EURODAD Report: G8 Debt Plan More Of The Same
Some non-G8 Governments trying to unstitch the Deal at IMF Board - what the Communique says and what civil society groups say. By Gail Hurley
The deal, as presently agreed, is worth US$40 billion over the next 40 years. A further 9 countries could be included in the plan over the next two years bringing the total cost to US$ 55 billion. The text of the official communiqué reads: "The G8 has agreed a proposal to cancel 100% of outstanding debts of eligible Heavily Indebted Poor Countries to the IMF, IDA and African Development Fund, and to provide additional resources to ensure that the financing capacity of the IFIs is not reduced, as set out in the statement of 11 June."
This was as expected by debt campaigners however there were fears just before the G8 Summit that support by some members of the G8 for this proposal was shaky. There is therefore some relief that G8 Heads of State have not reneged on the plan announced by G7 Finance Ministers in June but campaigners are very clear that the plan falls far short of what is really needed - and has many flaws.
Stephen Rand of Jubilee Debt Campaign, UK said "this deal is an inadequate response to the global debt crisis, particularly in its failure to challenge the damaging and undemocratic conditions that are consistently attached to debt relief. This [deal] will provide less than US$1 billion per year - the equivalent of less than one dollar per head per year for the people who will benefit - when more than $10 billion a year of debt cancellation is needed to contribute to the ending of extreme poverty."
In a joint African civil society statement on the Summit's conclusions, Hassen Lorgat of South Africa's SANGOCO, a national NGO forum, stressed that "the debt package only provides only 10% of the relief required and affects only one third of the countries that need it. A large component of the US$50 billion pledged is drawn from existing obligations".
Lidy Nacpil, international coordinator of Jubilee South said, "the conditionalities attached to debt cancellation will exacerbate poverty rather than end it".
AFRODAD commented: "We continue to question - how democratic is the selection criteria to pick on post completion point HIPCs and, after all, the agreement does not address the real global power imbalances in which debt is just but a conduit of expressing it. We reiterate our position that the debt crisis needs a lasting solution in which all stakeholders - debtors and creditors have a say."
The plan also falls far short of what the African Union has called for. The draft declaration of the 5th African Union Summit, held from 28 June to 5 July, indicates that African leaders are calling for "full debt cancellation for all African nations" to the tune of US$350 billion - a far cry from the US$40 billion promised by the G8.
IMF leaked Memo Points to Attempts to get IMF Debt Cancellation delivered in Phases linked to Conditionalities
But despite the very limited nature of the plan agreed by the G8 last Friday, there are already very worrying indications that some IMF Executive Directors are attempting to block any steps towards irrevocable cancellation of IMF debts at HIPC completion point. The fact that debts are supposed to be written off once and for all at completion point is one of the few aspects of the G8 debt deal which offered real hope that indebted poor countries could escape from onerous conditions imposed by the International Financial Institutions.
In a memorandum to IMF Managing Director, Rodrigo de Rato obtained by EURODAD, 4 Executive Directors recommend that debts be relieved in a "phased manner" linked to "appropriate" conditionalities. This means the debt would be kept on the books. According to the leaked memo, this would help ensure "good governance, accountability and transparency on the part of countries whose debt is cancelled". NGOs however will argue that such moves will only serve to strengthen the control of the IMF over debtor country policies and that completion point countries have already had to implement deeply unpopular economic reform programmes to arrive at this point.
Indeed the memo, from the EDs of Belgium, Netherlands, Norway and Switzerland confirms as much. It states that debt relief in a phased manner would "enable the Fund to continue having active policy dialogues with poor countries, monitor their policies closely and provide financial support […] on condition of the implementation of adequate policies." Executive Directors to the Sub-Saharan African region have complained however this means that irrevocable and unconditional debt cancellation for the 18 completion point countries is still far from assured. Campaigners therefore need to remain vigilant on this point over the coming month when the IMF Board next meets to discuss this issue as well as in the run-up to the IMF/World Bank Annual Meetings in September when the G8 debt relief proposal will again be considered by the Boards of these two institutions - in particular because the same 4 EDs have asked Fund staff to explore ways to "strengthen" or "improve" the G8 proposal where possible. Fund staff clearly have a bias and interest against 100 per cent cancellation of the debts owed to them.
One key entry point for campaigners could be to point to the blatant contradictions between grandiose public declarations and insider political manoeuvrings behind closed doors. In the official G8 communiqué released last Friday, leaders pledge their commitment to developing country ownership of the policy space. The communiqué reads: "It is up to developing countries themselves and their governments to take the lead on development. They need to decide, plan and sequence their economic policies to fit with their own development strategies, for which they should be accountable to all their people". Yet all the signs are that some elements within the IMF clearly wish to retain the Fund's strong hold over the policy space in poor countries. This is regrettable given the clear failure of the fund's policy advice over the past 25 years. Latin American campaigners have noted that in the IMF's own report on "Reform and Stabilisation in Latin America", the Fund "acknowledges that no evidence exists of a link between structural reforms and poverty reduction. On the contrary, it is accepted that, despite reducing inflation, the region has not succeeded in securing improvements in poverty reduction or income distribution. During the last 10 years, the number of people living in poverty in Latin America has risen from 14 million to 214 million human beings who cannot satisfy their basic needs" (Estrategia Andina-Centroamericana- Amazónica).
Moreover, the way the debt deal has been organised means that countries will anyway have to implement IMF/World Bank conditionality in order to receive new financing from IDA and AfDF. See "Devilish details: Implications of the G7 debt deal" for further elaboration: http://www.eurodad.org/articles/default.aspx?id=628
IMF Gold: No more Excuses
In the same memo, Executive Directors (EDs) do however raise the issue of equality of treatment between HIPCs and other very poor highly indebted countries who do not currently benefit from any debt cancellation efforts. If the country list were to be expanded for reasons of "equal treatment", say the 4 EDs, this would leave the fund with a financial shortfall of between US$3-3.75 billion which could be financed by a limited sale of fund gold. Again, campaigners had pushed hard for the sale of IMF gold to fund cancellation of debts owed to at least the IMF. Numerous research papers had shown that a "phased" sale of IMF gold over a period of 20 years conducted in an open and transparent manner would have negligible impact on world gold prices (see for example: "Sell IMF gold to cancel the debt: decision time is now": http://www.eurodad.org/articles/default.aspx?id=612). In March 2005, the IMF acknowledged as much in an internal non-public paper which admitted that that phased gold sales within the framework of the Central Bank Gold Agreement or direct sales to gold purchasing central banks were possible (for the IMF paper, see: http://www.eurodad.org/articles/default.aspx?id=612). Nevertheless, rich country governments have so far lacked the political will to make these proposals a reality. In particular the US Government has actively sought to block any deal on IMF gold sales following intense lobbying by gold producing and trading companies. This is despite recent statements by at least three gold-producing developing nations (South Africa, Tanzania and Guyana) in full support of IMF gold sales. However it seems that some governments and some Executive Directors to the IMF could still be pushed further on this issue. Campaigners should therefore continue to raise this issue very strongly with their governments.
This deal of course leaves many other equally poor and highly indebted countries squarely excluded - and for no apparent reason at all. One is Kenya and their exclusion has provoked outcry among Kenyan Government officials and Kenyan NGOs alike. Kenya's Chairman of the Parliamentary House Finance Committee, Mutahi Kagwe described Kenya's exclusion from international debt cancellation efforts as a "miscarriage of justice". In a new report from the Justice and Peace Commission of St Paul's Church, Nairobi University (see attached), Christopher Gekonge and Frederick Mwangi argue that the current debt burden "condemns [citizens] to perpetual poverty and economic enslavement". In the paper, "A case for debt relief for Kenya", Gekonge and Mwangi call on creditors to cancel the US$10bn in debt owed by Kenya which represents "one of the greatest stumbling blocks to the creation and accumulation of wealth and job creation by individual Kenyan citizens". They point to the US$120mn in annual debt service payments which are mostly interest, not principal. They also highlight a low per capita income of US$390 per year and life expectancy of just 48 years. The authors recommend that freed-up resources be invested in people, improvements in governance and security, infrastructure, improvements in the productive sectors and poverty reduction. Report also available on the EURODAD website: http://www.eurodad.org/articles/default.aspx?id=636
EURODAD's new report on the G8 debt cancellation plan also points to concern with the limited country list. The report "Devilish details: implications of the G7 debt deal" (see: http://www.eurodad.org/articles/default.aspx?id=628) argues that "there are many more low-income and middle-income countries who need partial or 100% debt cancellation". On average the 18 eligible countries will save US$1 billion each year over the next ten years in debt service - this means that the deal "cancels only 10% of the debts that need to be cancelled. The 62 countries that need 100% debt cancellation to achieve the MDGs by 2015 pay over US$10 billion in debt service to the multilaterals per year."
G8 confirm that Debt Relief to continue to be a Major Part of Aid Budgets
Reading between the lines, the G8 communiqué confirms that it is wholly acceptable to count debt relief efforts as Official Development Aid (ODA) - and that debt relief will continue to be an important component of ODA. The communiqué reads: "G8 countries and other donors have made substantial commitments to increase aid, through a variety of means, including traditional development assistance, debt relief and innovative financing mechanisms". Statements like these fly in the face of commitments made at Monterrey in 2002 to which all G8 Governments have signed up to. The Monterrey Consensus - which the same governments signed just three years earlier - states that it is "critical" that debt relief efforts "be fully financed through additional resources". Yet, increasingly we see that debt relief is used as a tool to try to reach the commitment of 0.7% ODA/GNI. In France, almost one third of the aid budget is devoted to debt cancellation efforts. Last Friday, Spain announced a further US$350 million in debt cancellation efforts for the 38 HIPCs. However the Observatorio de la Deuda en la Globalización believes that these cancellations are simply being used to help the Spanish Government reach its agreed EU interim target of 0.5% ODA/GNI (see: http://www.observatoriodeuda.org/cast/docs/boletin/canjedeuda.pdf for ODG's full press statement on the announcement).
The G8 communiqué also mentions the problem of export credit debt (albeit very briefly). The G8 commits to "strengthening anti-bribery requirements for those applying for export credits and credit guarantees". It is a welcome acknowledgement that export credit processes have in the past (and continue to be) tainted with corruption which goes largely unchecked - these loans then go on to become sovereign public debt for countries in the south. However the G8 still fail to elaborate further on exactly what measures they intend to take in this regard and within what timeframe.
Civil society groups around the globe as well as the Global Call to Action Against Poverty have issued their formal responses to the G8 "disappointment". EURODAD has compiled these below along with links to further information and useful documents. G8 Heads of State must understand that the very limited actions they took last week only mean that the debt campaign will go on - as vigorously as ever before - and governments should be aware that we will continue to watch them and continue to campaign hard for debt cancellation for all those countries of the south that need it - as a matter of urgency and as a matter of justice.