March 2005

Views expressed are those of the authors, not necessarily of the AFSC.

Global Debt Cancellation Prospects

50 Years is Enough: US Network for Global Economic Justice monitors the activities and policies of the world's major economic powers. This material is from "Update on Debt" posted on their web site following the 2/05 meeting of the finance ministers of the seven wealthiest nations in the world (the "G7").

Debt campaigners have identified 2005 as a potential breakthrough year. Beginning with the June 2004 Summit in Sea Island, Georgia, the finance ministers of the most powerful countries of the world have been discussing 100% multilateral debt cancellation for a number of the world's most impoverished countries.

Their proposals fall short of debt campaigners' demands -- by restricting the number of countries eligible for the cancellation, and by not explicitly rejecting externally imposed conditions on the cancellation. But the proposals do go well beyond anything the G7 has discussed before.

Unfortunately the differences seem to be growing wider rather than narrower. One official characterized the group as having four proposals in front of them, though in reality the UK and US plans are far more comprehensive. Each has its shortcomings, and none commands clear majority support.

The UK, which is determined, partly for domestic political reasons, to reach a landmark agreement during its 2005 presidency of the G7, has proposed something that is more accurately thought of as a 10-year period of relief on debt payments. In essence, wealthy countries would agree to make the payments that the impoverished countries would otherwise be making on their World Bank and African Development Bank debts for 10 years. The UK is in fact going forward unilaterally with this plan, paying what it figures is its "share" of some countries' multilateral debts starting this year.

IMF debt payments would be made with money raised from selling or re-valuing some of the IMF's massive gold reserves -- a move that we and others have been urging for many years.

The main problem with the proposal is that it requires new funding to be designated by wealthy countries for debt relief -- something that the US, German, and Japanese governments have all indicated is very unlikely. It also covers a relatively small number of countries -- the UK's formula for eligibility relies mainly on whether countries have met IMF-imposed goals, and for the time being would include only about 22 countries. Other problems include the fact that the debt stock is not actually cancelled -- after 10 years countries would resume their debt payments -- and that the power of the institutions is left intact despite their culpability in creating the debt crisis.

The US proposal would completely cancel the multilateral debts of all the countries designated by the World Bank as "heavily-indebted poor countries" -- about 42 in all, including such unusual suspects as Sudan and Somalia. It would not require new financing from wealthy countries, but instead would be a true "write-off": the institutions would cease to expect the scheduled repayments. A number of programs and reserve accounts held by the IMF and World Bank are suggested as sources of cash to balance out the loss of expected resources.

We count all of these as good things -- avoiding the practical difficulties in getting the US Congress and other countries to provide new funding, forcing the institutions to be accountable for some of the damage they have done, and reducing their power by reducing the amount of money they have to lend. Others, however, including both European governments and civil society organizations, are opposed to such a "financing" plan. They see it as a way for the US to weaken the World Bank and other institutions, and fear that if the Bank is defunded, the scope for multilateral development assistance will be shrunk, and the US will gain more influence over how such assistance is handled, as opposed to the generally more generous European governments.

We are less concerned about those possibilities because we see the weakening of the institutions as a paramount goal, along with 100% cancellation. The US plan would be the best way of accomplishing the former, and the best hope, politically, of accomplishing the latter in a timely way.

For us, the biggest problem with the US plan, and one that would threaten to neutralize any of its positive impact, is the periodic suggestions made by US officials (which echo those made by the Canadian finance minister) that a new IMF facility should be created to offer advice and policy monitoring to countries even when they are not taking loans from the IMF. This would likely be a way of institutionalizing the IMF's power even as it phases out its financial commitments in low-income countries, and would mean the perpetuation of disastrous neo-liberal conditions for an indefinite time.

The French proposal is not really so much one for multilateral debt cancellation as a response to the UK's proposal. President Chirac, while not dismissing the UK proposal, is more interested in promoting global taxes, either on airplane fuel or on financial transactions. We have long supported, along with hundreds of civil society groups, the latter idea, often referred to as the "Tobin tax." Those monies would then be designated for a new fund, probably UN-controlled, for international development.

The Japanese have announced that they do not favor 100% cancellation, and prefer the status quo, in which governments and institutions make loans and expect full repayment. The Canadian government has announced its support for a UK-style initiative, but opposes IMF gold sales or revaluation as one of the financing mechanisms. The Italian and German governments have been quieter, although the Germans have expressed serious reservations about committing any further funding to debt relief.

The next meeting of the G7 Finance Ministers is scheduled for mid-April, just before the IMF/World Bank spring meetings in Washington, DC. Advocacy campaigns will be continuing, and accelerating, in most G7 countries during the interim. In the US, the Jubilee USA Network www.jubileeusa.org will be coordinating the campaigning.

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