Speaking of G8

An issue that was apparently seriously discussed that the Group of 8 meeting on June 10, much to the hopeful surprise of many observers, was 100% debt cancellation for the poorest nations. The reasons had more to do with global politics than humanitarianism and in the end it didn't happen, but the fact that it was discussed at all "changed the 'debt landscape,'" in the words of a statement from the Debt and Development Coalition, and Ireland-based group working on the issue.

Since 1996, the G8 nations (Canada, the United States, Japan, Germany, France, Italy, Britain and Russia) have pursued the Heavily Indebted Poor Countries (HIPC) initiative through the World Bank and International Monetary Fund (IMF). Instead of 100% debt cancellation, the finance ministers agreed to extend the program another two years.

In a nutshell, HIPC was supposed to provide debt relief to countries so deep in the hole that they would never be able to pay what they owed. Within a few years, however, it was a clear failure at aiding the debtors and a clear success at aiding the creditors, the opposite of its advertised - emphasized advertised - intention. This was largely because of the onerous conditions placed on countries in order to get debt relief, particularly the requirement that they adopt an approved "Poverty Reduction Strategy" invariably devoted to open markets, privatization of public functions and utilities, and "macroeconomic stability." Those strategies, like the lowering of tariffs demanded under WTO rules, serve more to deepen poverty and disrupt local economies, leaving the countries every bit as much in hock to banks and creditor nations as before. Which is perhaps not surprising when you realize that the purpose of HIPC is not to relieve debt, but to insure it's repaid to the maximum extent possible.

What raised cancellation this time was not some unexpected outbreak of justice, but the desire of the US to have at least 90% of Iraq's foreign debt forgiven, a proposal transparently intended to aid not the poor of Iraq but the re-election of George Bush. It failed because other nations insisted that a reduction of 50-60% was enough - but what's significant is first that the proposal was made at all and that the IMF supported the idea. Now, the IMF is dominated by the US so its position was no real surprise, but the point here is that intentionally or not, the idea of an almost total forgiveness of debt has been legitimized.

Indeed, more than merely legitimized: According to an April 23 Los Angeles Times press account cited by Jubilee USA,

U.S. Treasury Undersecretary John Taylor said Wednesday that the United States had agreed to write off 100% of the loans it has made directly to nations qualifying for HIPC relief, and was encouraging other big bilateral lenders to do the same.

In the future, Taylor said, wealthy nations should provide more assistance to poor countries in the form of grants, rather than making new loans that perpetuate the cycle of indebtedness. "We shouldn't be providing new loans which we know are going to be forgiven in a very short period of time," Taylor said.

What's more, reports say that at the meeting, UK Prime Minister Tony Blair actually put forth a proposal for 100% debt cancellation for poor nations. If that is true, he deserves much praise. But in any case, the events before and at the meeting prove that calls for complete cancellation of debts owed by countries whose burdens are even more "odious" than those of Iraq can no longer properly be dismissed as "radical" or "not even on the table." Because it is.

Jubilee USA is the American part of an international movement calling for elimination of the onerous debts owed by poor nations, debts that keep them mired in poverty because the resources they could use to improve their conditions are drained away to pay foreign creditors, causing them to need more loans to keep going. Like an unemployed person who borrows on their credit card to pay their bills and then borrows on a second one to make the payments on the first one, they only fall further and further behind until their situation is hopeless. An example Jubilee USA cites is Nigeria, which borrowed $5 billion but has already repaid $16 billion and still - because of the constant need for debt "restructuring" - owes $32 billion. (For a dramatic look at what's often involved in a country getting World Bank/IMF "help," see the chapter on it in Greg Palast's must-read The Best Democracy Money Can Buy or check some of his columns on globalization here.)

The main argument against total debt cancellation is the claim that it would impoverish lending organizations, making future aid to needing countries difficult if not impossible. However, that's not true: A study by the Debt and Development Coalition shows that even without additional funds beyond those already pledged by donor nations, the World Bank and IMF have more than enough resources to dismiss the debts of all nations that qualify for HIPC.

But what's truly bizarre, even criminal, about this is that the bankers don't even know if the programs work. From the July 29 International Herald Tribune:

Wealthy nations and international organizations, including the World Bank, spend more than $55 billion annually to improve the lot of the world's 2.7 billion poor people. Yet they have scant evidence that the myriad projects they finance have made any real difference, many economists say.

That important fact has left some critics of the World Bank, the largest financier of anti-poverty programs in developing countries, dissatisfied, and they have begun throwing down an essential challenge. It is not enough, they say, just to measure how many miles of roads are built, schools constructed or microcredit loans provided.

You must also measure whether those investments actually help poor people live longer, more prosperous lives.

It is a common-sense approach that is harder than it sounds, just like the question it seeks to answer: Does aid really work?

Actually, the real question is not does aid work - by definition, it does, or it's not aid - but are the kind of large-scale, high-tech, local economy-disrupting, free market-advancing projects that are the bread and butter of the World Bank and IMF actually aid? Are projects imposed on communities without their input and regardless of the effects on them because some bankers think it will make the country's GDP rise actually anything that could properly be called "aid?" Are programs that make poor nations even more dependent on high-tech solutions provided by industrialized nations and lending practices that drive those same nations even deeper into poverty anything that anyone could even vaguely, even humorously, call "aid?"

The idea of the Jubilee movement is based on the Biblical notion of the Jubilee Year when debts are forgiven. It's time to wipe the slate clean. Give the billions who struggle for life a chance to breathe.

Footnote: Debt relief, of course, is not enough on its own. There would still be a need for development and humanitarian aid. That same LA Times article refers to a General Accounting Office report in April that found that beyond the costs of debt cancellation,

[t]o reach all the development goals by 2020, poor countries would need to receive $153 billion in development assistance already proposed by the IMF and World Bank plus $215 billion to make up for overly optimistic assumptions in the two institutions' official projections....

That is, $368 billion over the next 16 years, or $23 billion a year. That's a lot of money. In fact, according to the Cost of the War in Iraq ticker over at the bottom of the right column (Hadn't you noticed it?), it's all of 18% of what the war in Iraq has cost us so far.