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DEVELOPMENT: Debt Relief Faces a Big Test

Sanjay Suri

LONDON, Feb 2 2005 (IPS) - Bold new proposals for debt relief for the poorest countries will be put to the test at the G7 finance ministers summit in London this weekend.

The G7 (the United States, Canada, Britain, France, Germany, Italy and Japan) finance ministers will meet Friday and Saturday to consider what they can do on debt relief and finance for development.

The meeting will be a test particularly for radical proposals by Britain’s Chancellor of the Exchequer (finance minister Gordon Brown). Britain has presidency this year of both the G7 and the G8, which is the seven industrial powers plus Russia.

Brown is looking for a landmark breakthrough, both short-term and long-term.

The immediate aim is debt relief for the tsunami-hit countries. The G7 and other members of the 19-member Paris Club (a group of creditor nations) offered last month to freeze debt collection from tsunami-hit countries.

But several of the affected countries do not want to take up that offer because it might lower their credit rating. U.S. officials have been in some sympathy with that position. They want the offer extended only if it can be shown to benefit the countries, and if it is tied to particular programmes.

But while the ministers debate ways of channeling this relief, Brown is looking for more long-term decisions in what he has described as a once in a generation opportunity.

The richest countries, he has said, must "agree to end the hypocrisy of developed country protectionism by opening our markets, removing trade-distorting subsidies and in particular, doing more to urgently tackle the scandal and waste of the Common Agricultural Policy – showing we believe in free and fair trade."

At the same time, developing countries must "receive the support necessary to carefully design and sequence trade reform into their own poverty reduction strategies."

The rich must "recognise that developing countries will need additional resources to build their economic capacity and the infrastructure they need to take advantage of trading opportunities."

Civil society groups are carefully watching how far Brown will be able to take his declarations.

"The G7 meeting offers Gordon Brown an opportunity to turn his words into action," John Coventry from the London-based War on Want told IPS Wednesday. "We’ve heard the rhetoric, now it’s time for the chancellor to show he means what he says about tackling global poverty."

This would mean, he said, that Britain must take the lead, "showing other G7 countries, including the U.S., that more and better aid, debt cancellation and trade justice are imperative if the war on poverty is to be won."

Brown has set out three ambitious goals:

* full debt relief for the debt-burdened countries;

* the first world trade round in history that benefits the poorest countries; and

* doubling aid to halve poverty.

Brown wants the last of these to be worked through an international finance facility by which governments offer future lending now, and raise additional funds from international capital markets. He wants such a facility to raise an additional 50 billion dollars in development aid each year for the next 10 years.

In total, 27 countries stand to have 70 billion dollars of unpayable debt written off, and 37 others are potentially eligible.

The weekend meeting is not expected to produce decisions on all these proposals; the immediate focus will be on debt cancellation. But an agreement on this could mark a vital first step on the path Brown has outlined.

"If finance ministers agree a deal on debt cancellation, this G7 meeting would be the first milestone on the road towards ending the obscene poverty that kills 50,000 people every day," Oxfam’s policy adviser Max Lawson said in a statement.

Brown’s formula does not suggest that Britain is doing everything right, say members of independent civil society groups.

"The UK government has hijacked the language of development campaigners to hide its promotion of ultra-free market economics, privatisation and deregulation which is serving the interests of multinational corporations," Mark Curtis, director of the World Development Movement, said in a statement.

British government policy is a major barrier to the fight against poverty, the groups War on Want, the World Development Movement, Friends of the Earth, and the National Union of Students said in a statement last week.

The groups said there were five key areas where the British government is failing the developing world:

* It has been at the forefront of pushing an aggressive "free trade" agenda at the WTO, dismissing developing country pleas that they should be allowed to defend their infant industries from EU and U.S multinationals.

* Britain stands behind the damaging Economic Partnership Agreements (EPAs) designed to open up markets in African, Caribbean and Pacific countries, exposing small-scale producers to overwhelming competition from powerful multinationals.

* It has taken the lead in promoting privatisation of public services in developing countries, despite the increases in poverty this has brought.

* It has failed to control its own greenhouse gas emissions in the face of powerful industry lobby groups.

* Also, Britain has undermined international calls to hold multinational corporations to account for their activities overseas by championing the voluntary alternative of "corporate social responsibility" rather than corporate regulation.