G7 all promise 100% cancellation – but debt relief is still a long way off

 

Announcements by Japan, Germany and France in early April mean that all seven of the most industrialised countries (the Group of 7, or G7) have now promised some form of 100% debt cancellation for the poorest countries. But Jubilee 2000 points out that four problems remain:

• The G7 countries each interpret “100%” differently, so some are not really cancelling all debt.
• This “100%” is limited to small range of countries; many which desperately need debt cancellation are excluded.
• Multilateral debt (that owed to the World Bank, IMF and regional development banks) is still not being cancelled.
• 100% commitment is not the same as delivery of 100% cancellation. Poor countries have first to complete a long and controversial set of economic adjustment measures overseen by the International Monetary Fund (IMF). So far only one G7 creditor (UK) has delivered 100% cancellation and this has only been granted to Mauritania.

The most recent data, for 1998, shows the Heavily Indebted Poor Countries (HIPCs) with $206 billion in debt, or which 50% is bilateral (not just G7), 35% multilateral, and 15% private.

Japan, France and Germany join 100% bandwagon

Japan, which chairs the G8 and will be the host of the summit in July, was the last country to announce 100% cancellation, and it is the weakest commitment. On 10 April it said it would cancel all outstanding export credit debt to qualifying HIPC countries (except Myanmar, on human rights grounds, and countries which want significant continued aid from Japan - probably Vietnam and Ghana). About $1.3 billion in debt will be cancelled. This is a step forward from the Cologne summit last year, when Japan said it would cancel only 90% of this debt.

However the bulk of HIPC debt to Japan, nearly $9 billion, is loans given as aid (ODA). Japan was the only major “donor” to have continued to give aid loans rather than grants. For HIPCs, Japan has said it will not cancel the ODA debts, but each year after payments are made, Japan will give the money back in the form of grants but conditions are attached ensuring the funds are spent on Japanese imports. This form of cancellation is controversial on two grounds.

• First, it must be used for imports, and so cannot be used for essential domestic spending on poverty reduction.
• Second, the government claims that the money is “untied” and can be used for imports from a wide range of countries, but the Jubilee 2000 campaign in Japan claims that in practice the money is released only for imports from Japanese companies.

Germany and France both announced 100% cancellation at the European Union/Africa summit in Cairo on 4 April. French President Jacque Chirac told the Cairo summit that that: “within the next two or three years, France will not hold any debts against the poorest countries”, by which time all ODA and export credit debts would have been cancelled. He called on other creditors to cancel 100% of their debts as France has done. France has cancelled about $7 billion in debt, of which $1 billion is the extra cost of reaching 100%.

Germany is to write off all debt of the HIPC countries. The total cost will be about $5 billion, of which $400 million is the additional amount needed to reach 100%.

Different types of debt

Five kinds of debt are considered for cancellation, and all are treated differently:

• Multilateral debt, owed to agencies like the World Bank, IMF, African Development Bank and other regional development banks. No 100% cancellation commitment has been made by these creditors.
• Bilateral aid (ODA) debt, consists of low interest loans given as aid. Most countries agreed some years ago to give only grants. Four countries still give aid loans. In 1997, 55% of Japanese aid was in the form of loans, while 15% of French, German and Italian aid was loans. At the Cologne G8 Summit it was agreed that all ODA debt would be cancelled.
• Bilateral export credit debt, consists of government backed commercial loans given to promote exports of the lending country. These divide into two groups:
  • Pre-cut off date, means debt incurred before the date of the first negotiations with creditors, known as the “cut-off date”. HIPC cancellation applies only to pre-cut-off date debt which in the case of some countries is set in the early 1980s.
  • Post-cut-off date, means debt incurred after that time.
• Private debt is money owed to banks and private companies.

Of the G7 countries, all but Japan are cancelling bilateral aid debt to the poorest countries (which usually means HIPC countries, but sometimes extends to others such as Bangladesh). Japan uses their rebate-and-import system.

For bilateral export credit debt, Canada, Britain and the United States will cancel both pre- and post-cut-off debt. France, Italy, Germany, Japan are not cancelling post cut-off. France has significant post-cut-off date debt, while the other three say they have little.

Britain on 19 December 1999 announced cancellation of 100% of HIPC country debt. Britain has already cancelled nearly all aid debt. The debt owed to the British government by the 41 HIPCs is $3.3 billion (£2 billion) of which 96% is owed to the Export Credits Guarantee Department (ECGD). This is made up of £1.5 billion in “pre-cut off date” debt and £300-400 million in “post-cut off date” debt. The Department for International Development (DFID) is owed only £82 million. The extra amount of debt relief granted by Britain over and above what was agreed in Cologne is estimated by the Treasury at £300 million.

The British announcement explicitly stated that it will include all post-cut-off date debt. This is particularly relevant in the cases of Ghana which has £279 million in post-cut-off date debt and Vietnam which has £52 million.

United States President Clinton announced 29 September 1999 that the United States would take steps to cancel the entire debt owed to it by the world's poorest nations, on condition that the money is spent on basic human needs. He said: “I am directing my administration to make it possible to forgive 100 per cent of the debt these countries owe to the US when needed to help them finance basic needs and when the money will be used to do so.”

The US Treasury Secretary Larry Summers said that the US administration hoped that other creditor nations would adopt a similar policy: “We will be seeking others to join us.”

The United States is owed a total of $6 billion by the 41 countries in the Heavily Indebted Poor Countries Initiative. Of this about $3.5 billion is commercial debt. The cost to the US taxpayer is substantially less as this debt is kept on the books at a tenth of its value.

President Clinton's proposals have to be agreed by Congress, which so far has proved be less supportive.

Italy has promised that all commercial loans granted to the poorest countries (those with an annual per capita income of up to $300) will be written-off. These countries owe Italy about $1.1 billion in commercial loans, and $400 million lire in aid credits. Italy is considering extending this initiative to all HIPCs. Italy has cancelled $600 million in aid-related debts since the beginning of the nineties.

Canada has cancelled $900 million in HIPC ODA debt; only Burma currently has ODA debt to Canada. Since 1986, Canada has provided development assistance in grant form only.

Promises don't mean delivery

The problem with all these commitments is as usual in the small print. Newspapers trumpeting the latest statement on 100% have rarely drawn attention to the fact that the commitments are tied to each country completing the HIPC process. This process involves a country undertaking economic adjustment measures as well as demonstrating commitment to poverty reduction. However as Jubilee 2000 reveals in its new report, Kicking the Habit, the policies that countries have had to follow, under the direction of the IMF are proving to be contradictory and have put serious delays into the process. 10 countries were promised debt cancellation by the end of April 2000; only 5 countries have reached the 'decision point' in the process. And for these countries, the UK is the only creditor to deliver 100% cancellation at this stage.

Jubilee 2000 is calling for all creditors, including the IMF and World Bank, to stop delaying and enact immediate and full debt cancellation for the poorest countries. Jubilee 2000 has also condemned the current debt relief process for its failure to deliver effective and transparent debt cancellation; and has called for a new independent and transparent process that will take decisions on debt out of the hands of creditors and instead more power in civil society that have suffered at the hard end of the debt crisis for too long.