Big News: Debt Cancellation and The G8 Summit
Debt Cancellation And The G8
This weekend is a big weekend for debt
campaigners and globalisation haters. About 120 000 of them
are travelling to Italy his week for the G8 summit, an
annual meeting of leaders from the eight richest countries.
Campaigners will be demanding G8 leaders wipe debt of poor
countries, others will be protesting against globalisation,
others will be there just to stir and cause trouble.
15 000 riot police will be there to make sure they don’t. They’ve already had a bomb scare this week.
I for one, am against unconditional debt cancellation, because I don’t believe it will relieve poverty. Poverty will only be relieved if poor countries are mobilised - to grow their economy - by rich ones. Debt relief won’t mobilise poor country economies, it will just stop their debt getting any higher. In any case most of the debt is “unpayable debt”, that is, debt that poor countries will never pay anyway, as they cant afford it.
Debt is, in essence, a bad loan that can’t be repaid. It is a bad loan as it was lent without conditions attached, spent on the military and other uneconomic projects. Of course, if these loans were loaned to the private sector, private creditors would have prudently written the debt off long ago. But 100% unconditional debt write-off is prohibited under the World Bank charter, something which debt campaigners don’t seem to be aware of.
But G8 leaders two years ago promised 100% debt cancellation at the Cologne summit, but did not deliver on that promise. Some countries have cancelled debt but the IMF and World Bank have hot. But if the World Bank’s charter forbids debt cancellation, why did the G8 leaders announce 100% cancellation? After all, G8 leaders run the boards of both the IMF and the World Bank so you’d think they’d have some influence and knowledge? Poor countries certainly don’t have influence, they make up just over 10% of the board.
I`m not against debt relief, just unconditional debt cancellation. Unconditional debt cancellation could increase military spending, spending on uneconomic development projects, or other illegitimate political regimes. In the 1980s, the poorest four countries were paying more per head of GDP in military spending than the United States government as their loans meant they could afford to do so. It was irresponsible lending leading to irresponsible spending - new aid for new wars.
But whose money is it anyway? It certainly doesn`t belong to the IMF and World Bank. They get the money from donor countries. New Zealand recently put $2 million into the Highly Indebted Poor Countries (HIPC) Trust fund, as did Australia. But much of that money didn’t help the poorest poor. Many of them had no access to that money as they couldn’t meet IMF imposed conditions.
Some poor countries weren’t even part of the HIPC initiative and missed out altogether. Consequently, money went to countries who weren’t so poor – who needed it as well.
Maybe Bill Gates and his billionaire mates could give some more money away – after all, the three richest men, and four of the top corporations have more money than the combined GDP of the poorest countries and their 600 million people.
Now the IMF and World bank are saying they can’t provide as much debt relief as they want to, so they are calling on rich countries to cough up and do it themselves – which is what they are doing anyway by providing money to the IMF and World Bank in the first place.
Now these institutions want more because – if they weren`t such a bad lender they wouldn’t need so much. On Tuesday US President George W Bush said he wants development bank handouts to be grants, rather than loans so that the debt load that cripples so many countries can be reduced. Lenders who dish out grants should only give them to those countries most committed to economic and political reform.
That’s aid, which is different from debt cancellation. But then most G8 countries have cancelled poor country debt, which is why the IMF and the World Bank are owed more money than the next seventeen biggest creditors combined. They have refused to as they can’t afford to. If they forgave debt, they say, they wouldn’t be able to provide poor countries with any aid for development. Debt campaigners say they can cancel debt and have the figures to prove it. All the figures were obtained through the public domain, as when they wrote to the IMF and World Bank they got no reply – but pressed ahead anyway.
Debt campaigners link debt with AIDS. Some link it to poverty, which is stupid.
Debt relief wont lead to poverty reduction, but it will work to provide relief for health and education programmes. In Uganda, primary school attendance has more than doubled as debt relief has enabled free primary education.
Mozambique is a success story for debt cancellation. Mozambique was one of the four countries who spent more per head of GDP on defence than the US. After they cut their defence force by two thirds between 1985 and 1987, they had their debt payments reduced by 42 percent, allowing $14 million extra to be spent on health. Other HIPC countries weren’t so lucky. Most spend more on debt payments than on the health of their citizens.
And this is what debt campaigners want stopped. The World Bank wants lending to go to leaders that aren’t so corrupt, Bush wants half the lending to be handouts, campaigners want debt cancelled and lending to go to development and poverty reduction, which they say will pay for the debt. It’s a bit of a balancing act.
Its up to the G8 to address poor country debt again, after they promised 100% cancellation two years ago and didn’t deliver. They won’t deliver this time either.
- Dave Crampton is a Wellington-based freelance journalist, in addition to writing for Scoop he is the Australasian correspondent for newsroom-online.com. He can be contacted at firstname.lastname@example.org