Debt forgiveness campaign aims at G8 summit in Japan
19 July 2000 (Newsroom) — Rock stars, aid agencies, and Pope John Paul II are calling for world leaders attending this week’s G8 conference in Okinawa, Japan, to wipe out the debt of poor countries.
Representatives of the Great 8 — Britain, the United States, Canada, France, Italy, Germany, Japan, and Russia — will attend the July 21-23 summit along with the president of the European Commission. The Okinawa summit is scheduled to address debt, although to what extent is not certain.
Spearheaded by the Christian-based Jubilee 2000, a worldwide coalition of churches and relief organizations, agencies are demanding that G8 leaders unconditionally cancel the debts of 51 poor countries. As much as $100 billion in debt relief was promised at last year’s G8 summit in Cologne, but only $13 billion has been canceled so far.
Experts maintain that economic growth is necessary for poverty reduction and caution that debt forgiveness is not a simple matter, however. World Bank President James Wolfensohn contends that the Jubilee 2000 demand would “screw up the market. If you have a society based on debt forgiveness, who is going to invest in debt any more?” he said at a Philippines press conference earlier this year.
Poor countries owe about $370 billion to rich countries and institutions they control, such as the International Monetary Fund (IMF) and World Bank. The world’s 41 poorest countries — 33 of them in Africa — owe about $220 billion. These countries got into debt as a result of earning less then they were spending, beginning with world oil price increases in the 1970s. They borrowed to pay this debt, but some loans filled bank accounts of corrupt leaders. A fall in commodity prices affected some of the poorest countries’ ability to earn the equivalent of foreign currency needed to pay even the interest on their debts. Consequently these countries borrowed even more.
Most Third World debt is owed to Western governments — known as bilateral debt — and about a third is multilateral debt owed to the World Bank and the IMF. About 10 percent is owed to private banks. Bilateral debt can be easier to forgive as wealthy governments may choose to write it off. Multilateral creditors, however, borrow money from Western capital markets to lend to developing countries and must repay these funds to their own creditors.
The G8 has the power to enable the IMF and the World Bank to erase their share of debt. G8 countries account for 57 percent of the voting power on the IMF board. Countries in sub-Saharan Africa account for 2 percent of the vote.
Earlier this month Jubilee 2000 launched a global e-mail campaign urging world leaders to keep promises of Third World debt write-off. Thousands of activists around the world are sending postcards to the Japanese government via their Japanese embassies urging debt relief action at the summit.
Supported by rock stars such as U2 lead singer Bono and Thom Yorke from Radiohead, Jubilee 2000 backers have collected 20 million signatures so far. Bono has traveled the globe to sell the campaign and last year presented the pope with his wrap-around sunglasses at a meeting in which the pontiff expressed his frustration at the slow pace of debt cancellation.
The pope reiterated his disappointment at a May Day celebration in Rome, saying: “The Jubilee offers a suitable opportunity to open our eyes to poverty and marginalization. … Some nations are repressed by a debt so huge that repayment is practically impossible. To reduce, or indeed, to remit this debt is a Jubilee gesture which would be desirable.”
Ann Pettifor, co-founder and director of Jubilee 2000, questioned debt-relief strategies of the IMF and World Bank. “They are committed to halving the poverty for the poorest people in the world, yet they keep taking money from these same people in debt repayments,” she said last month. “The president of the World Bank has a duty to developing countries to take the lead, and to cancel 100 percent of the debts owed to the Bank.”
Debt relief is not that simple, however, cautioned Stephen Smith, an economics professor at Gordon College in Massachusetts. In the spring issue of “Faith and Economics,” published by the U.S. Christian Economics Association, Smith said that domestic economic policies are linchpins of development. “If domestic policies are not wisely chosen or the government is not concerned with fighting inequity, debt relief will not make any difference for the poor.”
Other economists argue that conditions imposed by the IMF and World Bank are insufficient and that debt-ridden countries should be encouraged to enact good policies, including an expansion of health and education services.
Economist Christopher Barrett of Cornell University in New York, a “skeptical supporter” of debt forgiveness, says countries at war are likely to divert debt remission proceeds to defense and are not serious enough about relieving poverty.
“One must use the opportunity of debt forgiveness to tackle poverty at its roots,” Barrett said. “Too many supporters of debt forgiveness misunderstand it to be the end rather than the start of an initiative to successfully reduce poverty.” Barrett suggests a moratorium on debt servicing to those making serious poverty reduction measures along with economic growth.
Harvard University economist and IMF critic Jeffrey Sachs praised the work of Jubilee 2000 “in drawing attention to the plight of these people, and persuading politicians in the U.S. and Europe to care.”
Sachs, speaking at a Tokyo press conference earlier this year, argued that at a time when the world is more divided than ever, the world’s richest people should help the world’s poorest people. For example, he noted that the IMF is pressuring Nigeria to spend $1.6 billion in debt service, five times the amount spent on poverty reduction measures there.
Western nations in 1996 devised a plan to help what they called Highly Indebted Poor Countries (HIPCs) to encourage debt relief. The HIPC initiative was the first comprehensive effort to eliminate the unsustainable $220 billion debt in 41 of the world’s poorest countries. So far under the HIPC initiative, a total of $13.2 billion of debt for eight countries has been canceled.
Mozambique, one of the poorest countries in the world, is one of the success stories in reducing poverty. Its debt is $4.3 billion, down from $8.3 billion in 1998. That amount is still $300,000 higher than in 1987, however, although the country is the largest beneficiary under the HIPC program. Much of the debt was incurred during the 1980s when Mozambique had to strengthen its defense against the external aggression of the South African apartheid regime before attempting to rebuild itself. Mozambique subsequently reduced its defense force by two-thirds between 1985 and 1997.
Mozambique’s President Joaquim Chissano has called for total cancellation of his country’s debt, echoed by Graca Machel, former First Lady of Mozambique, now married to Nelson Mandela, South Africa’s first president post-apartheid. “If we had total cancellation of the debt, we could use the money saved for poverty reduction, education, health, and water and against serious diseases,” she said.
Nigeria President Olusegun Obasanjo wants $29 billion in debt relief for his country and is scheduled to address the “People’s Summit” organized by Jubilee 2000 on the eve of the G8 leaders’ meeting. He also has announced his intention to meet with the G8 leaders on behalf of the G77 group of developing countries, which he chairs. African leaders and debt campaigners are looking to Japan to provide leadership to ensure debt cancellation of the poorest countries is a substantive item on the Okinawa summit agenda.
Copyright © 2000 Newsroom.
Used with permission.