| What does the Köln Agreement mean for the Jubilee 2000 campaign worldwide? |  |
| What does the Köln Agreement mean for the Jubilee 2000 campaign worldwide? | |
by Ann Pettifor, Director, Jubilee 2000 Coalition UK
24 June 1999Introduction
At Köln, Germany, in the week between the 12th and 19th June a new paradigm began to emerge – a paradigm shaped this time by ordinary people from around the world.
The definition of a paradigm is an all “encompassing framework or theory that, although never proven, fits the current reality of events so well that it becomes accepted as reality, and is not questioned or challenged to any great degree, until a new paradigm begins to take shape.”
Köln was the site at which we witnessed the paradigm shifting away from an economic ideology that has for so long been accepted as reality. For too long now, unpayable debts, and the impoverishment of millions of people by these debts, have been accepted as an inevitable part of economic reality, and have not been challenged. The writing off of these debts was never previously considered practicable. The domination by creditors of the whole process of lending, debt re-scheduling and debt cancellation has also been accepted as inevitable. Finally it has long been taken for granted that the unfettered movement of capital is a good thing; that the interests of creditors and investors, and the capital flows they generate, should in no way be restrained or regulated.
In Köln all four of these key elements of the old paradigm were shown to be in flux - and under challenge. The creation of a new economic paradigm is being fashioned by financial crisis, by millions of campaigners around the world; by the media influenced in turn by these events and campaigners; and by pop stars and celebrities reflecting the change in popular mood.
Jubilee 2000 has been calling for massive debt cancellation For a change in the process for determining debt cancellation – away from the IMF and for a more independent, transparent process, accountable to the citizens in whose names the debts are incurred. And we have called for greater discipline in the international financial system. In particular we have called for creditors to be held responsible for reckless lending, and to be held responsible for more of the liabilities incurred by such bad loans, instead of transferring these liabilities to the poorest people in the poorest countries. We have challenged the deep flaws in IMF-designed economic austerity programmes. Above all we have challenged the new slavery, whereby highly indebted nations find themselves in bondage to their western creditors, through the IMF.
Köln summit statements showed how much impact our campaign has had. But, precisely because the old paradigm is still in flux, Köln threw up many contradictions too; but then such is the nature of a paradigm shift. And above all Köln showed how strongly the old guard are resisting the now inevitable transformation in relations between international creditors and debtors; rich and poor; powerful and weak.
What happened at Köln?
First, at the meeting of G7 finance ministers in the week before, the main protagonist of the old paradigm, the IMF, was heavily criticized. Leaders of the rich world recognised that the financial crises in South East Asia and Latin America have “revealed key weaknesses in the international financial system”.
G7 leaders and their finance ministers called for controls on so-called “hot money” and were surprisingly critical of the International Monetary Fund.
G7 Finance Ministers cited the problem of "excessive short-term borrowing, particularly in foreign currencies". In an almost total reversal of previous policy, the finance ministers accepted that "the use of controls on capital inflows may be justified" and said that "there is a strong case for further studying the benefits and costs of market-based prudential measures aimed at curbing excessive capital inflows, including those used by the Chilean authorities in the recent past." Chile imposes a 30 per cent tax on money taken out of the country less than one year after it was brought into Chile.
G7 Finance Ministers admitted that "the past two years have reminded us that investors and creditors often tend to underestimate risks as they reach for higher yields. In periods of market euphoria, market participants can make credit and investment decisions that might not otherwise have been made."
The G7 Finance Ministers considered it essential that "private creditors and investors bear the responsibility for the risks they take". In other words, they can no longer be expected to be bailed out by the IMF and by governments. They called for an end to "unintended incentives to lend to risky borrowers". They conclude: "We need to shape expectations so that private creditors know that they will bear the consequences of their investment decisions."
And in a clear attack on the kind of subsidies that western and indeed developing country governments provide to private creditors through their Export Credit Guarantees Departments, G7 Finance Ministers warned countries which offer generous guarantees to foreign lenders and investors:
"Governments should narrow the scope of their guarantees of private obligations so as to make sure that creditors do not lend to private entities with the expectation that they will be protected from adverse outcomes. Those guarantees that are provided should be clear and transparent."
G7 attack IMF.
The G7 Finance Ministers statement is filled with attacks on the IMF, on its policies, and especially on its secrecy. "We attach high priority to ... steps further to increase the transparency in the IMF's own operation," the Finance Ministers said.
The Finance Ministers stressed the need for "enhancing the accountability of the IMF by approving transparency, the decision-making processes and the timely flow of information." In particular, the IMF should publish letters of intent, memoranda of economic and financial policies, and Policy Framework Papers.
"Encouraging the IMF to continue undertaking systematic evaluations both internal and external of the effectiveness of selected operations programmes, policies and procedures" is particularly important, they said.
The G7 Finance Ministers said that they could no longer let the IMF and World Bank run themselves. They recognised "our special responsibility as major shareholders in the Bretton Woods institutions." And they added, "the accountability and transparency" of the IMF and the World Bank "should be strengthened."
G7 and Debt
The total debt of the of the 41 countries defined by the G7 as the only group in need of relief is $207 billion. Jubilee 2000 Coalition UK believes that at least 52 countries have upayable debts of $370 bn.
Of the $207 billion of HIPC country debt, approximately $100 billion is currently not being serviced – in the full knowledge of the IMF and Word Bank, who have imposed their own economic programmes on these countries.
At Köln, the G7 improved the existing HIPC (Highly Indebted Poor Country) initiative. That currently offers $25 billion in relief. In addition the Paris Club of bilateral creditors is committed to writing off $30bn of debt owed to OECD creditors that organise secretly, within the Paris Club. The improvement in Köln was to the HIPC initiative, administered by the World Bank and IMF. This would add a further $25bn of relief. Finally the G7 agreed that ODA debt (i.e. loans made by Overseas Development departments, invariably under concessional or "soft” terms) would be written off. This is of particular significance to Japan, which provides more soft loans than other creditors, and therefore has more outstanding debt. While Japan agreed in principle to debt cancellation of her ODA debt, she offered no explanation of how, or by when, this is to be done.
So the total on offer in debt cancellation is $100bn – just as much as is anyway not being paid. Because this money is not being repaid, and would not be repaid, this relief is a cost-free option. The costs of debt cancellation only begin to be taken into account when creditors have to forego revenue streams from debt repayments.
It is also a benefit-free option. If these are debts that countries already effecitvely cannot pay, then de facto, they are not diverting resources from health or education to pay them.
Even the G7 leaders themselves recognise that the Köln Agreement does not go far enough. Their final statement spoke not of a final exit from unsustainable debt for the poorest countries, but of a “fresh boost” to debt relief. They went on to acknowledge that “recent experience suggests that further efforts are needed to achieve a more enduring solution to the problem of unsustainable debt burdens.”
In the House of Commons on the Monday after the Summit Tony Blair said: “I would like to see us go further still on debt; it is an issue whose time has come. I will personally do whatever I can to make that happen.” (Hansard Monday 21st June, 1999).
The implications of this for the campaign are clear: we need to press the G7 harder. We need more debt cancellation before “the time has come” namely the millennium. In other words we have just six more months to put inescapable pressure on the G7 to do more.
The Fund fights back.
The G7 began to loosen the chains of debt, but are still deeply reluctant to break the chains of debt.
This was most clearly reflected in the rearguard action by the IMF to retain its grip over countries who might slip the noose through debt cancellation. As Archbishop Ndungane of Cape Town , one of Jubilee 2000's patrons has noted:
“Indebted nations will (as a result of the Köln Agreement) now have to jump over even more bureaucratic hurdles and conditions than before, even to be considered for debt cancellation. This is precisely the form of slavery that we in Jubilee 2000 so roundly condemn. As it is, indebted nations find themselves having to meet endless and changing bureaucratic and economic conditions, set by faceless and unaccountable civil servants in Washington. This undermines democratic accountability in indebted nations, and effectively transfers power away from political capitals in Africa - to Washington. Secretive, behind-closed-doors negotiations between political elites in Africa and bureaucratic elites in Washington fosters corruption, and undermines democratic accountability in Africa. Here in South Africa we have struggled for decades against the anti-democratic forces of apartheid, that for almost hundreds of years denied black South Africans a voice in the determination of their own economic policies. We cannot support the witholding of democratic rights from the people of other sovereign African nations.
“Furthermore Washington's economic conditions have proved flawed, and have always failed the poor. No less an authority than the chief economist of the World Bank, Joseph Stiglitz, agrees with our criticisms of these policies.
“Through its Köln Agreement, the G7, while calling for policies for poverty reduction to be integrated into IMF macro-economic conditions, have effectively transferred power from sovereign states to unaccountable civil servants in the US. This is a modern form of economic bondage, a form of neo-colonialism which is unacceptable to us in the Jubilee 2000 movement. This is why chains - paper chains, human chains, lapel chains - have been the powerful symbols of our movement. And it is these chains that we are committed to breaking, as a way of celebrating the birth of the most powerful liberator of all, Jesus Christ. At Köln, the G7 appear to have twisted and tightened the chains”.
Gold Sales:
The decision by the G7 to sell IMF gold to fund the cancellation of debts owed to the IMF, should also be put in context.
There are three points to be made about this decision: first, that it appears that the IMF does not intend to use the funds generated by the sale of gold, just for debt cancellation. Instead the IMF wants these funds to finance its soft-loan arm, the Enhanced Structural Adjustment Facility. This is the Facility whereby the IMF makes loans and enforces its own Structural Adjustment macro-economic conditions. In Jubilee 2000 we are opposed to the use of gold sale revenues, for the purpose of making new loans, and promoting the IMF's economic medicine – austerity measures which have consistently failed the poor.
Second, the IMF, as the Harvard economics Jeffrey Sachs has argued, is fiddling its own books. The IMF currently values the value of its gold holdings in its books at $4.9 billion. In fact the current market value of the IMF's gold holdings is approximately $32.2 billion. According to Sachs, “the IMF could revalue the gold on its books to market value, and thereby recognize a capital gain of around $27.4 billion”. [1] According to Sachs, at the stroke of a pen, “a complete writeoff of all IMF claims” on the poorest countries, could become affordable.
Third, if gold is to be sold to fund debt cancellation, then its impact on countries like South Africa must be put in context. The IMF proposal is to sell 311 tonnes of gold, in tranches, and over an extended period of time. Recently the British government announced its intention of selling 415 tonnes of gold in the medium term. 125 tonnes will be sold between now and March 2000. At the same time the Swiss government has announced its intention of selling 1,300 tonnes of gold over a similar time frame. Between them, Britain and Switzerland intend to sell over five times as much as the sale proposed by the G7 to fund debt cancellation. The British and Swiss decisions follow on from decisions by central banks around the world – including the Netherlands, Belgium, Argentina, Australia and Canada.
It is the impact of these sales that will have greatest impact on the price of South African gold; not the impact of the G7 decision to partly fund debt cancellation by the sale of IMF gold.
Conclusion:
The Köln Summit represents a stage in the shift from one paradigm to another. Its significance should not be under-estimated. There were two subjects on the Köln agenda: Debt and Kosovo. Since the start of the war in Kosovo, 800,000 children are estimated by the UN to have died in developing countries from easily preventable diseases.
Progress made in Köln gives some of children in indebted nations a chance. It does not give them a future, in the way that the children of Köln were given a future in 1953, when their government received massive debt cancellation.
But given the impact the movement has already had, Jubilee 2000 campaigners around the world must now redouble their efforts. First, it is crucial that we should build a united people-to-peoples movement, of Jubilee 2000 north and south. That we should respect each other's particular circumstances; but that we should at all times build solidarity between north and south. The power of our movement has already been proven; don't lets cast it to the winds.
We need to concentrate on our target of the millennium; the agony of the poorest people in the poorest countries cannot be endured for much longer. We want massive debt cancellation by the year 2000.
In the north campaigns should give logistical, financial and practical support to campaigns in the south. We should do this through twinning, through linking up, through building up the bonds of friendship and support. We can do it through our town halls, our churches, our trades unions. We can be global as well as local in our thinking, but above all in our actions.
In the north too we should target key governments: the US, Japan and France. The campaigns in these countries are not yet strong enough to make sufficient impact. We have been mocked by US officials because “no-one in my street is talking about this”. Let's make sure that everyone in every street in the US is talking about this before the end of the year. Let's work with the campaign in Japan to give them support – let's use all our own links to raise the issue there.
In Britain we will be calling for unilateral cancellation of debts owed to Britain by our government, and encouraging the Canadian and Norwegian governments to follow the same route.
Above all, let's remind the world that debt is the new slavery. That the economic bondage of debt confines a billion people to poverty and to the diktats of unaccountable civil servants in Washington, London, Paris and Bonn. Let's campaign for more accountability of elites in debtor nations to their own people. Let's demand a more open, independent and fair process for determining whether debts should be cancelled. Let's ensure that decisions are based on objective criteria, and not on whether the poor are “deserving”. Let's ensure that these independent bodies monitor and audit resources released by debt cancellation, so that they benefit the poor. Let's campaign for democratic institutions and accountability to the ordinary people of indebted nations, and in particular to the poor. Let's help ensure that the benefits of debt relief go to those who most need it, those least responsible for the debt crisis – the poor.
Let's keep shifting that paradigm!
Footnotes
[1] Jeffrey Sachs, evidence to the House Committee on Banking and Financial Services, 15 June, 1999.
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