Press release

CADTM outraged at the G8’s meanness over the debt

13 June 2005 by CADTM


On June 11 the meeting of the G8 G8 Group composed of the most powerful countries of the planet: Canada, France, Germany, Italy, Japan, the UK and the USA, with Russia a full member since June 2002. Their heads of state meet annually, usually in June or July. Finance ministers resulted in bombastic statements about a “historic” cancellation of the debt burdening poorer countries.

CADTM is suspicious of such dramatic gestures which so far have led only to cosmetic cancellations hiding a strengthening of the creditor countries’ dominant position, as was the case with the HIPC Heavily Indebted Poor Countries
HIPC
In 1996 the IMF and the World Bank launched an initiative aimed at reducing the debt burden for some 41 heavily indebted poor countries (HIPC), whose total debts amount to about 10% of the Third World Debt. The list includes 33 countries in Sub-Saharan Africa.

The idea at the back of the initiative is as follows: a country on the HIPC list can start an SAP programme of twice three years. At the end of the first stage (first three years) IMF experts assess the ’sustainability’ of the country’s debt (from medium term projections of the country’s balance of payments and of the net present value (NPV) of debt to exports ratio.
If the country’s debt is considered “unsustainable”, it is eligible for a second stage of reforms at the end of which its debt is made ’sustainable’ (that it it is given the financial means necessary to pay back the amounts due). Three years after the beginning of the initiative, only four countries had been deemed eligible for a very slight debt relief (Uganda, Bolivia, Burkina Faso, and Mozambique). Confronted with such poor results and with the Jubilee 2000 campaign (which brought in a petition with over 17 million signatures to the G7 meeting in Cologne in June 1999), the G7 (group of 7 most industrialised countries) and international financial institutions launched an enhanced initiative: “sustainability” criteria have been revised (for instance the value of the debt must only amount to 150% of export revenues instead of 200-250% as was the case before), the second stage in the reforms is not fixed any more: an assiduous pupil can anticipate and be granted debt relief earlier, and thirdly some interim relief can be granted after the first three years of reform.

Simultaneously the IMF and the World Bank change their vocabulary : their loans, which so far had been called, “enhanced structural adjustment facilities” (ESAF), are now called “Growth and Poverty Reduction Facilities” (GPRF) while “Structural Adjustment Policies” are now called “Poverty Reduction Strategy Paper”. This paper is drafted by the country requesting assistance with the help of the IMF and the World Bank and the participation of representatives from the civil society.
This enhanced initiative has been largely publicised: the international media announced a 90%, even a 100% cancellation after the Euro-African summit in Cairo (April 2000). Yet on closer examination the HIPC initiative turns out to be yet another delusive manoeuvre which suggests but in no way implements a cancellation of the debt.

List of the 42 Heavily Indebted Poor Countries: Angola, Benin, Bolivia, Burkina Faso, Burundi, Cameroon, Central African Republic, Chad, Comoro Islands, Congo, Ivory Coast, Democratic Republic of Congo, Ethiopia, Gambia, Ghana, Guinea, Guinea-Bissau, Guyana, Honduras, Kenya, Laos, Liberia, Madagascar, Malawi, Mali, Mauritania, Mozambique, Myanmar, Nicaragua, Niger, Rwanda, Sao Tome and Principe, Senegal, Sierra Leone, Somalia, Sudan, Tanzania, Togo, Uganda, Vietnam, Zambia.
initiative, concerning some 42 highly indebted poor countries [1], which was launched at the Lyon G7 meeting in 1996 and reinforced at the Cologne G7 meeting in 1999. As soon as the practical modalities that condition this new move are known they will have to be analysed very carefully before any considered judgement is possible. But we can already make a number of comments.

(1) The financial burden of the operation on rich countries would amount to some 2 billion dollars a year, compared to 350 billion the G8 devote to farming subsidies or 700 billion they spend in military expenditure. Rich countries would thus be willing to spend every year for the announced cancellation half of the amount the US spend every month on their continued occupation of Iraq. Moreover, the US would finance their contribution through their meagre aid for development budget, so they would not even have to find any additional resources.

(2) A change in approach has been announced: if the G8 are to be believed, what is on offer is a real cancellation that would bear on the principal of the debt, rather than simply a financial contribution towards the debt service Debt service The sum of the interests and the amortization of the capital borrowed. paid to multilateral institutions. If this were indeed the case, it would represent a small step forward in the right direction for which we have to thank thousands and thousands of activists who demand clear and thorough cancellation measures from the World Bank World Bank
WB
The World Bank was founded as part of the new international monetary system set up at Bretton Woods in 1944. Its capital is provided by member states’ contributions and loans on the international money markets. It financed public and private projects in Third World and East European countries.

It consists of several closely associated institutions, among which :

1. The International Bank for Reconstruction and Development (IBRD, 189 members in 2017), which provides loans in productive sectors such as farming or energy ;

2. The International Development Association (IDA, 159 members in 1997), which provides less advanced countries with long-term loans (35-40 years) at very low interest (1%) ;

3. The International Finance Corporation (IFC), which provides both loan and equity finance for business ventures in developing countries.

As Third World Debt gets worse, the World Bank (along with the IMF) tends to adopt a macro-economic perspective. For instance, it enforces adjustment policies that are intended to balance heavily indebted countries’ payments. The World Bank advises those countries that have to undergo the IMF’s therapy on such matters as how to reduce budget deficits, round up savings, enduce foreign investors to settle within their borders, or free prices and exchange rates.

, the IMF IMF
International Monetary Fund
Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.

http://imf.org
and other multilateral banks. This however has to be qualified: the G8 specifies that there will be no cancellation of debts owed to the Inter-American Development Bank (IDB) or to the Asian Development Bank (AsDB). Now these same multilateral banks are major creditors of some HIPCs such as Bolivia, Nicaragua, Honduras, Guyana, Vietnam, and Laos.

(3) In the best hypothesis, if they are indeed carried out, the announced cancellations would not even amount to a complete cancellation of debt for the 18 countries that would benefit from these measures. A claim to the contrary would be a lie since they would still be indebted to some bilateral creditors (among which some G8 countries), some multilateral creditors (AsDB, IDB and others), and some private creditors. [2]

(4) Only 5 % of the inhabitants of Developing Countries live in these 18 countries. If the measure is extended to all 42 HIPCs in the coming years this would still only affect 11% of those inhabitants. Most really poor people live in other developing countries (there are 165 of them altogether).

(5) The G8 decision represents a continuation of the HIPC initiative, which means the imposition of heavily neoliberal policies: privatisation of natural resources and of strategic economic sectors to the benefit of transnational corporations; higher cost of health care and education; a rise in VAT; free flow of capital, which leads to capital leaving the country as shown by several UNCTAD UNCTAD
United Nations Conference on Trade and Development
This was established in 1964, after pressure from the developing countries, to offset the GATT effects.

reports; lower tariff protection, which leads to thousands of small and middle producers losing their livelihoods because they cannot compete with imported goods.

Along with many other movements and associations that fight for debt cancellation both in the North and in the South, CADTM demands that neoliberal conditions on the cancellation of the debt are scrapped. There must be unconditional debt cancellation. Populations of countries in the South and their social organisations along with the elected parliaments of the concerned countries must be able to make sure that the cancellation really benefits those who have to be helped.

CADTM demands an immediate and complete cancellation of the public external debt of all developing countries, the burden of the debt being a major obstacle to meeting fundamental human needs. The London initiative can solve neither the issue of the debt nor the issue of poverty since it bears on only 2 % of the external debt of developing countries.

CADTM calls for a massive mobilisation at Edinburgh and Gleneagles from 2 to 6 July as part of the “Make G8 History” mobilisation, and at Fana (Mali) from 6 to 9 July within the 4th Peoples’ Forum.



Footnotes

[2Among the 24 HIPCs that are not part of the deal we find the Ivory Coast, where 35 % of the external debt is owed to private creditors. In Angola this proportion amounts to 27% ; 20 % in the Democratic Republic of the Congo; and 21 % in the Sudan. (Source: World Bank, 2004).

CADTM

COMMITTEE FOR THE ABOLITION OF ILLEGITIMATE DEBT

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4000 - Liège- Belgique

00324 226 62 85
info@cadtm.org

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