Debt deal already under threat

No sooner is the ink dry on the G8 communiques than leaks begin to appear suggesting that the debt cancellation deal announced by the finance ministers is under threat. The BBC are reporting that a memo has been leaked to the Jubilee Debt Campaign (as yet there is no news on the JDC website) indicating that the Belgian government is likely to try to block the agreement when it comes before the IMF’s board.

Belgium, it seems, is reluctant to allow for 100% debt cancellation for any countries as that would reduce the leverage it would have over countries that are currently heavily indebted to it (whether directly or through the IMF). Since the finance ministers of the G8 called for IMF debts to be cancelled using existing IMF funds, cancellation will have to be approved by the whole board. Belgium alone could not block it, but there is speculation that other countries might follow their example. Belgium is proposing that instead of debt cancellation ‘grants’ be given to countries that would otherwise qualify, thereby relieving their immediate cashflow crises but doing nothing for their long-term stability.

The brazen approach of Belgium is in some ways a little light relief. The key reason more debt has not been cancelled before now is because of the leverage it gives the creditors, leverage to impose the favoured economic policies du jour and a wide variety of other demands. At least Belgium is being a bit more open about it, even if through leaked documents.

But this leak lays many other things bare. It is another indicator that the G8 is the wrong body to make these decisions. It is a club of powerful nations, but not of all powerful nations, and where its pronouncements affect those other nations there is a real danger that they will obstruct them. More significantly, it is yet another reminder that creditors are not the right people to be deciding on debt relief.

Decisions about debt cancellation must be handed off to an agency that has no interest in maintaining existing power relationships, but which can instead make decisions based on the legitimacy of loans, the debtors’ ability to pay, and the developmental effects of the cancellation. We might hope that Belgium’s reticence will demonstrate this to those national leaders more disposed to debt cancellation.

In all likelihood, however, it will gradually slip out of sight, just like the failure to deliver on previous debt cancellation promises has. Capaigners must work to make sure that does not happen, and remind the public that “great justice” has yet to be done.

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