Selling Africa short
The G8 debt cancellation is not as generous as it seems, and may in fact be closer to 10 per cent than 100 per cent, says debt campaigner Alex Wilks
If a well-known chain of stores advertised in newspapers that they were offering "100 per cent off", you would think one of two things: "What an offer!" or "There must be a catch." The latter, I suspect. But many people seem to be treating the recent G8 statement that "100 per cent of debt will be cancelled" with much less caution. This is unwise.
British finance minister Gordon Brown said in February that the G8 meeting (G7 plus Russia) in Scotland on 6 to 8 July would be known as the "100 per cent debt relief summit". Both Tony Blair and George Bush used similar language at their White House press conference on 7 June.
Campaigners, such as those of us in the European Network on Debt and Development (Eurodad) network, are happy that the G8 can no longer resist the pressure for further action on debt. But we are concerned that the rhetoric from G8 leaders may mislead people to believe that the debt crisis has been solved once and for all.
In actual fact, the official plan may only write off 10 per cent of low-income country debt. Not a penny more.
Many countries certainly need 100 per cent debt cancellation if we are to be serious about reaching the United Nations Millennium Development Goals. This is the view of many official reports as well as campaigners. Tony Blair's Commission for Africa reported in March that sub-Saharan Africa still pays out more on debt service than it spends on health. For every $2 Africa currently receives in aid; it pays back nearly $1 in debt payments. Many countries in Latin American and Asia also labour under vast debts, making it impossible for them to invest in citizen welfare.
The G8 proposals are a step forward, but will by no means resolve the developing country debt crisis. Firstly, they cover a very limited number of countries: 18 at first, with up to 20 more to follow. There will be no debt cancellation for any other developing countries. So at least in terms of the number of countries, we are not looking at 100 per cent.
Secondly, the proposal would only cancel debts owed to the World Bank, African Development Bank and International Monetary Fund (IMF). Any debts owed to the Inter-American Development Bank and all other multilateral agencies are excluded. A number of African countries owe money to other creditors, and over the next 10 years the five poorest Latin American countries are obliged to pay $3.3 billion in debt service to the Inter-American Bank. So the deal does not cover 100 per cent of multilateral institutions either.
How much relief does this amount to? Figures released by the US and British governments suggest that the plan is to cancel between $40-$55 billion of debt. This is certainly a step forward. But sub-Saharan Africa alone – which new World Bank president Paul Wolfowitz describes as the bank's "first priority" – has $230 billion in external debt, according to the World Bank's own figures. Developing countries as a whole owe $2.4 trillion. So it's not even close to 100 per cent.
There are even more fundamental problems with the G8 deal. The 18 to 38 beneficiary countries will eventually have their debts cancelled, but will also have a corresponding amount cut from the aid flows they were likely to receive. This fact, concealed in opaque jargon in the G8 finance ministers' communiqué, appears to have escaped Bob Geldof, some African finance ministers and others who welcomed the G8 announcement with open arms.
Zambia's finance minister Ng'andu Magande, for example, said: "[Debt cancellation] will give us enough money to spend in education, health and other social sectors". In fact Zambia will stop paying its debts to three creditors, but will not receive the equivalent amount in aid to spend, likely less than 20 per cent of the amount of debt cancelled.
In order to get what little extra money they are eligible for, the governments of developing nations will have to accept harsh World Bank and IMF conditions. This typically means privatisation and trade liberalisation, misconceived policy measures which often harm poorer people and benefit international traders. The G8 has hinted in advance of the July summit that they are asking the World Bank to add another layer of good governance and anti-corruption conditionality.
It is easy to see how far the G8 proposals fall short of any reasonable understanding of 100 per cent debt cancellation. Some African colleagues fear they have seen this before. Charles Mutasa of the African Network on Debt and Development said the proposals represented "some progress", but were "half-baked". Demba Moussa Dembele, of the Forum on African Alternatives in Senegal, wrote recently that the G8 approach to debt "has always followed a pattern of cynicism and broken pledges".
If a department store's promise of 100 per cent off all goods turned out to be only 20 per cent off the price of 18 products – with significant strings attached – would you walk away in disgust? It depends. Those 18 products may be important and allow you to make savings. On the other hand, you might well feel cheated.
Many debt campaigners remember full well the overblown G8 announcements on debt in 1999 and want to ensure that people realise the gap between what is being offered and what is just misleading salesmanship. If the G8 were a shop in Scotland, not a summit, we would appeal to the Office of Fair Trading. But in the absence of any official watchdog, it is up to civil-society groups and the media to offer an independent assessment of what the G8 proposes and delivers.
Alex Wilks is coordinator of the European Network on Debt and Development (Eurodad)