By Rubens Ricupero
The Clinton administration's proposals to overhaul lending activities of the World Bank and other development banks appear set to dominate the debate on global governance. Many of the recommendations are highly contentious, and there are already signs that the urgent need for reforms to the international financial architecture may be sidetracked by political posturing and rhetoric.
However, on one issue - the large debts of poor countries - the commission that came up with the proposals voted unanimously on the desirability of writing off all multilateral claims against countries that implement an effective development strategy. It also recommended that bilateral creditors should similarly write-off these countries' debts. These specific recommendations should not be ignored in the controversy over the Meltzer Commission's other proposals.
The size and nature of the debts burdening the world's poorest nations is widely recognized. According to the latest figures, the average per capita income in the heavily indebted poor countries barely reaches a dollar a day. A large part of these countries' external debt - which totals some $200 billion - is official, meaning it is owed by governments. Just paying interest on this debt has been absorbing more than 5 percent of their economies a year. The burden on already scarce resources in regions such as sub-Saharan Africa, where the debt problem has been increasing in recent years, is unacceptable on both economic and ethical grounds.
There is ample evidence of the adverse effects of the debt on investment and growth in these countries. Since it is mainly owed by governments, the overhang deters public investment in physical and human infrastructure. It has also created a problem of policy credibility and considerable uncertainty for private investors, including foreign investors, who tend to stay out of countries with serious debt-servicing difficulties. Indeed, it is almost impossible for a country suffering from debt overhang to have access to private capital markets.
The approach to debt reduction used so far has been inadequate. It has perpetuated aid dependency, and it has failed to promote sound policies and commitment to, and ownership of, such programmes. In 1998, the United Nations Conference on Trade and Development called for the swift and full implementation of any recommendations regarding writing off unpayable debt.
The undivided Meltzer Commission appears to approve the criteria we outlined, and we wholeheartedly endorse its recommendation to write-off these debts in their entirety. The point is not, of course, to see debt relief as a panacea for the deep-seated policy challenges facing these countries. But it would be one less sizable problem for the policy makers to deal with. With the debt burden removed, the chances that viable growth and development strategies might emerge in these countries would be significantly improved.
We are not a lone voice on these matters. The campaigning of civil society on this issue, through groups such as Jubilee 2000, is well known. Overcoming the debt problem is among the major challenges facing the global community.
As many developing countries are finding it increasingly difficult to benefit from the opportunities of globalization, debt forgiveness would set the right tone of bold and effective leadership. These countries are looking for leadership from the international community. Moreover, such a gesture would help repair the bridges between developed and developing countries that were damaged in Seattle late last year at the ministerial meeting of the World Trade Organization.
The gathering of leaders of the Group of Seven industrial powers in Osaka in June would be the appropriate venue for the representatives of the world's wealthiest nations to endorse and enact recommendations on debt write-offs for the poorest.
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