G-7 approves debt relief, but British ‘Marshall Plan’ for poor countries faces US skepticism.
London: Britain’s lofty ambition to turn 2005 into a breakthrough year for tackling global poverty has cleared the first hurdle, but development experts are unsure if it will prove a turning point.
Last weekend’s agreement in principle by the G-7, the group of seven countries to write off up to 100 percent of debts owed by dozens of poor countries kick-started the British-inspired “Marshall Plan” for the developing world.
But economists and charities warn of formidable challenges to truly transforming the relationship between rich and poor.
They also note that the world’s foremost financial power, the US, appears skeptical of some of the British initiatives.
“As long as the US keeps saying they are not interested, then that slows down what will happen,” says Oliver Morrissey, professor of development economics at Nottingham University. “The Europeans can go it alone on some aspects, but whether it’s enough remains to be seen.”
Debt-relief campaigners have for years argued that the heavy burden of repayments was stunting growth and exacerbating health, education and development problems in poor countries. Many countries still devote more resources to paying off loans to rich countries and international institutions than they do on healthcare.
But simply forgiving debt is not that straightforward, experts say. Western governments want to know that the money they are releasing will go toward poverty relief and not be spent on presidential palaces and fighter planes.
They also need to know that their domestic public is prepared to pay. Loans given out by institutions like the World Bank originate in national treasuries, which are underwritten by taxpayers.
Professor Morrissey says donors have gone a long way toward making relief more acceptable.
“The mechanisms for monitoring and allocating aid have improved significantly,” he says. “There is a greater understanding of which countries have implemented mechanisms and which haven’t.”
Saturday’s G-7 agreement trumpeted by British Chancellor Gordon Brown calls for a case-by-case analysis of poor countries. Some who meet criteria for good governance and economic reform, like Ethiopia, Mozambique, and Uganda, stand to cash in. Others ruined by conflict and corruption, like Sudan and Somalia, may not.
“Countries that are clearly not going in the right direction aren’t eligible for this kind of relief,” says Adrian Lovett, campaigns director at Oxfam International, which is a partner in a broad coalition called Make Poverty History.
He points to an Oxfam program in Malawi that checks if schools have received funding directed toward them. If they haven’t, reports are published in the local press. “It’s democracy in action, triggered by the debt-relief process,” he says.
Then there are budget pressures. Britain estimates that its contribution to the debt-relief plan will cost as much as £128 million ($237 million) a year by 2015 – or around £2 – $3.70 – per person.
“The government’s position is that those who have the ability to help the poorest would do so. You wouldn’t hear much of the electorate arguing against that,” a treasury spokesman says.
Three years ago, rich countries agreed to spend 0.7 percent of GDP on aid to poor countries. Simply doing this would raise sufficient funds to enable the debt burden to be written off, while also allowing for dramatic increases in aid.
Mr. Lovett says it’s a small price to pay. “Even if they hit that target, we’re are talking 70 pence in every £100,” he comments.
Yet the target remains distant. On average, rich countries spend just 0.25 percent, with the US currently below the 0.2 percent mark. US officials point out that they have quadrupled aid pledges to Africa in the past four years, and the 2006 budget foresees a considerable boost in foreign aid.
But some of the British ideas concern the US, particularly a plan to double aid contributions to $100 billion a year by issuing bonds, which would, in essence, drum up tomorrow’s aid money today. US Treasury Under-secretary John Taylor said the idea “does not work for the United States.” He was also lukewarm about plans to revalue the IMF’s underpriced gold stocks to generate such funds.
The effort to address global poverty comes against a dispiriting backdrop. More than a billion people still live on less than a dollar a day. According to Oxfam, 2 million children will die of preventable and treatable diseases, as well other symptoms of poverty, between now and the next summit of the world’s financial elite in April. Five years ago, the UN drew up eight “Millennium Development Goals” aimed at halving poverty, slashing child mortality, and bringing primary education to all by 2015. But according to Brown, at the current rate of progress, those targets will not be met until well into the next century.
Beyond the issues of debt and aid lies a third factor: trade. UN figures show that trade restrictions cost poor countries billions of dollars yearly. Tariffs, subsidies, and other barriers make it extremely difficult for poor countries to generate their own wealth by building sustainable industries based on exports, experts say.
“Terms of trade are a vital component of any global package to combat global poverty,” says Richard Tarasofsky, an expert at the Royal Institute for International Affairs in London. “The manufacturing sector is one area where the terms of trade can have an impact, and currently they inhibit developing countries from being able to add value to natural resources,” he adds.
Mark Rice-Oxley, Christian Science Monitor, February 9, 2005