Island Mentality Report - Executive Summary

The world's most powerful leaders meet this summer on the Japanese island of Okinawa. After years of meeting in major cities, increasingly besieged by campaigners calling on them to cancel the unpayable debts of the poorest countries, the G8 leaders are retreating to an island.

Okinawa is a very long way from anywhere, the epitome of a faraway island. But the G8 cannot escape the reality of their mounting failure to show leadership and cancel debts in the millennium year.

Relaxing on their island, the world's most powerful men will be able to pretend, if they want to, that they are dealing with the great issues of the moment. Or they can choose a different path. They can cast off their island mentality and face the single issue that most demands their attention as they meet in this millennium year. The world's leaders could leave behind their fantasy island and agree to cancel the debts of the poorest countries now.

The betrayal of Cologne

Ten countries will have begun to receive debt relief promised at last year's G8 summit in Cologne by the time of the Okinawa summit, though only one will actually have had debt cancelled. The ten countries' total debts will eventually be reduced by 34 per cent, with annual debt payments falling on average by 27 per cent. The ten countries will continue to pay over a third more on debt than they are spending on health.

Of the $100bn debt cancellation promised in Cologne, by the end of 2000, just $15bn will have been cancelled. By 2005 or later, the total will reach $90bn, 42 per cent of those countries' debts. The remaining $10bn promised will never be cancelled.

The fate of those countries that do not even qualify for the Heavily Indebted Poor Countries (HIPC) initiative is worse still. Nigeria has so far been ruled out from receiving HIPC relief, despite having income per head less than $300 and a debt to export ratio of over 250 per cent. Nigeria's fragile steps to full democracy remain undermined by the lack of resources the government has available to spend on its people, many of them among the world's poorest. In Latin America, Haiti, the poorest country in the Western Hemisphere, also urgently needs debt cancellation.

The 100 per cent club

It is very possible that the G7 will use their meeting in Okinawa to announce the cancellation of 100 per cent of the debts owed to them by countries qualifying for the HIPC initiative. This announcement is not new. The broad commitment by the G7 to cancel 100 per cent of their bilateral debts is welcome – but it is tied to the discredited HIPC initiative with its IMF economic austerity programme – and also fails to cover the World Bank's and IMF's own loans.

Political leadership and the lessons of history

The world's leaders face a choice. They must decide whether to do nothing, or to act. The case for political action is made simply:

• Every day, $60m is transferred from the poorest countries to the richest in debt repayments.
• Every day, 19,000 children die as a result of money going to foreign creditors instead of basic health, education and clean water.
• Previous attempts to deal with the problem, right up to and including the initiative agreed last year in Cologne, have failed.

History shows that at similarly significant moments in the past, the price of political inaction has been high. Three case studies illustrate this:

• In Rwanda, the cost of the action that could have been taken at a brief moment in early 1994, which may have averted genocide, was about $400m. The cost of the politicians' inaction over Rwanda was the lives of one seventh of the population and countless millions of dollars in reconstruction, reconciliation and health and education costs.
• After the First World War, the victorious Allies chose not to act to reduce or waive the punitive reparations that had been imposed on Germany. The cost of taking this action would have been about $5-8bn. The cost of inaction and the instability and turmoil it helped to cause was ultimately the Second World War – $13 trillion ($13,000,000,000,000) in direct military costs alone.
• In 1982, in spite of the increasingly hostile atmosphere over the disputed Falkland Islands, the British government failed to negotiate a diplomatic solution. It then withdrew, for economic reasons, a strategically important naval ship that patrolled the waters around the Falklands. Historians believe that if this patrol had been maintained, at a cost of £3m per year, the Argentine military action would never have been launched. The cost of the war that followed was more than £3bn – one thousand times more than the action the British government failed to take – as well as 1,000 Argentine and British lives.

This is the moment

The world's leaders now face a choice not unlike those historical examples: to do nothing or to act. There are three reasons why action is necessary and urgent:

• Debt creates a human catastrophe that is getting worse – three million children have already died as a result of the debt crisis in the new millennium.
• The wealth of the rich world and inequality between rich and poor is unprecedented – for example, the amount Nintendo expect to earn this year on sales of Pokemon products in the United States could write off the entire debts of Rwanda and Niger.
• The millennium moment is a one-off opportunity that will not be repeated – a huge coalition is assembled in support of action this year.

 

The world's leaders should therefore take three steps:

1. Stop taking payments from the poorest countries immediately and ringfence the money for the poor.
2. Commit to the cancellation of 100 per cent for all the poorest countries from all the creditors, including the World Bank and IMF, this year.
3. Agree to find a new process to deal with lending and borrowing to prevent another debt crisis in the future.

Action of this kind would be a fitting way to mark the millennium. Further inaction by the world's leaders would risk the high costs of inaction and impotence that have been seen in the past. Children in the poorest countries of the world cannot wait while the leaders of rich countries sit on their island. The world's leaders must step out into the real world – and drop the debt now.

 

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