The Group of Eight and Debt - part 1

By Bill Turnbull W.F.

‘ “You have already been told what is right and what Yahweh wants of you,
Only this, to do what is right, to love loyalty and to walk humbly with your God.” ’ (Micah 6:8)

For notes on terminology used in this article please see the foot notes

Table of the debt per capita owed by African Countries

The text above was one of the readings used by Bishop Mark Santer (Anglican Bishop of Birmingham) at an ecumenical service held on 15th. May, 1998, in St. Chad’s Catholic Cathedral, Birmingham. The occasion was to pray for the G8 Leaders as they began their Summit. The focus of the sermon, and of many activities around the city, was to remind the Leaders of the debt situation and to form a bridge with the poorer countries of the world.

In a pastoral letter, ‘Pastoral Message for the G8 Summit’ (23rd. April, 1998), Archbishop Maurice Couve de Murville, of Birmingham, reminded those in the Archdiocese of the quotation from Leviticus 25:10 and how Pope John Paul II ‘has asked us to combine concerns for world debt with the preparation for the Millennium Year 2000. In the Old Testament, the Year of Jubilee was a time for cancelling debts, freeing slaves and releasing prisoners. The Holy Father has said: “Christians will have to raise their voices on behalf of all the poor of the world, proposing the Jubilee as an appropriate time to give thought, among other things, to reducing substantially, if not cancelling outright, the international debt which seriously threatens the future of many nations”. (‘Tertio Millennio Adveniente’, §51) ’

The theme of looking forward to a ‘jubilee beginning’ to the third Christian millennium is echoed by people of different faiths in the work they are doing to help developing countries. This is especially so for those who have joined together in the ‘Jubilee 2000 Coalition’ (see the next issue) and was obvious in Birmingham between 15th. and 17th. May, 1998.

The preparation for the Millennium Jubilee has been going on for some time and organisations such as Cafod, Sciaf, Christian Aid and Oxfam are very involved. The centre of this concern is that the poor countries of the world should have a ‘fair deal’ in matters concerning debt repayment, aid and trade. Cardinal Basil Hume has also added his weight to the campaign: ‘As a churchman, I have become involved because this is a moral issue. Unpayable debt has become directly linked with terrible suffering. Church leaders in Africa hear the cry of the desperately poor, and appeal to us in the developed world to be advocates for the voiceless. For Christians there is an added dimension. We regard the millennium as a jubilee, and the prospect of reducing the burden of debt has a profound theological resonance.’ [1]

The Debt Story

The debt issues are very complex and there is no simple solution. The present situation has developed over the last thirty years or so. The 1950s and 1960s saw the price of commodities, the mainstay of African countries’ exports, rise on the world market. In general this meant that there was finance for development at the time of independence. In the 1960s the United States went into debt so they produced more Dollars, lowering their value. Oil from the OPEC countries has always been priced in Dollars, so with the fall in value they began to lose money. This led to them increasing the price of oil in 1973 and 1979. The subsequent profits, ‘petro-dollars’, were then invested in Western banks.

In the 1970s and 1980s commodity prices fell drastically. This was partially due to the fact that developing countries had been encouraged to grow cash crops - such as coffee, tea, cotton and cocoa. The glut of similar products caused the prices to fall and the crops to be sold cheaply or even to remain unsold. At the same time oil prices and interest rates rose drastically and the debts that were run up to pay for the imports, such as oil and machinery, began to grow.

In an attempt to get out of this situation developing countries borrowed heavily from Western Banks. The West encouraged them to borrow the recycled ‘petro-dollars’, often for inappropriate projects and to pay off the debts already incurred. No doubt some aid money and loans were misused at this time through corruption and dictators did amass money outside of their countries (‘capital flight’). The donors were often aware of this and also that only a small benefit reached the poor of the debtor countries, but little was done to change the situation.

Debt Solving Initiatives

There has been a willingness in government and financial circles to solve the debt problem for some time and many initiatives have been considered. When agreed upon these are very often carried out through the ‘Paris Club’ (see terminology). The Structural Adjustment Programme (SAP) is probably the best known initiative, and the most widely implemented in conjunction with the World Bank and the International Monetary Fund (IMF), two of the major creditors, also known as the Bretton Woods Institutions (BWI). They are one of the most stringent methods and are usually imposed on a debtor country. This initiative was supposed to be a way of helping endebted countries repay their debt, to stabilise their economies and to regain a position in the global economic market. It was also supposed to be ‘short and sharp’, but has ended up as a long-term enforcement of cutbacks in government spending and a wholesale restructuring of a country’s economy.

The basic theory behind SAPs is that a country can repay its debts by earning foreign currency, increasing exports, and decreasing imports. The result of implementing SAPs, in almost every country, has been a reduction in public spending (health, education, social services); a change from small-holdings subsistence farming to large-scale farms to produce export crops; the privatisation of state owned companies; trade liberalisation and devaluation. The knock on effects of SAPs have been horrendous on the poorer parts of society leading to deeper poverty, lowering of wages, unemployment and an almost complete collapse of public services. The subsequent devaluation of the local currency has made the price of vital imports rise far beyond the reach of the ordinary person - especially when subsidies, such as on food, are forced to be withdrawn. Since then there have also been Enhanced Structural Adjustment Programmes (ESAP) and various loans and facilities in an attempt to ‘soften’ the impact of SAPs. Most debt initiatives after this have the SAP as their basic foundation.

The Highly Indebted Poor Country Initiative

In October, 1996, there was a major shift by the IMF and the World Bank when they produced a debt relief initiative that, for the first time, contemplated the cancellation of debts owed to them. It is known as Highly Indebted Poor Country (HIPC) Initiative and is at the centre of the debt situation at present. The idea arose from a British suggestion at a meeting of Commonwealth Finance Ministers the previous month. Britain’s Chancellor also proposed that the Initiative should be financed through the sale of the IMF’s gold reserves.

The IMF and World Bank have agreed to give up to a possible 90% of debt, though the ‘Paris Club’ and the creditor countries involved agreed to reduce the debt burdens of the worst affected countries. HIPC, it is hoped, will deal with both bilateral debt (mainly owed to the old G7 countries) and multilateral debt. Forty-one countries are eligible for debt relief under the HIPC terms. Uganda was the first to qualify, in April, 1998, and Bolivia, Burkina Faso and Guyana are due to follow suite. It is estimated that the total cost of HIPC will be about $5bn. In order to finance the Initiative a HIPC Trust Fund is being set up by the creditor countries, the World Bank and the IMF.

HIPC is designed to help countries to arrive at a sustainable debt level within six years. The HIPC process is divided into two phases each of three years. In the first three years a country can receive up to 67% reduction of debt servicing if it follows the World Bank-IMF adjustment programme. At the end of this time the ‘Paris Club’ can grant the 67% reduction of ‘debt stock’ (under ‘Naples Terms’) and there may be some relief from commercial debts. If the targets have been reached then the country goes on to the second phase - if not the latter may be delayed. In the second phase there is the possibility for 90% of the debt servicing to be relieved, and similar reductions in any bilateral and commercial debts. At the end the reduction of the ‘debt stock’ and possibly other multilateral considerations and forgiveness may come into play.

The plan is limited in its effect. Sadly, yet again, officially considerations on poverty are not within the initiative’s framework, though the BWI do pay more attention to it and human development than previously. In the post-relief stage the debtor countries are supposed to put the resources freed by HIPC into ‘social programmes’. This is recognised by the BWI, but it has no place in the first two stages of HIPC.

Only three countries are likely to see any benefit before the year 2000 and they will have to maintain strict SAPs. According to Christian Aid, only 6.4% of the total debt of the forty-one poorest countries will be tackled, while at the same time debt service is expected to rise and commodity prices to fall. Whether the economic priorities that are enforced in the HIPC are correct and any better than SAPs still has to be seen. What is happening in Russia at present, a country which follows the BWI dictates, may give an inkling of what the future holds for poor developing countries which are no longer of any strategic interest to the West. Political will, on behalf of G8 countries, is needed for the HIPC to succeed but this is not be present among all - as the Summit showed.

An added complication is that some HIPC countries owe substantial debts to Russia. The ‘Former Soviet Union’ defaulted on its foreign debts in 1991 and they were taken over by the new Russian Federation. Russia is trying to pay off its own debts to the West, but it is still owed an estimated $120bn [2] by developing countries. The USSR extended credit to developing countries, as part of its old foreign policy, during the Cold War. These debts have now fallen on the present Russia. In Africa alone the amount owed - by countries such as Angola, Ethiopia, Guinea, Mozambique and Tanzania - amounts to about 10% of Sub-Saharan Africa’s total debt (1996). According to the World Bank, Sub-Saharan Africa’s debt to Russia grew from $90m. (1980) to $1.8bn. (1990), and to date no country is repaying the debt. This gives rise to an interesting and complex situation as regards Russia and its position in the ‘Paris Club’ and the G8 as well as regards the HIPC initiative.

The UK Government and Debt

For a long time British Governments have had quite a good record on trying to resolve the debt crisis. This has born fruit especially when carried out in collaboration with the Commonwealth and when the different initiatives have then been brought from there into the international economic arena. The UK Chancellor of the Exchequer, Gordon Brown, set out the ‘Mauritius Mandate’ at the Commonwealth Finance Ministers conference, on the 16th. September, 1997. The mandate is a plan to help speed up the ‘Naples terms’ and the HIPC debt relief for eligible countries by the year 2000. It also is a way to assist the HIPC countries to begin the process, so that by the Millennium their debts should be at a sustainable level. It is possible that, by these means, fourteen of the countries which are eligible for HIPC would be cleared of debt by then.

The response of the creditor countries has not been too enthusiastic and Germany was the most opposed. A major problem would appear to be the possible sale of the IMF’s gold reserves. Despite this the UK Government took the ‘Mandate’ to the G8 Summit in Birmingham as a new initiative to speed up the debt resolution process. As part of Britain’s commitment to the ‘Mauritius Mandate’ the Government said it would cancel up to £132m. in aid loans it is owed if “the countries concerned are committed to pro-poor policies, transparent and accountable development and sound economic policies.” [3]

The UK Government believes that: the debt problem should be resolved by the whole international community; it should be possible to give a higher rate of relief than the present HIPC; the ‘Mauritius Mandate’ should be put into action; a way needs to be found to prevent the debt problem appearing again and for benefits to reach the poor of debtor countries should be found; growth and development should be sustained in these countries and they should be brought into the global economy. [3] ‘Since 1977 the UK has written off $2bn. of aid loans to the poorest countries. UK aid to all such countries is now in the form of grants; money is given outright not lent.’ [3] The majority of the money owed to the UK is ‘government-guaranteed export credits issued by the Export Credit Guarantees Department (ECGD).’ [3] This sort of debt incurred through ECGD facilities complicates matters when its forgiveness is involved.

Tony Blair wanted the ‘G8 summit not to be a “talking shop” but to focus on a debt reform programme which encourages African economic growth and performance rather than military spending.’ [4] Just before the meeting began the Prime Minister summed up his hopes for progress on debt issues as follows: ‘ “This is part of trying to give Africa a future, and provided that we are combining it with a strong insistence on reform and change, then I think it’s worthwhile to do,” ... Tony Blair had hope for progress that would have to be based on a “consensus” among the Leaders. He admitted that “their hesitation is to do with the fact that they want to make sure that any assistance that we’re directing towards these countries is going to pay off in terms of dividends and in respect of those countries’ growth and performance. ... This is part of trying to give Africa a future, and provided that we’re combining it with a strong insistence on reform and change then I think it’s worthwhile to do.” ’ [5]

Effect of Debt on Africa

The debt situation now means that many developing countries owe more money to foreign creditors than they have themselves and are even unable to pay the interest on the loans. If these countries were companies they would be declared bankrupt and the debt would be written off. In theory, and in international law, a country cannot become bankrupt and so, at present, its debts cannot be ‘forgiven’ nor be ended legally!

For a long time the USA has had the largest debt, but the countries in Sub-Saharan Africa suffer most. Thirty-three of the forty-two low-income highly indebted countries are in Africa. Of all the African indebted countries Nigeria ($31bn.) and Ivory Coast ($20bn.) owe the most. Kofi Annan, the Secretary General of the United Nations (UN) set out ideas concerning ‘The causes of conflict and the promotion of durable peace and sustainable development in Africa’ (16th. April, 1998). He highlighted key areas and made suggestions to improve Africa’s situation. He pointed out that many Africa countries do not have enough money for the basic needs and expectations of their people. The main cause of this is external debt and the outcome is often social tension and even conflict. This is a threat to the whole of Africa which needs an answer from the international community. ‘In 1995, Africa’s external debt totalled $328.9bn. - of which approximately 45% was owed to official bilateral sources, 30% to official multilateral sources, and 25% to commercial lenders. To service this debt fully, African countries would have had to pay to donors and external commercial lenders more than 60% ($86.3bn.) of the $142.3bn. in revenues generated from their exports. In fact, African countries as a whole actually paid more than 17% ($25.4bn.) ... leaving a total of $60.9bn. in unpaid accumulated arrears.’ (Para. 93)

He argues that debt relief should be given in such a way so as not to hinder present and future investment in Africa ‘The recent Heavily Indebted Poor Countries Debt Initiative is a promising step. ... The results of the Initiative have been disappointing, however. At present, only four African countries meet its requirements.’ (Para. 94) ‘Africa has far too little to show for the burden of debt that has now accumulated’. As most debtor and creditor countries are beginning to admit, the present situation should be a shared responsibility which has to be acknowledged. This is especially so of the Cold War years when aid and loans were used to buy political influence - even when ‘substantial sums were likely to be diverted or misappropriated.’ (Para. 95)

There is certainly more awareness of this now. The USA brought in legislation to tackle corruption in 1997, and the OECD countries have drawn up the ‘Convention on Combating Bribery of Foreign Public Officials in International Business Transactions’ which should come into force this year. Despite such changes more needs to be done. Perhaps one other development could be a change within some creditor countries where bribes to foreign officials are still tax-deductible.

Following from a request from the Organisation of African Unity to clear the debt of the poorest African countries in a short time and to reform the continent’s economy, Kofi Annan urges. ‘two immediate steps’: ‘First, I call upon all creditor countries to convert into grants all the remaining official bilateral debt of the poorest African countries. Second, I call upon the international financial institutions to significantly ease and quicken access to facilities for heavily indebted poor countries, and to provide countries with sufficient resources to enable them to attain a substantial and sustained pace of economic growth and social development.’ (Para. 96)

Cardinal Hume echoes what is central to Africa’s debt issue and points to the important role played by the G8 countries: ‘What is required, therefore, is a joint commitment from creditors and debtors. In 1996 the IMF and the World Bank launched the Highly Indebted Poor Country (HIPC) initiative, designed to offer the prospect of debtors and creditors sharing responsibility for agreeing and implementing a comprehensive strategy which, over a period of years, would lead to a final release from unpayable debt for many of the most acute cases.’ The Cardinal continues ‘Although some progress has been made, last weekend’s G8 Finance Ministers’ communiqué [9th. May, 1998] says that so far only six countries have been declared eligible for HIPC debt relief. It expresses hopes that more will follow, but there is increasing anxiety among the charities working with the very poorest, such as Cafod, Christian Aid and Oxfam, that the HIPC initiative is in danger of delivering too little, too late.’ [1]

Who are the G7 or G8?

The original ‘Group of Seven’ (G7) is the seven leading industrialised ‘democracies’. They are Britain, Canada, France, Germany, Italy, Japan and the United States, and together they account for almost half of world’s economic output. At the G8 Summit in Birmingham the ‘Group’ became eight, with the full involvement of Russia. The present ‘Group of Eight’ (G8) has its origins in an informal discussion in the library of the White House which, on the 25th. March, 1973, was convened by George Shultz, the then U.S. Secretary of the Treasury. He invited the finance ministers of France, Britain and Germany to discuss the international monetary situation. They also agreed to invite the Japanese to join and the meeting was dubbed the Group of Five (‘G-5’) or the ‘Library Group’.

In 1974, two of the four finance ministers, Valery Giscard d’Estaing (of France) and Helmut Schmidt (of Germany), become Heads of State. At the suggestion of the new French President it was decided to continue these informal meetings at Head of State level. The first Summit was held on the 15th. to 17th. November, 1975, at Chateau de Rambouillet, France. It was hosted by President Valery Giscard d’Estaing and attended by the Leaders from France, Germany, Italy, Japan, Britain, and the United States.

The Summits and their Process

The G8 Summits are spread over two days and are an opportunity for Heads of State, or of Government, to exchange views in an informal setting. Each Head has only one senior adviser , known as a ‘Sherpas’, present. The ‘Sherpas’ are senior officials from each member country who represent their Head of State personally. They meet in between the Summits to prepare the Summit agenda, which includes the draft declarations. There are also separate meetings between ‘Sous-Sherpas’, two senior officials from each country who specialise in Foreign Affairs and Finance respectively. The President of the European Commission now attends as well.

The whole arrangement of the G8 is very informal and is really the final meeting of a year’s background preparation. The G8 has no headquarters or secretariat, so the venue changes each year with the host country being responsible for organising the meeting and the expenses incurred. Senior finance officials, known as ‘Deputies’, consult regularly, and the Foreign and Finance Ministers have their own parallel meetings and usually attend the plenary session of the Summit. There is also a variety of working and expert groups which have been set up and they meet throughout the year to prepare specialised subjects. There is continual consultation on different issues of topical interest during the year and also in order to carry out the follow-up on various commitments which arose from the previous Summit.

Over the years a network of supporting ministerial forums has developed surrounding the Summits: for the Trade Ministers (1982), for Foreign Ministers (1984), for Finance Ministers (1986), and for Environment Ministers (1992). The G8 Ministers meet on an ad hoc basis to deal with important issues, such as: on assistance to Russia (1993), the Ukraine (1994), jobs-unemployment (1994 and 1996), the global information society (1995), terrorism (1996), the nuclear capability of India and Pakistan (1998), and Japan’s economy (1998). There are also working groups that look at issues such as drug-related money laundering and a nuclear safety.

The final part of the process is the agreed communiqué by the Heads that is issued at the end of each Summit. The communiqué commits each country towards common goals and can often act as a catalyst for action in other international fora. This can result in the establishment of new organisations and in shaping international policy. The Summits have often gone in tandem with the various major issues that have been topical at the time. For instance matters which tie in with the World Trade Organisation (WTO) and General Agreement on Tariffs and Trade (GATT) and the different ‘rounds’ of discussion have been included.

The media attention given to the Summits has grown over the years. At the first Summit 400 official press credentials were granted, in Denver (1997) 5,000 and Birmingham 3,500. As a result the Summit’s proceedings, and especially the various communiqué, are subjected to great international scrutiny. Because of this it is possible for issues, such as debt, to be given a high profile. This is also the reason why demonstrations take place near the Summit venue and various interest groups make the occasion a focus to have their voices heard.

The Birmingham G8 Summit

The venue for the G8 Summit in May of this year was probably one of the best possible venues. The Birmingham Summit was a first in many respects: the first true G8 to fully include Russia; the Heads of State Summit was separated from the Finance and Foreign Ministers meeting; the first with a limited agenda of three themes; it regained some of its previous informality the first time the such a UK Summit was held outside of London.

The G8 Leaders met against a world background of strong US, French and German economies; the completion of the first stages of a European single currency; problems with Japan’s and Asian economies; the sacking of the Russian cabinet and slow though troubled economic recovery; and the Indian nuclear tests. The economic crisis and disturbances in Indonesia were also unfolding as the meeting took place and so, as often happens at Summits, the agenda was overtaken by these world events.

The agenda for such occasions is centred on matters which mainly effect the political and economic lives of the G8 members. Despite this it was thought that there was more hope for the poorer countries of the world at this Summit than before. The extraordinary sense of hope, especially in connection with debt issues, was reflected in the concern shown by many ordinary people, by the media, by NGOs and by politicians. The Summit had been dubbed the P8 (poor 8 countries) versus the G8, because of a recent Christian Aid report. Maybe the hopes of those concerned with debt were too high, it certainly would appear to have been from what appeared in the final communiqué.

The main areas for discussion were:

Employment and Growth: it is recognised now that unemployment and development are both global problems needing new approaches on an international level and that they include such issues as wages, taxation, and job creation.

International Crime: the open borders which have arrived with globalisation, and the end of the Cold War, have brought further problems especially in the fields of international crime and of modern technology.

Finance, Trade and Investment: this time these issues were looked at in rather a different light with the collapse of the Asian ‘Tiger Economies’ and the effect this is having all over the world.

The Cost and Result of the Summit [6]

Various sources have estimated the cost of the Birmingham Summit at over £10m., which according to Unicef figures would have paid for the immunisation of about a million children against the six main preventable diseases. Birmingham City Council spent £800,000 on different preparations, most of which were due to have been undertaken in any case. In the end this was probably the best return on an investment as it is believed that the Summit put about £10m. into the local economy and certainly put the City of Birmingham (England!) on the international map. Some sponsorship, items in kind and technical support, was also given by some major companies, but in the end it is the British tax-payer who paid the bill.

As regards debt issues, the Summit was labelled a ‘failure’. Not much of benefit for the indebted countries came out of it. Even the human chain of 50,000 to 70,000 people on Saturday 16th. May was largely ignored. The leaders were on ‘retreat’ at Weston Park, Shropshire, and the reply to the ‘Jubilee 2000’ petition (signed by 1.5m. people) was handed over by Jacques Santer of the European Commission - though Tony Blair did return to meet with people from ‘Jubilee 2000’. (see next issue)

The final communiqué, of Sunday 17th, May, 1998, stated that the Leaders are ‘encouraged by the new spirit of hope and progress in Africa. The challenges are acute, but confidence that they can be overcome is growing’ (para 6) and that they commit themselves to support reform, democracy, transparency and development in Africa. They also seem to ‘recognise’ the part that they have to play in finding solutions to the debt crisis. To this end they ‘pledge’ themselves ‘to support the speedy and determined extension of debt relief to more countries, within the terms of the Heavily Indebted Poor Countries (HIPC) initiative’. They also ‘welcome the progress achieved with six countries already declared eligible for HIPC debt relief and a further two countries likely to be declared shortly. We encourage all eligible countries to take the policy measures needed to embark on the process as soon as possible, so that all can be in the process by the year 2000. We will work with the international institutions and other creditors to ensure that when they qualify, countries get the relief they need, including interim relief measures whenever necessary, to secure a lasting exit from their debt problems. We expect the World Bank to join the future financial effort to help the African Development Bank finance its contribution to the HIPC initiative;’

‘to call on those countries who have not already done so to forgive aid-related bilateral debt or take comparable action for reforming least developed countries;’ (para 7)

The Leaders recognise many of the problems facing Africa and what action is needed:

‘We see a particular need to strengthen Africa’s ability to prevent and ease conflict, as highlighted in the UN Secretary General’s recent report. We will look for ways to enhance the capacity of Africa-based institutions to provide training in conflict prevention and peacekeeping. We also need to consider further ways to respond to the exceptional needs of poor post-conflict countries as they rebuild their political, economic and social systems, in a manner consistent with democratic values and respect for basic human rights. In addition to immediate humanitarian assistance:’

‘we recognise the need for technical and financial assistance in creating strong democratic and economic institutions, supporting good governance alongside programmes of macroeconomic and structural reform supported by the IMF and World Bank. We call on the World Bank to play a strong role in co-ordinating bilateral and multilateral assistance in these areas;’

‘we also agree on the need to consider ways for debt relief mechanisms, including the HIPC initiative where appropriate, to be used to release more and earlier resources for essential rehabilitation, particularly for those countries with arrears to the IFIs.’ (para 8)

In the final analysis the UK proposal to implement the ‘Mauritius Mandate’ for HIPC was rejected. There was even an apparent about turn on what was agreed by the Finance Ministers the previous week. ‘ “I think the honest answer is to say that we did not go as far as many would have liked us to go, but I think we did make very considerable progress,” Mr Blair said. The Prime Minister hinted that, on this issue, public opinion in Britain had run ahead of other countries and that the Government’s “pretty advanced position” had proved unacceptable to some G8 leaders.’ [7] As the Summit ended news came that at least Britain has promised £60m. for the World Health Organisations’s ‘Roll Back Malaria’ campaign.

It was reported that the two countries most reluctant to move matters forward on the debt question were Germany and Japan. It is ironic that these two countries, who received so much financial help after the Second World War, should refuse to help others out, and that Germany should accuse Britain of hypocrisy over how it deals with debt! What is being asked is similar to what was done with the ‘Marshall Plan’. In 1953 - in the ‘London Accord’ agreed by the Allies - Germany had two-thirds of its war debts cut and it was agreed that servicing the remainder should not take more than 5% of the country’s exports. In the HIPC terms a country has to pay up to 20% of export earnings.

to be concluded in the next issue

 


Footnotes

Note One ‘Basil Hume throws down a challenge to G8 summit - Forgive the poorest their debts - now’ [Opinion], ‘The Times’, 14th. May, 1998.

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Note Two In the article $ = US$; m. after a figure = million or millions and bn. = billion or billions.

 

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Note Three ‘International Debt Issue’, H.M. Treasury, 16th. September, 1997.

 

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Note Four ‘Blair puts debt relief on agenda’ By Martin Kettle, and

 

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Note Five ‘Why we can make a difference’ [interview with Martin Kettle], ‘The Guardian’, 15th. May, 1998.

 

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Note Six Communiqué taken from the official G8 Web Site at: http://birmingham.g8summit.gov.uk/

 

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Note Seven ‘Campaigners blamed Japan and Germany for their continuing resistance’ - ‘Blair admits failure on debt relief package’, By Alasdair Murray, Economics Correspondent, ‘The Times’, May 18 1998.

 

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  Note Eight

 

Some Notes on Terminology and Debt Resolving Initiatives

Multilateral debt - is a debt owed by a country to the World Bank, the IMF, the various Development Banks, or the European Union etc.

Bilateral debt - is a commercial debt or a debt between individual countries.

The ‘Brady Plan’ - is named after Nicholas Brady, the then US Secretary of Treasury, who introduced the initiative in March 1989. The idea was to give debtor countries debt reduction from commercial banks, with the support of the International Financial Institutions and other creditors. Brady said that as debts to commercial banks had decreased in real value then the value of the debt repayment should also be reduced. This could be carried out by writing off part of the debt and by rescheduling some of what remained in the form of bonds - ‘Brady Bonds’. This helped to a certain degree for commercial debts, but the majority of money owed is multilateral.

The ‘Paris Club’ - was formed in 1956 and it is also known as the ‘Group of Ten’. The countries now involved are the US, Canada, Switzerland, Japan, Russia and the European Union. It is an informal meetings of OECD creditor governments, coordinated by a Secretariat based in France, which are the main source of loans to developing countries. The ‘Club’ is a forum where the creditors discuss economic matters such as the renegotiation of debt. Since the ‘Club’ began it has negotiated a total reduction or rescheduling of $300bn. worth of debt involving seventy countries. There is also a ‘London Club’ which is a group of commercial bankers who meet to restructure debts owed by governments, or private organisations, in countries with debt problems. The Bankers usually work with countries which already have a debt rescheduling arrangement with the ‘Paris Club’.

Organisation for Economic Cooperation and Development (OECD) - was first established as the Organisation for European Economic Cooperation (OEEC) in order to coordinate ‘Marshall Plan’ aid in 1948. It became the OECD on 30th. September, 1961. It’s aim is to promote economic growth and development, and to maintain financial stability among its 27 member countries.

The ‘Trinidad Terms’ - these terms were put forward by John Major, then UK Chancellor of the Exchequer, at the September, 1990, Commonwealth Finance Ministers’ Conference. The idea was to reduce debt stock which was owed to ‘Paris Club’ creditors. It was not accepted but the ‘Enhanced Toronto Terms’ were agreed the following year.

The ‘Toronto Terms’ (1988-91) and the ‘Enhanced Toronto Terms’ (EET)(1992-93) - were agreed in September, 1988, after an economic summit which was held earlier the same year. They are a way of cutting the debt of low-income and debt-distressed countries. The method does this by reducing the interest rate, partially writing off debt servicing, and extending the time of repayment. In 1991 the ‘Paris Club’ ‘enhanced’ the basic terms were by provision of a consolidation option at market rates, with a 14 year period of grace and repayment over 25 years.

The ‘Naples Terms’: The ‘Paris Club’ reached agreement on the ‘Naples Terms’ in December, 1994. The former UK Prime Minister, John Major, proposed that creditor countries should cancel half the debt owed to them by the lowest income countries and reschedule what remained. This eventually came out as a G7 agreement to cancel 67% of the debt for a few countries. Debts are reduced each year and after three years there is a write down in all outstanding debts - stock reduction - if the debtor has maintained its track record with creditors as with the IMF.

 

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Sources - articles in: ‘The Daily Telegraph’; ‘The Guardian’; ‘The Independent’; ‘The Times’. Articles and reports from: ‘The G7 Research Group’ at the University of Toronto; HM Treasury and British Government; Cafod; Christian Aid; Eurodad, Brussels, Belgium; ‘Jubilee 2000’; Oxfam; US Dept. of State, Washington DC.

Related articles in previous issues: ‘The African Debt Situation’, issue 302, Feb.-March, 1992; ‘Aid and Development’, issue 304, June-July, 1992; ‘The African Farmer’, issue 309, April-May, 1993; ‘Influences in Africa Pt. 5: Globalisation’, issue 338, Feb.-March, 1998.

 


A Worthy Post Script

 

Fr. Patrick Fitzgerald W.F.

writes about quite an amazing ‘day out’, when all roads led to Birmingham and thousands of people said with one voice ‘Let’s Break the Chains of Debt’.

“For evil to triumph”, said Edmund Burke, it is sufficient that good people do nothing”. Well, on Saturday, l6th., May, upwards of 50,000 ‘good people’ converged on Birmingham from all parts of the United Kingdom and from overseas. They had come with a message for the leaders of the eight largest industrialised countries in the world. It was a message concerned with the debts owed to them and to other wealthy countries and institutions by poor Third World Countries. The message was simple: “Enough is enough!”. Taking their cue from John Paul II who appealed to Biblical precedents in the Year of Jubilee the organisers of ‘Jubilee 2000’ asked as many people as possible to come to Birmingham and let the big boys see us and hear our appeal for ‘forgiveness’ of unpayable debts, or debts that are being paid at a terrible price to the health and education of many people. In fact the ‘Eight’ decided to get out of Birmingham on the day the 50,000 of us called on them. Hopefully our message got through. At least Clara Short was sincerely interested.

Talking with fellow-travellers on the coach to Birmingham I was pleased to discover that their feet were firmly on the ground. The ‘good people’ who must do something about the plight of countries like Zambia must be found in those countries, not only among the wealthy nations. John Paul II’s is but one voice raised in protest at the affluent life-style of some Third World leaders, at their seeming indifference to the poverty of their people, at corruption at many levels, at refusals on the part of leaders to declare how much each year they spend on weapons, at the assumption that ‘the donor community’ will always bale them out.

Having said all that, on our coach to Birmingham, at least, we thought that the time had indeed come to allow impoverished nations to spend more money on health, education and food for their people and less on paying interest on endless loans.

Did we do any good by going to Birmingham, forming a human chain round the Centre where the ‘Eight’ were holding their meetings, and letting them know we were in town? Personally I am quite sure we did. We were not a powerful group, what we were asking and from whom we were asking it was disproportionate to our influence. But is that not precisely the reason for believing we did some good? Is not the history of Judaism and Christianity filled with evidence of small people achieving great things, from the not over-endowed apostles at Pentecost, to Group Captain Cheshire and the homes he founded, to Mother Teresa and her work for the poor?

It was heartening too to spend the day with ‘good people’ of all and no churches, who were in Birmingham out of concern for people worse off than themselves. In a world not short of bad news it was a tonic to rub shoulders with men and women, young and old who were united in a worthy cause. Christ was surely in the midst of us, and not as an indifferent bystander.

Some G8 Figures

 


These articles first appeared in "White Fathers - White Sisters" (UK),
issue 342, of October-November, 1998.

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