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Industrial countries write off Africa's debt

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Industrial countries write off Africa's debt

But will the G-8 deal be hobbled by new conditions?
From Africa Renewal: 
Getty Images / Rajesh Jantilal

Rich nations of the Group of Eight (G-8) have formally acceded to a long-standing demand of poor countries by offering to write off $40 bn in debt to multilateral institutions. The decision, taken at the G-8 Summit in July, covers the debt that 18 countries — 14 of them African — owe to the World Bank, the International Monetary Fund (IMF) and regional development banks such as the African Development Bank. Anti-debt campaigners, however, have criticized the move as too little relief, too late and worry that it will be riddled with many new conditions.

Africa's Foreign Debt

"It isn't the end of poverty in Africa," acknowledged UK Prime Minister Tony Blair, whose government played a lead role in the plan. "But it is the hope that it can be ended. It isn't all everyone wanted, but it is progress - real and achievable progress."

For the fifth consecutive time, Africa was high on the agenda of the G-8 summit. This year, members reviewed progress under the G-8 Africa Action Plan, launched at Kananaskis, Canada, in 2002, in a bid to refocus attention on the continent before the 2005 World Summit at the UN in September and the World Trade Organization ministerial meeting in Hong Kong in December. The G-8 summit primarily addressed a triad of economic issues concerning Africa - debt relief, trade and aid.

Nigerian President Olusegun Obasanjo described the G-8 summit as a "great success," while Tanzania's Central Bank Governor Daudi Balali welcomed the G-8 debt plan as providing an opportunity to "expand health and education services" for his country. "We will also be able to expand our infrastructure."

An analysis of the G-8 plan by the anti-debt movement Jubilee USA Network says that despite its shortcomings, the deal will save lives in Africa. "The agreement, in addition to setting the important precedent of 100 per cent debt cancellation for some nations to some creditors, will release close to $1 bn annually in resources poor nations can use for development." The Zambian government has said it will use debt relief proceeds to provide anti-retroviral drugs to 100,000 HIV/AIDS patients.

The last time the G-8 made a key decision on African debt was in Cologne, Germany, in 1999, when members offered up to 100 per cent relief on bilateral debt owed them by poor countries. However, this offer fell short because multilateral debt, owed to institutions such as the IMF, received only partial relief. This time multilateral debt will also be forgiven.

To qualify for the G-8 programme, a country must first complete the Heavily Indebted Poor Countries (HIPC) initiative. HIPC was launched in 1996 by the World Bank and IMF to provide relief to poor countries from excessive debt burdens. Because of the slow pace of delivery, the plan was "enhanced" in 1999, but it has still not produced a lasting solution to the debt crisis. HIPC identifies 38 countries, 32 of them in sub-Saharan Africa, as potentially eligible to receive debt relief. It has so far provided countries debt relief that will amount to $54 bn over time.

The countries benefiting from the most recent $40 bn write-off are Benin, Bolivia, Burkina Faso, Ethiopia, Ghana, Guyana, Honduras, Madagascar, Mali, Mauritania, Mozambique, Nicaragua, Niger, Rwanda, Senegal, Tanzania, Uganda and Zambia.

'Tiny steps'

"What Africa needed from the G-8 was a giant leap forward - all it got was tiny steps," charged Ms. Caroline Sande Mukulira of the Southern African office of the non-governmental ActionAid. "The deal that has been announced falls way short of our demands. We have some aid, but not enough; some debt relief, but not enough; and virtually nothing on trade. Once again, Africa's people have been short-changed."

To obtain relief under the G-8 agreement, the countries deemed eligible have to meet HIPC targets for good governance, curb corruption and fraud, open up their economies and liberalize trade. To take effect, the agreement needed to be endorsed by the full IMF/World Bank board at its annual meeting in late September. Although it passed, some board members proposed amendments to the original agreement demanding more conditions before full relief is provided.

Austria's representative on the IMF board, Mr. Willy Kiekens, proposed that the relief be provided not all at once, but over time. This, he said, would enable the IMF "to continue having active policy dialogues with poor countries, monitor their policies closely and provide financial support in a phased manner and on condition of the implementation of adequate policies." Those in favour of more conditions argued that they would be the only way to ensure that the debtor countries do not slip up.

Anti-debt campaigners Anti-debt campaigners have long pointed out that cancellation could free up government funds for health and other vital services.
Photograph: Getty Images / Rajesh Jantilal

Some anti-debt activists charge that conditionality violates the sovereignty of borrower nations and imposes programmes that may be unsuited to the economies of poor countries. They also feared that adding more conditions to the G-8 agreement would only hold up the programme.

In the past, the frequent delays experienced under HIPC were caused by "over-rigid fiscal and macroeconomic frameworks," argues Debt Relief International, a non-profit organization funded by the UK and six other industrial-nation govern-ments. The process was further complica-ted by "insistence on executing 'left-over' structural conditions from past programmes" and the "proliferation of new poverty reduction performance criteria."

During the period leading to the G-8 summit, the African Union, the continent's political organ, called for a sweeping programme of debt write-offs throughout the continent. "We request the developed countries and development partners to expedite the process of total debt cancellation for Africa by the year 2007," African leaders noted in a resolution issued on the eve of the G-8 summit.

The G-8 plan, however, will only be extended to the 38 countries currently eligible for HIPC, bringing the maximum relief on multilateral debt to $55 bn. It is also not clear whether new conditions will be introduced to the G-8 plan as the World Bank and the IMF begin moving towards implementation.

Where is the money?

"Intentions and actualization are not the same thing," says Kenyan Finance Minister David Mwiriria. "We would like to see a situation where there is money now." Kenya maintains that it, like a number of other African countries, needs debt relief, but is left out because it does not meet HIPC's qualification criteria.

Nigeria, one of the most indebted African countries, also does not qualify for either HIPC or the G-8 plan. Before the G-8 summit however, Nigeria secured an $18 bn write-off of the bilateral debt it owes to members of the Paris Club, an informal group of rich lender nations.

Also on the sidelines of the G-8 summit, Russia announced that it would cancel $2.2 bn in bilateral debt that poor countries owe it. Russia's deal only applies to countries undergoing HIPC.

If the original G-8 agreement stands, it is still unclear how quickly HIPC countries other than the initial 18 will benefit. According to the World Bank, nine more countries are likely to reach the HIPC completion point in the next 12-18 months, allowing them to qualify for G-8 relief: Cameroon, Chad, the Demo-cratic Republic of the Congo, the Gambia, Guinea, Guinea-Bissau, Malawi, São Tomé e Príncipe and Sierra Leone.

Africa's total debt stands at about $300 bn. Jubilee South, a global network of anti-debt NGOs, said that the amount of debt to be cancelled by the G-8 is a "minuscule" part of this total. Any "debt cancellation must be unconditional," the coalition added in a statement.

The European Network on Debt and Development calls the plan limited because countries such as Kenya, Angola and Haiti are excluded. It calculates that 62 countries are paying $10 bn each year in debt servicing that must be cancelled if they are to achieve the Millennium Development Goals, aimed at alleviating poverty.

"While the G-8 agreement is a step forward and sets an important precedent, we have long advocated 100 per cent cancellation of debt to multilateral creditors. Our campaign for freedom from debt for impoverished nations has only just begun," said Mr. Neil Watkins, national coordinator of the Jubilee USA Network. "We will continue to build pressure on G-8 nations to cancel debt for all impoverished countries and countries in crisis."

Rwandan members of parliament taking oath of office
Photograph: Associated Press / Sayyid Azim
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