reaffirm our commitment to the
full implementation and financing of the Initiative. Moreover,
individual G7 countries have gone further, providing up to 100 per
cent relief on bilateral debt. However, we recognise that more
still needs to be done. We are agreed on a case-by-case analysis of
HIPC countries, based on our willingness to provide as much as 100
per cent multilateral debt relief. We also ask the IMF and the
World Bank to look at the issue of debt sustainability in other
low-income countries. To finance the relief of debts owed to the
IMF and to enable the Fund to continue to play a role in the
poorest countries, the Managing Director has stated that he will
bring forward proposals at the Spring Meetings, covering the Fund's
gold and other resources and in an orderly way. We look forward to
his proposals. For the relief of debts owed to the World Bank and
African Development Bank we will work with their management and
shareholders to bring forward proposals for agreement at the Spring
Meetings to achieve this without reducing the resources available
to the poorest countries through these institutions. We also call
on non-Paris Club creditors to provide at least their share of HIPC
debt relief, and we ask the IMF to report on progress at the Spring
Meetings.
8. In addition to debt relief, we recognised at Monterrey that a
substantial increase in ODA and other resources will be required to
assist developing countries to achieve the internationally agreed
development goals and objectives, including those contained in the
Millennium Declaration. We acknowledged the efforts of all donors
whose ODA contributions exceed, reach or are increasing towards the
Monterrey targets. ...
9. As we prepare for decisions at the G8 Summit in Gleneagles we
agree a work programme on: the IFF [International Financing
Facility] and its pilot, the IFF for immunisation; some of the
revenue proposals from the Landau Report brought forward by France
and Germany which could also refinance the IFF; the Millennium
Challenge Account; and other financing measures; so that decisions
can be made on the constitution of and participation in a financing
package to achieve the Millennium Development Goals.
Statement by John B. Taylor, Under Secretary for International
Affairs, after the Meeting of G7 Finance Ministers and Central Bank
Governors, London, UK
February 5, 2005
[Excerpts. See http://www.treas.gov for full text.]
...
The U.S. came to this meeting to emphasize first and foremost the
need to strengthen economic growth. This is of paramount
importance for the benefit of our own economies and the world as a
whole - and indeed, achieving stronger growth was the centerpiece
of our discussions.
...
On the subject of growth, I want to note how pleased I was to join
the G-7 Finance Ministers in meeting this morning with our
counterparts from key emerging market countries - Brazil, China,
India and South Africa. These are rapidly emerging countries,
which represent an increasing share of the global economy and will
play an ever larger role over time. Their views enriched our own
discussions, and I look forward to continued consultations going
forward.
...
A vibrant world economy also depends on free trade. Today, we
called for urgent conclusion of the Doha Development Round.
Allowing international competition in the financial sector is
particularly important for developing countries to be able to
respond efficiently to the new trade opportunities afforded by such
an agreement. Research shows that greater foreign direct
investment in the financial services sector, coupled with
strengthened regulation and supervision, helps spur financial
sector development and efficiency - and helps promote economic
growth. We are urging all countries to submit ambitious offers
on financial services by the deadline for such offers this spring.
...
Turning more broadly to development, Gordon Brown has rightly
highlighted the importance of tackling the challenges of global
poverty. This was a key focus of our discussions today. The
United States is deeply committed to helping the poorest countries.
And we have acted accordingly - for instance, increasing our
development assistance by 90 percent between 2000 and 2004, well
beyond the commitment we made in Monterrey. Assistance has doubled
to thirty-two sub-Saharan African countries since 2000. More
importantly, we are being more selective in deploying our
assistance funds, through initiatives like the Millennium Challenge
Account, and we are leveraging our official assistance by
catalyzing other financial flows, reducing trade barriers, and
encouraging debt relief.
For some time now, the United States has strongly stated our belief
that more must be done to prevent the build-up of unsustainable
debts in poor countries. Increased reliance on grants, as we have
achieved in several MDB [Multilateral Development Banks]
replenishments, is a crucial component of any long-term solution.
But we can do more to put these countries on a path to the future.
There are a number of proposals about how to proceed on debt. The
United States favors action to provide up to 100 percent relief of
MDB soft loans to the poorest debt-vulnerable countries. Also, we
believe that all bilateral creditors should follow the United
States in providing 100 percent debt relief under the Enhanced HIPC
Initiative. This action, coupled with grants going forward, will
put these poor countries on a sustainable path. On the IMF side,
it will be important to think carefully about how to ensure that
the IMF engages productively in poor countries. This is an area
that requires further consideration. We look forward to working
together to achieve consensus on an approach that resolves ongoing
debt sustainability concerns and puts an end to the
lend-and-forgive approach to financing development.
...
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