Debt Relief

Third World debt relief gets world’s attention

Suddenly debt relief is all the rage. Everybody is trying to get in on the act, saying that not enough is being done to provide financial help to the poorest nations.

Bill Clinton, Gerhard Schroder, Michel Camdessus: you name them, they’ve got a plan.

Make no mistake, this is a famous victory. It is a triumph for morality, a triumph for conscience and a triumph for good. It is a deeply significant moment for grassroots activism and democracy, and the Jubilee 2000 coalition has every reason to feel proud of itself for what has been achieved. Likewise Gordon Brown and Kenneth Clarke, the British chancellors who kept plugging away when debt relief was far less fashionable in the councils of the Group of Seven leading industrial nations than it is today.

In truth this is just the start of the battle. The hard bit is yet to come. Debt campaigners now find themselves like one of the armies on the Western Front that managed to punch a way through the barbed wire and mud into open country on the other side of the trenches.

Invariably, the shock of unexpected victory took the attackers by surprise and they were unable to make the most of their success. Stalemate returned.

So it could be with the campaign for debt relief. The principle that th heavily indebted poor countries (HIPC) initiative needs to be revamped has been accepted, but that is all. What happens next is pivotal. If the opportunity for serious reform is squandered, a similar chance will not present itself for years.

No big decisions will be made at this week’s meetings of the World Bank and the International Monetary Fund in Washington, but by this time next year qualification for HIPC will be speedier and easier. Instead of waiting for six years to secure debt relief, countries will be eligible in three. The entry terms will be made more realistic.

The speed of the progress since last year’s G7 summit in Birmingham, when the city was ringed by tens of thousands of Jubilee 2000 campaigners, means that all this is now taken as read. The question is whether it is enough. Predictably, perhaps, the answer is no.

There is plenty more the West could do to make long-term development a reality. There are those who would like reform of the IMF’s structural adjustment programmes, those who want reform of the World Trade Organisation, those who seek reform of the global capital markets and transnational corporations.

Another priority is to ensure that the debt relief is well spent and goes to those who need it most. Much of the correspondence to the Guardian during its support for the Jubilee 2000 campaign has stressed that point. Campaigners know that support will dwindle fast if money from debt relief is siphoned off to Swiss bank accounts or ends up lining the pockets of arms dealers.

There is an argument that says debt relief should be granted with no strings attached. Poor countries should be free to do what they choose with their money, without interference from Western goverrunents and multilateral institutions.

In a perfect world this approach would have great merit. It is all very well for the rich nations to decry corruption in Africa, but the West’s democratic structures have had centuries to evolve and mature. Even now you don’t have to scratch the surface hard to find some unsavoury things going on.

The difficulty, however, is threefold. First, the level of corruption in some African countries has been of a completely different order of magnitude. While President Mobutu was stashing away a private fortune of $4 billion, Zaire was going backwards. The country had more than 140,000km of usable roads under Belgian rule in 1960, but only 19,000km a quarter of a century later.Second, those who rule have little incentive to embark on long-term development projects. Their economies are small and usually based on a single commodity, but commodity prices have been falling relative to manufacturing goods and services. Famine and popular discontent, particularly where the legacy of colonialism was an ethnically driven state, means that there has always been a need to build up a power base.

As such, education budgets that should have been spent on primary schools have gone on universities, health budgets have gone on lavish teaching hospitals. This has been good for a vociferous and influential elite, but disastrous for the development of grass-roots civil institutions that could strengthen democracy.Third, unless there are safeguards in connection with debt relief, the reform process may be truncated, delayed or abandoned. As David Golding, spokesman for Jubilee 2000 at Newcastle university, says:”We know that this concern is widely shared. Others, however, wonder whether this stance is not an excuse to avoid grasping the nettle.”

What should these safeguards be? Dr Golding’s group argues that debt should be suspended rather than cancelled outright, and that relief should be available from the start. Suspension should be renewable on a year-by-year basis, subject to adherence to agreed conditions. In the event of backsliding, resumption of debt service should be imposed. The advantage of this approach is that it is forward-looking. Countries will not be judged on what they did in the past but what they are doing now. They would have plans for primary school coverage and primary health care coverage, and have a real incentive to stick to them. But, as Colin Lacey of Sussex university’s Institute of Education says, this is not just a question of increasing spending, it is also a question of evaluation,monitoring and learning from best practice.

Of course all this is easier said than done. Social conditionality will merely impose a new burden on poor countries unless the IMF mends its ways. It is simply untenable for the World Bank to insist on higher health and education spending while the IMF calls for lower public spending as part of a structural adjustment progranune.

A social code of the sort proposed by Mr Brown should be given priority in the IMF’s programmes, or the IMF should admit defeat in its power struggle with the World Bank and get out of development altogether. The Bank accepts that debt relief should be provided in a way that reinforces poverty reduction. The IMF is still obsessed by the failed orthodoxy of short-term fiscal indicators.

The IMF’s top-down approach has clearly been an abject failure. For too long the debate has been about what the West is prepared to accept rather than what the poor countries need or can afford to pay.

Jubilee 2000 has changed the terms of that debate so that there is now a chance to build from the bottom up. Moving forward does not mean writing blank cheques. It means holding world leaders to their pledge to halve global poverty by 2015 through debt relief, increased aid, institutional reform and fairer trade policies. Political pressure has worked. The trick is to ensure that it goes on working.

Larry Elliott, The Guardian Weekly, May 2, 1999

Categories: Debt Relief, Odious Debts

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