G8 Debt Cancellation Deal: An Incomplete, Yet Positive Step Forward

21 June 2005 by The 50 Years Is Enough Network


The announcement by 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 on June 11 of a deal to cancel debts claimed of 18 Global South countries by 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
, 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.

, and African Development Bank (AfDB) represents a significant success for debt campaigners around the world.

Since mobilization on the debt issue began with the Jubilee 2000 campaigns in the mid-1990s, activists have never withdrawn the pressure on wealthy governments to acknowledge the devastating, hypocritical, and unnecessary debt crises afflicting most developing countries. This deal, which is notable for eliminating 100% of the debt stock Debt stock The total amount of debt claimed by these institutions, means that governments in 18 countries will no longer have to pay unjust debts and can now count on a steady amount of revenue whose use they can determine.

That the G8 deal includes debt claimed by the International Monetary Fund (IMF), the most demanding of creditors and the most resistant to cancellation, is important, for it is that debt that is most exploited to impose conditions on countries - and because there had been resistance to including IMF debt until the last minute. But a closer reading of the agreement reveals that it does not ensure that the people of the Global South will regain control over economic decisions that affect their lives on an intimate and daily basis.

What the Deal Says:

While they have acknowledged for the first time that 100% debt cancellation is possible, the G8 Finance Ministers’ manipulative tendencies restrict the deal to only 18 countries, when most observers identify at least 60 countries that require comprehensive cancellation. The deal agreed upon by the G8 will cancel the debt owed to the World Bank, the IMF, and the African Development Bank (AfDB) for: Benin, Bolivia, Burkina Faso, Ethiopia, Ghana, Guyana, Honduras, Madagascar, Mali, Mauritania, Mozambique, Nicaragua, Niger, Rwanda, Senegal, Tanzania, Uganda, and Zambia. The chosen countries are the only ones to have been certified by the institutions to realize some debt reduction - a rate of two per year.

This small number is derived from the framing of the deal as an extension of the Heavily Indebted Poor Countries 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.
(HIPC) debt initiative, a joint IMF/World Bank program initiated in 1996, which the World Bank itself has admitted is a failure. The 18 countries under discussion have reached the “HIPC completion point,” i.e. they have implemented the sweeping neoliberal economic reforms that the program demands, often with devastating results. Another 20 countries would be eligible for debt cancellation when they have fully instituted the HIPC conditions. By retaining the HIPC structure, the G8 perpetuates the requirement that countries submit to demands for economic disarmament in favor of promoting the interests of foreign capital before they can get the consequential debt considered for cancellation.

Although the emphasis on economic conditions is deeply troubling, it should be noted that the agreement does not explicitly call for any new conditionality (HIPC conditionality is already in place). We will continue to advocate for the expansion of the debt deal to all countries in need of it while ensuring that it does not expand in such a way as to create new conditions. We reiterate our call for 100% cancellation without conditions to restore self-determination and a democratic development process.

Limiting the deal to HIPC completion countries also means that a large number of countries with illegitimate and odious debts are also excluded. Even if the G8’s deal eventually includes the 20 expansion countries, it will still only affect a portion of all countries that currently sacrifice large amounts of public spending to servicing the debt burden. For many countries, these sacrifices are made because creditors consciously lent money to oppressive regimes - Mobutu in Zaire and Marcos in the Philippines , for example - that either sent the funds offshore or used them in the oppression of their own people. The debt burden is now being carried by women, children, and families that did not benefit from the original loans.

The scope of the debt cancellation is also limited in that it does not include debt owed to the Inter-American Development Bank (IDB), and there is no indication that Asian Development Bank debt will be included if and when Laos, the sole Asian country in the current group of countries deemed eligible, were to get its debt cancelled. Activists are also calling for the cancellation of debt owed by countries still recovering from the recent tsunami disaster, and the Asian Development Bank debt should also be discussed in this regard. The exclusion of the Inter-American Development Bank from the list of institutions canceling debts also demonstrates the G8’s absence of vision. For many countries in Latin America and the Caribbean , the IDB is the largest creditor.

But make no mistake: this move by the G8 represents an acknowledgement that the system they have set up to manage debt and Southern country economies is unsustainable. Activists should now exploit this concession to win the comprehensive debt deal that the world requires.

What the future holds:

Re-emphasising neoliberal conditions and the further politicization of debt relief: In his statement, President Bush says “we’re not interested in supporting a government that doesn’t have open economies and open markets.” Perhaps this should read, “we’re interested in politicizing aid even more than it is already.”

Because this deal is only open to countries that have already gone through HIPC, it means that a country’s economy must be completely dependent on world markets in order to qualify for debt cancellation. There is still the question of what may happen if countries free of the control of HIPC, other IMF, World Bank, and AfDB structural adjustment Structural Adjustment Economic policies imposed by the IMF in exchange of new loans or the rescheduling of old loans.

Structural Adjustments policies were enforced in the early 1980 to qualify countries for new loans or for debt rescheduling by the IMF and the World Bank. The requested kind of adjustment aims at ensuring that the country can again service its external debt. Structural adjustment usually combines the following elements : devaluation of the national currency (in order to bring down the prices of exported goods and attract strong currencies), rise in interest rates (in order to attract international capital), reduction of public expenditure (’streamlining’ of public services staff, reduction of budgets devoted to education and the health sector, etc.), massive privatisations, reduction of public subsidies to some companies or products, freezing of salaries (to avoid inflation as a consequence of deflation). These SAPs have not only substantially contributed to higher and higher levels of indebtedness in the affected countries ; they have simultaneously led to higher prices (because of a high VAT rate and of the free market prices) and to a dramatic fall in the income of local populations (as a consequence of rising unemployment and of the dismantling of public services, among other factors).

IMF : http://www.worldbank.org/
programs, and the debt burden, decide to exercise their own economic sovereignty in ways with which the powers that be would not approve.

There has been talk in recent weeks about a new IMF facility, the Policy Support Agreement, that would pave the way for the IMF to maintain control over countries that do not borrow or are no longer borrowing from the IMF. The IMF currently plays a role of “gatekeeper” for international lending; if it deems a country is not “creditworthy,” other international creditors will withdraw lending. The new facility will serve as an IMF “stamp of approval” without an IMF loan. Nigeria has already implemented a similar agreement with the IMF, and many more countries, eager to find international creditors, will likely follow suit.

Such a mechanism, were it to see the light of day, could change the face of structural adjustment - it would no longer require developing countries to borrow in order to be subject to the “Washington Consensus”. It could be that just at the moment when the global justice movement has succeeded in getting rid of the onerous and constricting debt burden, the IMF and the G8 countries have found another mechanism to serve the same function. This timing is probably not coincidental.

Next Steps:

Debt cancellation has been touted as an ultimate act of charity, however, people’s movements in the indebted countries and their allies around the world have long pointed to the illegitimate nature of their debt burdens, saying, “Don’t Owe, Won’t Pay!” Citing decades of loans knowingly made to dictators and other corrupt regimes, and billions of dollars already repaid, they have demanded 100% debt cancellation without harmful conditions. Debt cancellation is an imperative of justice, not a dispersal of alms. To the extent that this announcement is a victory, it is a victory for those in the Global South and elsewhere who have campaigned in the streets for this justice.

Although it is encouraging for us to see debt cancellation in the fore of international discussion, we must not compromise our demands. We must demand the expansion of the principle of 100% debt cancellation to include ALL countries in crisis - countries undergoing economic crisis, natural disasters, and the HIV/AIDS crisis. We must continue to call for the removal of any externally-imposed conditions on debt relief, including HIPC conditions, from ANY agreement on debt cancellation. And we must demand that debt cancellation include ALL multilateral debts owed the Inter American Development Bank and other regional banks.




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