The Hindu Business Line : Whom will the G-8 debt relief plan benefit?

THE finance ministers of the Group of Eight (G-8) countries have done the politically correct thing by cancelling the $40-55 billion of debt owed by the world's poorest nations to the World Bank, the International Monetary Fund and the African Development Bank.

The cancellation will benefit 18 Heavily Indebted Poor Countries (HIPC), mostly in Africa — Benin, Bolivia, Burkina Faso, Ethiopia, Ghana, Guyana, Honduras, Madagascar, Mali, Mauritania, Mozambique, Nicaragua, Niger, Rwanda, Senegal, Tanzania, Uganda and Zambia.

Nine more countries — Burundi, Central African Republic, Comoros, Republic of Congo, Cote d'Ivoire, Liberia, Somalia, Sudan and Togo — are likely to reach the HIPC completion point in the next 12-18 months, after which they too will become eligible for relief.

As it happens, the debt elimination is based on a deal put together by the British Prime Minister, Mr Tony Blair, and the Chancellor, Mr Gordon Brown, and sold by Mr Blair and other western leaders to the US President, Mr George Bush

Consider the facts: In early June, Mr Blair had visited Washington to persuade Mr Bush to endorse plans for African debt relief. The meeting took place at a point of time when the Bush administration was rattled by an opinion poll which revealed that the majority of Americans felt the war against Iraq was a mistake and that Washington's purported fight against terrorism had failed to make them feel more secure.

Further, a few days prior to Mr Blair's pilgrimage to Washington, Amnesty International had accused the US and the UK of perpetrating and condoning acts of torture at detention facilities in Iraq, Cuba, Afghanistan and elsewhere.

For some time now, certain Democrats and pro-Africa groups have been accusing Bush of ignoring the plight of Africans; of not spending enough to provide food and medicine to a continent in deep crisis and of not coming out strongly enough against the genocide in Sudan.

For instance, Rep. Donald M. Payne (N.J.), the ranking Democrat on the House Africa sub-committee, went to the extent of describing US aid to Africa as "disgraceful" and had observed that while Mr Bush had substantially stepped up assistance to battle AIDS and provide other forms of humanitarian relief, these changes had been introduced at the expense of other aid programmes.

Mr Bush has been stung by these charges and is trying to win over critics. He has invited several African leaders to the White House for meetings and has finally termed the slaughter in Darfur as genocide.

He has sent Robert B. Zoellick, Deputy Secretary of State, on a second trip to Sudan to survey the situation and has released a message to the African people through Voice of America, saying: "At a time when freedom is on the march around the world, it is vital that the continent of Africa be a place of democracy and prosperity and hope, where people grow up healthy and have the opportunity to realise their dreams." As for Mr Blair, his advocacy of debt relief for Africa comes on the heels of the trouncing that Labour got in the 2002 general elections in the UK. The minutes of a July 23 meeting quoted Sir Richard Dearlove, chief of the MI6 intelligence service as saying that in Washington that "intelligence and facts were being fixed around" the policy of war.

Given the increasing reluctance of the American people to accept the White House line on Iraq, and the war on terror, and the spread of anti-colonialist sentiment in Britain, accompanied by a loss of trust in Mr Blair and his government, it is reasonably obvious that the Bush-Blair combine stood in sore need of some issue that would divert public attention at home from the unravelling of their Iraq adventure.

Given Britain's colonial past and Mr Bush's somewhat uncertain grasp of geography, it was, in all likelihood, Mr Blair who thought of exploiting Africa for political gain.

Yet again, the ploy has worked — and yielded some collateral benefits. One benefit that has accrued is that the debt reduction is conditional on the debtor nations adopting policies which will facilitate transnational corporation activity in areas such as oil and minerals.

While the poorest countries in the world owe money to other countries, the private sector, the World Bank, the International Monetary Fund and others , the debt write-off deal is restricted to multilateral institutions — which accounts for only about a quarter of the total debt.

It is relevant to note that, initially, the US had insisted that the World Bank fund the debt relief out of its own resources on the grounds that such a measure would enhance its accountability for past bad loans. In contrast, the UK had taken the position that this would make other poor countries pay for the debt relief by making less concessional resources available to them from the Bank.

Finally, the US agreed to pay an additional $1.75 billion to the World Bank and ADB before 2015. The UK had said it would earmark $1 billion for the relief — although this would come out of prior commitments and not new funds.

It now remains to be seen if all the talk about doubling aid to Africa from the rich countries to waiving the $50-billion debt of the Heavily Indebted Poor Countries Initiative (HIPC) over the next three years, will be funded through a plan dreamt up by the British Chancellor. The plan, referred to as the International Finance Facility, involves the funding of debt relief by the issuance of bonds on the international markets, backed by government aid assurances. The facility creates a mortgage on future aid payments — with guaranteed returns for investors. In return, debtor nations are required to agree to demands that all major economic and social projects will be "built and delivered in conjunction with the private sector."

It must further be seen whether the debt relief will be undertaken on a timely basis — earlier rounds of HIPC debt relief have been delayed for years. The Debt Relief International's analysis has attributed the delay to "over-rigid fiscal and macroeconomic frameworks," "insistence on executing `left-over' structural conditions from past programmes," and the "proliferation of new poverty reduction performance criteria."

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