Money where your mouth is

More than a year has passed since the G8 summit in Cologne was hailed a victory by campaigners for the debt relief of the poorest countries. The leaders of the world's richest countries committed themselves to a plan to write off $100bn of developing-world debt by the end of 2000. It seemed the triumphant culmination to a campaign that Britain has officially backed since 1990, when the then chancellor, John Major, attended the Commonwealth Finance Ministers' conference in Trinidad and proposed that the seven richest countries should cut the debts of the poorest by half.

Now we learn from a study released by Oxfam that, since the Cologne summit, only nine countries have received any debt relief, and that one, Zambia, will suffer increased debt repayments under the Heavily Indebted Poor Countries initiative. What went wrong?

It seemed a worthy and attainable goal for the world's richest nations to lift the crippling burden of debt from the shoulders of the world's poorest people. In many developing-country economies, interest payments exceeded national budget allocations to health and education. Debt was stifling development. The British proposal was a first step, strengthened at the 1994 G7 meeting in Italy. The resulting "Naples terms" proposed that national debts of the poorest countries be reduced each year, and that there be a reduction of two-thirds of the debt owed to foreign governments if the debtor maintained a good track record with the IMF over three years. In practice, few countries received the two-thirds write-down, although they were held to stringent structural adjustment programmes and were never exempted from crippling payments to the IMF and World Bank. Under mounting pressure from churches and charities, the rich world began to contemplate deeper the reduction of all debts. In 1996, the HIPC initiative was launched. Britain's then chancellor, Kenneth Clarke, proposed that it should be financed by the sale of five million ounces of the IMF's 103 million ounces of gold reserves, but the plan was scuppered when international gold traders spread fears of a collapse of gold markets. However, in June 1999 in Cologne, the HIPC programme was given a significant boost by the commitment to full bilateral debt cancellation of the poorest 25 countries by the end of 2000.

In reality, only nine countries (Benin, Bolivia, Burkina Faso, Honduras, Mauritania, Mozambique, Senegal, Tanzania and Uganda) have received any debt relief, and the reductions are miserly.Tanzania, for example, will have its debt repayment instalments cut from $183m in 1998/99 to $154m in 2000/01, a mere 15 per cent. To put this in perspective, the country's annual health budget is $87m. Now there is talk not of 25 countries benefiting from debt cancellation, but of 20. Not one country has actually had its entire debt cancelled.

The fine ambitions of starting a new millennium with debt forgiveness are gradually falling by the wayside. This year's G8 summit in Okinawa produced nothing in terms of new pledges, and the rich countries are far from united on how to fulfil their earlier promises. Gordon Brown and Clare Short have been energetic in keeping debt relief on the international agenda, but the IMF, the US Congress and Japan are stalling. Congress has been slow to approve funds for debt relief and continues to demand that it be coupled to IMF reform. The IMF still balks at cancellation, preferring to reschedule high-interest debts with concessionary terms.

In September, the IMF and the World Bank meet in Prague. As we go to press, the leaders of important developing world countries, including Nigeria, Jamaica and South Africa, are meeting in London to prepare a case to put to the Prague meeting.

But it is the leaders of rich countries who should be discussing their strategy in Prague. First, they must reaffirm their commitment to the 25 countries promised help in Cologne. Second, any country that commits itself to using money from debt relief to fund poverty reduction should be given immediate help. Third, the US should leave at home its well-rehearsed script of making its contributions contingent on institutional reform - in this case, of the World Bank and IMF. Fourth, the IMF must be directed to forgo its own bad debt habits - the endless vicious cycle of offering new loans to service old ones. Finally, any countries that intend to renege on their so recent grand promises should start preparing some good explanations to give the poorest of the poor.

This article first appeared in the 28 August 2000 issue of the New Statesman, Secrecy laws will never be the same