http://www.progresoweekly.com/index.php?progreso=Engler&otherweek=1117861200
Triumph over debt? (Part II) How 100% debt cancellation for poor countries-now being debated by wealthy nations was transformed from an implausible demand into a winning issue, and what barriers lie ahead for the debt relief movement. By Mark Engler A final turn in U.S. policy came in the aftermath of the invasion of Iraq, when the Bush administration appealed to creditor nations to forgive Iraq's estimated $120 billion debt. Long-time advocates of debt cancellation unexpectedly heard their arguments adopted by the president. In December 2003, as he was sending former Secretary of State James Baker on a special mission to lobby allies to cancel Iraq's debt, George W. Bush argued that such debt endangered the country's "long-term prospects for political health and economic prosperity," and that the world must not allow the financial obligations to "unjustly burden a struggling nation at its moment of hope and promise." By extension, the administration's stance on Iraq's debt put the U.S. on the record in favor of debt relief for a wide range of struggling countries. Yet even before this shift, calls for cancellation had become increasingly mainstream. A most visible example of the issue's popularity was then-U.S. Treasury Secretary Paul O'Neill's highly publicized May 2002 tour of debt-stricken African nations with Bono, the rock star turned humanitarian. A notable bloc of conservatives, led by economist Allan Meltzer, also defended the economic soundness of debt cancellation, arguing that a scaled-back World Bank should extract itself from the hopeless cycle of debt re-loaning and refinancing. Meltzer's position has been influential within the Bush administration. With even the U.S. government on board, the moral legitimacy of debt cancellation had been almost universally acknowledged; what remained was for policy to catch up. Observers were hopeful this would happen at an October 2004 meeting of G7 finance ministers in Washington, DC. Disagreements over details of a debt plan kept anything concrete from being completed at that time, however. G7 ministers came closer to an agreement when they met again in early February in London. In the wake of the tsunami disaster in Asia, the wealthy countries issued a statement agreeing in principle to "as much as 100% multilateral debt relief" for the 42 HIPC nations. Their stance in support of full cancellation marked another milestone for the Jubilee movement, but it left many practical questions unanswered. The G7's current debate Several key disagreements remain between U.S. and the European countries, led by the UK, about how a new debt plan should go forward. These issues will be on the table at July's G7/G8 summit in Scotland. A first issue concerns how many countries will receive cancellation. The UK proposal, while theoretically open to all HIPC nations, would only offer immediate relief to the 15 countries which have completed a mandated program of economic reforms, along with five or six other non-HIPC countries who receive poverty-reduction support from the World Bank. The U.S. plan, while less concrete, would likely grant relief to 27 HIPC countries, but not to poor nations outside of HIPC's purview. Activists have criticized the fact that not all the leading proposals actually cancel these countries' debts. The UK proposal would make debt service payments on behalf of poor countries over a period of ten years, after which developing countries would still be responsible for the original debt stock. Finally, perhaps the most contentious question that finance ministers are now debating pertains to how the program, whatever its scope, will be financed. The UK has proposed that debt relief be financed primarily through a sale of the IMF's gold reserves. The reserves are widely acknowledged to be undervalued, and a simple revaluation could allow relief to be granted swiftly and painlessly. But the political will required for such a move is not necessarily easy to come by. One reason the White House opposes this approach is that existing laws would require it to gain congressional authorization for such an action, something it is not eager to do. Instead, the White House contends that funds for debt relief should come out of the budgets for the IMF's and World Bank's poverty reduction initiatives. Its plan would attempt to avoid any major gold revaluation that would require congressional approval. European representatives are opposed to this idea. They argue that a new debt program should include additional aid for poorer nations, and should not simply substitute debt relief for other aid that the countries are now receiving. To finance supplemental aid the British plan calls for increased contributions to the World Bank from its member states. European complaints about U.S. financing proposals are rooted in a broader political opposition to American unilateralism. In economic foreign policy as in its push for "regime change" in Iraq, the Bush administration has shown a willingness to sidestep international bodies and act alone. In contrast to the Clinton administration, which relied heavily on International Financial Institutions (IFIs) to enact its trade and development agenda, Bush's officers have largely shifted toward using direct aid payments as incentives for poorer countries to comply with U.S. desires and also toward initiating bilateral trade negotiations with nations that they consider strategically important. In this context, European nations are interested in maintaining the World Bank and other Bretton Woods institutions as multilateral checks on U.S. prerogatives. With regard to debt relief, they are distressed that the U.S. plan will reduce the power of the Bank. They are opposed to suggestions made by Allan Meltzer, and increasingly forwarded by the White House itself, that the World Bank phase out loan-making in favor of giving grants. Absent large loans in its portfolio, the Bank's standing as a major creditor--and thus its influence on development policy--would be significantly diminished. While European governments are convinced that this would be a bad thing, many critics from across the political spectrum would disagree. Interestingly, this debate has united unilateralist conservatives and long-standing progressive opponents of the IMF and World Bank. Each group favors decreasing the power of the existing IFIs, although for different reasons. Erecting a new roadblock, Treasury Secretary John Snow announced in late April that the U.S. is unwilling to compromise on the issue of IMF gold sales, removing this option from the negotiating table. This has led to increasing skepticism that the G7 will reach a deal on this institution's debt stock in time for their July meetings in Scotland, and it represents a step backward from previous statements supporting broad relief in the near future. At the same time, an agreement on World Bank debt may still go forward; this step would create a landmark precedent for full cancellation. A Movement Looks Forward "As we celebrate our victory, we should remember that we have our work cut out for us," wrote Watkins to Jubilee USA supporters after the G7's nod toward 100% relief. In the build-up to and aftermath of the July talks, Jubilee and other advocates of debt cancellation will closely monitor negotiations and will push for several key demands. First, they will lobby to ensure that the plans adopted actually reach the 100% target. The formulas created in upcoming meetings will determine whether full cancellation becomes a reality for many countries or whether it will remain rhetoric for all but a few of the very poorest debtors. Second, advocates will continue to push for non-HIPC countries to receive cancellation. A number of very poor countries, such as Nigeria, Sri Lanka, Bangladesh, Jamaica, and Haiti, are not included in the HIPC process. Some "middle income" countries, such as Brazil and Mexico, have large populations living in desperate poverty, yet are too prosperous to qualify for debt cancellation under the HIPC guidelines. These countries require a new process that would allow them to spend their resources on poverty reduction and human development rather than debt service. Many of the debts held by these countries were accumulated by dictators or other corrupt leaders; these are "odious" debts. Campaigners have long argued that peoples who overthrow undemocratic governments should not be saddled with debts accumulated by the deposed leaders. (As President Bush argued in the case of Iraq, the future of a people "should not be mortgaged to the enormous burden of debt incurred to enrich" a despot.) Instead, the international community must create a mechanism through which debts can be ruled illegitimate. Third, activists will demand an end to neoliberal conditionality, working to see that the plan enacted by the G7 does not come with structural adjustment mandates like those included in the HIPC initiatives. Campaigners have rightly expressed concern that proposals such as the UK's only cancel the debts of poor countries that have completed the HIPC program. In effect, countries would continue to be required to submit to economic restructuring before being granted relief. Finally, other advocates are moving beyond "historic" debt and working to see that, in a post-cancellation era, new debts do not accumulate anew. In 2004, the IMF and World Bank introduced a Debt Sustainability Framework to address new lending to developing countries. Civil society organizations have welcomed discussion of the new initiative, but they charge that the current proposal would keep negative "conditionality" firmly in place. As proposed, the framework would make the international institutions responsible for rewarding "strong policies"-- which in IMF parlance has too often meant structural adjustment and trade liberalization. Given these policies' poor record of producing growth in many developing countries, it is unclear how perpetuating them would preempt a new debt crisis. This debate demonstrates that, ultimately, debt is only one aspect of the system of economic neoliberalism--better known in the U.S. as "corporate globalization"--that in the past 30 years has deepened the divide between wealthy countries and the nations of the global South. Even if thoroughgoing debt relief comes to fruition, most developing countries will still face steep barriers to exercising true self-determination and pursuing economic models that are not favored by the U.S. Treasury. Whether through making use of the IMF or directly leveraging their power as major donors and trading partners, G7 countries have often been zealous in promoting programs of economic restructuring similar to those forced on HIPC nations--even among countries that are not heavily indebted. As neoliberalism falls into increasingly ill repute, and as a greater number of countries escape the bonds of debt, a globalization movement that has attracted many new supporters with its call for debt cancellation will face the task of defending alternative economic courses that defy Washington orthodoxy. In this respect, debt relief will not be an end in itself, but a means of confronting the broader issues that are shaping the course of international development. Long-term challenges need not detract from historic advances, however. If 2005's meetings match expectations for progress, campaigners in the global South and their broad network of allies should be able to savor an important, if incomplete, victory. -- Mark Engler, a writer based in New York City, is an analyst with Foreign Policy In Focus (www.fpif.org). He can be reached via the Web site http://www.democracyuprising.com. Research assistance for this article provided by Jason Rowe. 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