September 22, 2004

G7 may drop debt of poorest countries

Non-governmental organisations (NGOs) that have been campaigning for years to write off tens of billions of dollars in debt owed by poor countries to international financial institutions (IFIs) say their dream may soon be realised. That's when the finance ministers of the Group of Seven (G-7), the world's wealthiest governments, will meet to decide whether to back a joint British-U.S. proposal to cancel all of the debt owed by most of the world's poorest nations to the World Bank, the International Monetary Fund (IMF), and regional multilateral development banks.
The American initiative is scheduled to be discussed at the annual meeting of the Bretton Woods institutions in Washington early next month. The proposal is likely to win support from a large majority of the 184 member nations of the World Bank and International Monetary Fund. But the giant lending agencies themselves are said to have misgivings about the plan's impact on their financial stability. The move is also expected to draw criticism on the grounds that it unfairly excludes several deeply impoverished and indebted nations, such as Kenya. And creditors in some influential countries oppose debt forgiveness because they say it would encourage irresponsible behaviour on the part of borrowers. With the November presidential election in the US fast approaching, the Bush administration's uncharacteristic initiative can be seen in part as an attempt to renovate the president's image as a "compassionate conservative." Analysts further suggest that the broad debt-forgiveness plan, first reported in The Washington Post, is intended to build international support for the US call for cancellation of the $120 billion debt that Iraq owes to a variety of lenders. The G-7 meeting is to take place on the eve of the annual meeting of the boards of governors of both the World Bank and the IMF at their headquarters in Washington. The G-7 and other western countries have sufficient voting power on the boards of the two agencies that, once they agree on an initiative, its adoption is virtually assured.
The plan is designed to replace the eight-year-old Heavily Indebted Poor Countries (HIPC) initiative, created to reduce the debt of some 41 eligible countries to more manageable levels in exchange for their implementation of far-reaching economic reform programmes designed to make their economies more attractive to foreign investment. However, countries which qualify for debt relief are required to spend the equivalent of the amount written off on social services such as education, health and poverty alleviation.
Tanzania is among those heavily indebted poor countries which could have their multilateral debts entirely forgiven if a plan reportedly being advocated by the US government is accepted. The Country's external debt of $7.6 billion decreased by 6.1 per cent between July 2002 and March 2003 as a result of the HIPC initiative, President Benjamin Mkapa said. But due to the Tanzanian shilling's depreciation against the US dollar, the country's external debt burden actually increased by 2.1 per cent during the same period, Mr Mkapa added. Debt servicing continued to drain resources that could be used for poverty reduction, the president said.
In the meantime, it has been announced by the outgoing French Ambassador to Tanzania, Jean Francois Lionnet, that France has cancelled Tanzania's debt of Euro 116 million (US$139m) as part of debt relief to the country. He stressed that the main part of the debt, Euro 89 million, would be written off and the balance converted into additional development programmes, specifically targeting primary education. (The East African, Nairobi/IPS)


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