Global Policy Forum

By David R. Francis

A new plan by the world's richest nations to cut the official debt of the world's poorest nations is getting bad reviews. On the face of it, the plan announced last weekend in Cologne, Germany, by the G-7 group of industrial nations is aimed at helping 430 million people in some 33 highly indebted countries. Most of these are in sub-Saharan Africa. The US claims it provides for slashing up to 70 percent of official debts.

But to some economists and to those activists who lobbied the G-7 for debt relief, the plan itself is highly deficient, partly a political document, and still fuzzy as to how it will be implemented. "It is not a significant reduction," charges Charles Aniagolu, spokesman in London for the Jubilee 2000 Coalition, a worldwide alliance of nongovernmental organizations and religious groups pressing for debt relief. The coalition presented the G-7 leaders with a petition signed by 17 million people from rich nations urging debt cancellation.

"There is a lot less [in the plan] than meets the eye," holds Mark Weisbrot, an economist at a Washington think tank, the Preamble Center. "You have to always read the fine print."

"Big step forward ... but about half of what is needed," says Seth Amgott, spokesman for Oxfam, another member of the coalition.

That, of course, is not how the G-7 - the US, Japan, Britain, France, Germany, Italy, and Canada - see it. A fact sheet offered by the United States Treasury describes the Cologne initiative as providing "deeper, broader, and faster debt relief in return for firm commitments to channel the benefits into improving the lives" of the people in the debt-burdened nations.

To critics, the plan's requirements for "structural adjustment" - more spending on social needs, less on military - in countries getting debt relief will do damage greater than the benefits. But to the G-7, the economic guidance of the International Monetary Fund (IMF) and World Bank are vital if their money isn't to go down the tubes in corruption and unwise management. "If a country doesn't have the right economic policies, it isn't going to help much to get debt forgiveness," says William Cline, chief economist at the Institute of International Finance, a Washington group representing the world's largest private financial institutions.

In today's dollars (net present value), the US figures the amount of debt relief would more than triple from $13 billion under the current framework to as much as $50 billion. Total debts in nominal dollars would fall from about $127 billion to as low as $37 billion. Moreover, the number of countries expected to qualify for relief would rise from 26 to 33. These would include such nations as Ethiopia, Niger, Nicaragua, Tanzania, Uganda, Ghana, Rwanda, Benin, Honduras, Laos, Senegal, and Mozambique.

Another G-7 goal is to reduce the time needed for a nation to qualify for relief from six years to three years if it has been implementing reforms. But details are unclear. For instance, will the time be back-dated for countries already engaged in IMF-approved programs? Besides relief on government-to-government debts, the IMF and World Bank will be required to ease the burden of the debts owed to them. However, these two multilateral agencies have policies prohibiting any debt forgiveness. As a way out of this quandary, they are expected to grant fresh long-term loans at a rate below inflation - 0.5 percent.

The plan calls for the IMF to sell as much as 10 million ounces of its gold reserves to raise the money it needs. This has alarmed the gold industry. The sale would require approval of Congress, and some members from mining states are threatening to block the deal. But an IMF spokesman says that 10 million ounces amounts to a mere three hours of trading on the London gold market. If phased in over some years, it should have little impact, he says.

Some members of Congress are pushing bills that would require the US to do more on debt relief. "The Cologne approach is not as comprehensive as the need demands," says the backer of one such bill, Rep. James Leach (R) of Iowa, who chairs the key House Banking Committee. "Countries such as Bangladesh and Haiti might be 'redlined' from participation, and from an African perspective,... the amount of relief will not be deep or fast enough to deal with the social chaos resulting from the spread of AIDS." Next week, Congresswoman Cynthia McKinney (D) of Georgia plans to introduce a bill that would cancel all US bilateral debts to 41 poor countries.

Michel Camdessus, IMF managing director, says the IMF aims for agreement on the plan by the annual meetings of the IMF and World Bank to be held in September.

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