At long, long last, we are beginning to see some real progress on debt relief. Every year, a few weeks before the G8 heads of state/parliament meeting, finance ministers from the G8 meet to hold some discussions which will inform the agenda for the later meeting. This year, the focus was heavily laid on poverty reduction initiatives and reports are that a deal has been reached for enhanced debt relief.
Larry Elliott’s coverage in the Guardian is worth a look and Jubilee Debt Campaign have a good breakdown of the deal, but in simple terms what has been agreed is total debt cancellation for countries reaching completing the HIPC process. Until now, completion of HIPC only led to a reduction of the debts to ‘sustainable levels’ (often anything but sustainable) and many of the highly publicised ‘debt cancellation’ deals were in fact little more than deferments of loan repayments.
This is the first significant progress on debt relief for nearly five years. At the G8 summit in Cologne in 1999 a package of debt relief was announced, but it has been slow to come through. In 2000 a number of countries announced cancellation and/or deferment of ‘bilateral’ debts (owed directly to governments rather than through organisations like the World Bank, IMF, the Inter-American Development Bank, and the African Development Bank). But since then, despite rumblings about an international bankruptcy process, changes have not been forthcoming.
It won’t come as a surprise to anyone who’s been following the situation that this deal does not go nearly far enough. Immense as it is, the deal appears to be limited to those countries eligible for HIPC and not the increasing number of developing countries with unsustainable debt loads. Jubilee 2000 called for the cancellation of debts owed by 52 countries. Jubilee Debt Campaign is now reporting that the number urgently needing debt cancellation (in order to reinvest in healthcare, education, and essential public services) has risen to 62. Only about 38 of those meet the stringent HIPC conditions, and getting through the process can take some time.
Controversially, much of the money being used to fund debt cancellation will come from funds that were to be used as development aid for the countries who will benefit. While it is likely that the money is better spent on debt cancellation (poor countries pay out in debt service many times the amount they receive in aid) but it will have major repercussions. On a more positive note it does look as if the money for cancellation of debts owed to the IMF will be paid from sale of gold reserves or other internal funds, a move campaigners have long been calling for.
For those of us who have been campaigning on the debt issue this move comes as a significant endorsement of our arguments and this new deal has the potential to have a huge impact on the economies of many countries, and the lives of their people. As we saw in the aftermath of Cologne, however, this is definitely not the time to lift the campaigning pressure: we must ensure that the deal is quickly extended to cover more countries through a fairer process, and most of all to ensure that promises are rapidly delivered on. The Finance Ministers have made the most significant announcement yet to come from a G8 meeting, hopefully the national leaders won’t allow their thunder to be stolen and will raise the stakes still further.