June 24, 2005

Third World Debt

By Martin Leatherman & Josh Wilson, Newsdesk.org

On July 2 the world’s eight richest nations are expected to cancel $40 billion in debt owed by 18 of the world’s poorest nations.

But critics from all corners claim this is a partial solution at best.

The G8, which meets next week in Glasgow, will provide 100 percent relief from International Monetary Fund, World Bank and African Development Bank loans through the IMF’s Heavily Indebted Poor Countries (HIPC) initiative.

Any money saved from debt relief is required to go to infrastructure, health care and education.

Zambia, a nation of ten million people, almost one million of whom are said to have HIV, plans to use the extra funding to distribute free AIDS drugs, and to fight malaria. The diseases are two of the biggest killers there, according to CNN.

In order to prevent corruption and misuse of the money saved, G8 finance ministers also said eligibility for the program is conditional upon economic and governmental reforms.

Washington Post columnist Marcela Sanchez said that such reforms are essential in Honduras, one of the beneficiaries of debt cancellation, and “the second-most corrupt nation in Central America.”

But in an op-ed published in the Guardian (U.K.), George Monbiot said the conditions on debt relief “make it little more than an extortion racket,” because the G8’s definition of corruption is selective.

He said that Rwanda and Uganda, for example, are recipients of debt relief because they provide raw materials for cheap consumer electronics, despite their complicity in the neighboring Democratic Republic of Congo’s ongoing civil war, which has taken four million lives.

The BCC has also reported on their role in the DRC violence.

Despite Monbiot’s claims of expedient favoritism, Nigeria, Africa’s most indebted nation and a major oil supplier to the United States and Europe, has been excluded from the debt program.

The U.S.-based advocacy group Vision for Nigeria said that this is because corrupt official officials there have diverted billions of dollars into private overseas bank accounts.

Many critics say that true solutions to world poverty are more complex than the G8’s limited debt-relief program.

The Washington, D.C.-based advocacy group Africa Action called for total debt cancellation, and decried the “harmful economic conditions” promoted by World Bank and IMF policies.

The Jubilee Debt Campaign also advocates for complete debt forgiveness across the board, including nation-to-nation and private bank debt, neither of which is covered by the G8 initiative.

In fact, many countries have already begun to forgive bilateral loans, according to a report by the G8 finance ministers.

Inter Press Service criticized the G8 for linking debt cancellation to privatization, and said that agricultural subsidies and trade barriers are “choking” economic growth in poor nations.

Nicky Oppenheimer, chairman of the De Beer Groups, the world’s largest producer of diamonds, said in a statement at London’s International Institute of Security Studies that “real solutions” include “the abolition of agriculture subsidies in rich nations, which impoverish African farmers, and tariff barriers, which penalize its producers.”

British Prime Minister Tony Blair has called for increasing international aid to Africa to $50 billion by 2015.

The Bush administration has been reluctant to support this, saying that U.S. aid to Africa has already doubled since 2000, and that more aid can only come with more safeguards against corruption.

The IMF itself said that Ghana, one of the beneficiaries of the cancellation plan, will likely need to continue to rely on loans to support development unless it can get more direct financial grants.

A recent study (PDF) by Jeremy Bulow of Stanford University and Kenneth Rogoff, a Harvard professor and former chief economist of the World Bank, argued that rich nations should abandon loan programs, and instead give out grants, which needn’t be paid back.

They said the IMF could fund such a program if it could receive bonds from foreign governments, and turn the interest over to poor nations.

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“G8 finance minsters’ conclusion on development”
United Kingdom Treasury, June 11, 2005

“Debt relief under the Heavily Indebted Poor Countries (HIPC) initiative”
IMF Website, March, 2005

“What debt relief means for Africa”
Christian Science Monitor, June 13 2005

“Zambia to put debt relief into AIDS fight”
CNN.com, June 20, 2005

“Danger in Honduras’ lottery win”
Seattle Post Intelligencer, June 17 2005

“A truckload of nonsense”
The Guardian, June 14 2005

“DR Congo conflict background”
BBC, December 14, 2004

“Why Nigeria may not secure debt relief”
This Day (Lagos), June 22 2005

“Jublilee debt campaign fact sheet”
JubileeDebtCampaign.org

Privatization hangs over debt relief
Inter Press Service June 13 2005

“Debt deal, a small victory for Africa but not enough”
Africa Action, June 13, 2005

“Grants not enough for Ghana financing needs — IMF”
Reuters, June 21 2005

“Debt Cancellation nothing but charity”
Namibia Economist

“Bush pressed to meet Africa aid challenge”
Chicago Tribune, June 22, 2005

“Grants versus loans for development banks” (PDF)
Stanford University, January 2005

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