An agreement by the group of seven most industrialised nations (G7) to back 100 percent debt cancellation for poor nations has been applauded by long-time debt campaigners, but they warn the proposal still faces some tough decisions.
“I think now it’s very hard for the G7 to go back on this move towards full debt cancellation,” said Neil Watkins, national coordinator of Jubilee USA Network, a prominent anti-debt group.
“We’ll judge any proposal that they put forth based on the standard which they have now set. In that sense, it’s progress.”
However, the plan is still vague on issues like a commitment to actual cancellation, not just debt service relief, the need to apply it to all impoverished countries, and whether it should come without economic and political strings attached.
The G7 comprises Canada, Germany, France, Italy, Japan, the United Kingdom and the United States, which dominate the executive boards of public lenders like the International Monetary Fund (IMF) and its sister institution, the World Bank.
“This is the first time as much as 100 percent debt relief has ever been detailed in a G7 communiqué,” said British Finance Minister Gordon Brown at the meeting’s conclusion. “It is the richest countries hearing the voices of the poor.”
However, one sign of the long road ahead is that despite appeals from civil society groups and developing nations to act quickly, differences among G7 members already abound over step one – how to fund the plan.
The main proposals revolve around using the IMF’s vast gold reserves. But this is shaping up as one of the thorniest issues, with some key countries still unconvinced.
Jubilee USA Network and the American Friends Service Committee’s Life Over Debt Campaign say that the World Bank and the IMF both have significant funds available to fund full and permanent debt cancellation for impoverished nations struggling with the HIV/AIDS pandemic and other disasters.
They say that the World Bank can mobilise 10 billion dollars of reserves to fund cancellation, and could commit an additional 7.5 billion dollars in accumulated and future profits up to 2020. Meanwhile, IMF gold sales could generate another 35 billion dollars.
The potential gain from gold sales arises because the IMF understates the value of its total gold holdings in its financial statements. A hidden reserve of gold profits arises from the difference between the IMF book value and the market value of the gold..
Activists argue that it is unacceptable for the two institutions – whose missions explicitly involve poverty alleviation – to sit on more than 50 billion dollars of spare funds when millions of people are dying daily for lack of food and health care.
That 50 billion dollars happens to be precisely the amount of additional aid needed to achieve the United Nations’ Millennium Development Goals, which seek to cut poverty and hunger in half by 2015; provide universal primary education; reduce child mortality by two-thirds; cut maternal mortality by three-quarters; promote gender equality; and reverse the spread of HIV/AIDS, malaria and other diseases.
“Every day of delay in providing debt relief has unacceptable human costs,” said Sony Kapoor, a senior adviser to Jubilee USA Network and Jubilee Research in London, where the recent G7 meeting was held.
Last year, Kapoor wrote a widely cited paper showing how IMF gold sales could generate 35 billion for debt cancellation.
Campaigners say that the cancellation of debts owed to the IMF would remove a major obstacle to poverty eradication and economic growth in Asia, Africa and Latin America. Zambia, Tanzania and Nicaragua, for example, spend more on debt service payments than on health and education combined.
But despite intense lobbying by civil society groups, the United States, the most powerful country in the G7, remains sceptical that gold sales would do the trick. Its main objections arise from concerns over the financial integrity of the institutions and the instability of commodity markets.
The United States is the biggest shareholder in both the IMF and the World Bank, and any sale of gold would have to be approved by Congress.
One influential U.S. legislator has already signaled his reluctance to back the idea. Congressman Jim Saxton, a senior member of the Joint Economic Committee, said on Monday that even though IMF is currently studying gold sales as a way to cover IMF debts owed by poor countries, Congress has a responsibility to ensure that gold sales come under “intense congressional review.”
Saxton, who has been tapped to lead the joint House of Representatives-Senate panel, has long favoured debt relief through write-offs financed by the IMF’s other resources and by cutting some IMF lending programmes.
He said he feared that gold sales would violate the principle of transparency, and raise a host of other problems, including the potential impact on commodity markets. In effect, IMF gold sales would “amount to hidden contributions of gold profits legitimately belonging to IMF donor countries and their taxpayers,” he said.
The IMF report on gold use will be discussed at the April meetings of the IMF and World Bank in Washington.
Activists contend that concerns about the stability of gold markets are exaggerated.
“They could be managed in a way that won’t affect the gold prices,” Watkins said. “Besides, gold prices are at a historic high right now, and if you are worrying about that and not about countries suffering under the burden of debt, then you have the wrong priorities.”
“The challenge is to demand that we move from this rhetorical, vague commitment into full debt cancellation for impoverished countries without harmful conditions,” he said. “That’s the real challenge.”
Emad Mekay, Inter Press Service (Johannesburg), February 9, 2005