Global Policy Forum

Jim Lobe

Non-governmental organizations (NGOs) that have been campaigning for years for writing off tens of billions of dollars in debt owed by poor countries to international financial institutions (IFIs) say their dream may soon be realized, perhaps as soon as just nine days from now.

That's when the finance ministers of the Group of Seven (G-7), the world's wealthiest governments, will meet to decide whether to back a joint British-U.S. proposal to cancel all of the debt owed by 33 of the world's poorest nations to the World Bank, the International Monetary Fund (IMF), and regional multilateral development banks. "We are counting down to freedom from debt," said Marie Clarke, national coordinator of Jubilee USA Network, at a rally across the street from the U.S. Treasury Tuesday. "We are encouraged by Treasury's apparent support for full multilateral debt cancellation, but time is running out. We need action, not more words, on October 1 when the G-7 meets."

The NGOs, which include Africa Action, Oxfam, Physicians for Human Rights (PHR), among many others, have been heartened by recent reports that the Bush administration, which is eager to get Iraq's creditors to cancel over 100 billion dollars of debt, has line up solidly behind a debt-cancellation initiative that was first put forward by British Prime Minister Tony Blair at the June Group of Eight (G-8) Summit in Georgia. The administration, which clearly believes that support for the British proposal would give it more leverage in arguing for debt relief for Iraq, is also eager to highlight Bush's "compassionate conservatism" just five weeks before the November elections and sees debt relief - particular if it does incur direct costs to the U.S. taxpayer - as a well-timed vehicle for such a demonstration.

The plan is designed to replace the eight-year-old Heavily Indebted Poor Countries (HIPC) initiative, which was designed to reduce the debt of some 41 eligible countries to more manageable levels in exchange for their implementation of far-reaching economic reform programs designed to make their economies more attractive to foreign investment. So far, 27 countries that together owed the IFIs a total of about US$100 billion have seen their debt reduced by about $30 billion. That reduction translates into roughly a halving of their annual debt service payments. While that represents a substantial savings, most of HIPC's beneficiaries continue to pay more in debt service each year than they spend on health and education, a situation that debt campaigners argue is morally indefensible, particularly because much of the original debt was incurred by western-backed dictators who misspent or, in some cases, embezzled the money.

Even some IFI officials now concede that the debt relief provided by HIPC has been inadequate, particularly in light of the HIV/AIDS crisis in sub-Saharan Africa, which has not only overwhelmed local health systems, but has dragged down economic growth which in turn makes it much harder for countries to repay the debt the owe. "These debts are fundamentally illegitimate," according to Salih Booker, executive director of Africa Action, a grassroots group that led the anti-apartheid campaign in the U.S. during the 1970s and 1980s. "They undermine African efforts to address HIV/AIDS and other challenges, and they should have been canceled a long time ago." "There is an explicit and intimate linkage between debt and death (in poor countries)," noted Holly Burkhalter, PHR's Washington director, who released a letter from 150 doctors around the world calling for total debt cancellation. She said the debt was wreaking havoc in already-overstretched health systems.

Despite the Bush administration's backing for the proposal, it is not yet a done deal, according to the NGOs and administration officials. A number of other G-7 members, which, besides the U.S. and Britain, include Canada, Germany, France, Italy, and Japan, have voiced objections. They have argued that total debt cancellation could make it more difficult or even impossible for countries to reestablish their creditworthiness and that the administration's proposal for paying the costs associated with cancellation - through the Bank's own resources and sales of gold held by the IMF - could inflict long-term damage on the lending ability of both institutions.

At the same time, however, Bush's backing for the initiative should give it new momentum. His past insistence that other western governments forgive a higher percentage of Iraq's debt than HIPC offered to much-poor countries had irritated other western governments. French President Jacques Chirac, in particular, had explicitly objected to giving Iraq greater debt relief than far more needy countries. Some activists said they feared that the cancellation initiative may still get caught up in trans-Atlantic tensions resulting from the Iraq invasion. "We have a saying in Africa," said Njoki Njoroge Njehu of the '50 Years is Enough' campaign, a coalition of groups that oppose the IFIs' structural adjustment programs (SAPs). "When elephants fight, it's the grass that gets hurt."

For that reason, the NGOs are backing the Anglo-U.S. proposal, although many would go much further than what will be put on the table at the October 1 meeting. Jubilee's Clarke said her group opposes any SAP-like conditions imposed on beneficiary countries in exchange for debt cancellation. Many development NGOs criticize SAPs because the burden of structural adjustment has often fallen disproportionately on the poor and most vulnerable sectors of the population. "We are looking for 100 percent debt cancellation without conditions," she said. She added that debts should be cancelled for more countries than the 33 that are targeted by the current proposal. Many other poor countries who do not meet the technical requirements of HIPC are nonetheless paying far too much in debt service, she noted.

The G-7 meeting is to take place on the eve of the annual meeting of the boards of governors of both the World Bank and the IMF at their headquarters in Washington. The G-7 and other western countries have sufficient voting power on the boards of the two agencies that, once they agree on an initiative, its adoption is virtually assured.

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