ATTENTION to aid and debt questions is increasing in the run-up to the G8 meeting. These annual summits are held at the level of heads of state or government.
Two of the main themes at the meeting are Africa and climate change. In the past months the United Kingdom, which in the second half of this year will take over the presidency of the European Union, has been pushing for greater action on aid to Third World countries, and Africa in particular. The Prime Minister is keen to distance himself from the Iraq war and take action on issues of concern to the core Labour-voting electorate.
The problem of debt to African nations was driven home by a pastoral letter from Kenya’s Catholic bishops on May 18. The letter noted that at the end of 2004 the external debt of sub-Saharan countries stood at £120 billion. This compares with an annual gross domestic product of these countries of about £180 billion. “African countries cannot pay back their debts and sustain development,” argued the bishops, adding that many countries must spend more than 20 per cent of their revenues just to pay the annual quotas of debt and the interest generated so far.
The bishops admitted that debt is not the only cause of economic problems in Africa. Other factors hindering growth are trade barriers to African exports by the developed nations and the heavy subsidies in rich nations that make it impossible for African farmers to sell their produce on world markets.
They also explained that within Africa in the past “funding provided by aid and loans was often skimmed by corrupt officials, misused in wrong investments, or directed to purposes different that those for what they were provided.” Furthermore, “corruption on the part of our government offi cials and the lack of good governance are as much responsible for today’s poverty as external causes”. The bishops said: “We cannot denounce the evil of foreign debt without accepting our responsibility for the growth of poverty among us.” The letter argued that debt “becomes an ethical issue when it poses a major obstacle to the full enjoyment of human rights”. They continued: “Even if all Kenyans were hardworking people, living together peacefully and governed by virtuous leaders, they would still be poor because of debt service payments.” Therefore, action should be taken to relieve the debt burden, as well as fulfilling past promises regarding the amount of aid to developing countries.
Progress on the debt question has been slow in past months. According to the Wall Street Journal, top economic officials from the G7 major industrialised nations had by February for the first time reached agreement on the idea of as much as 100 per cent cancellation of debts that 27 poorest countries owe the World Bank, International Monetary Fund (IMF) and other lenders.
But it was also noted that disagreements over how to finance the relief, particularly between competing proposals from the United Kingdom and the United States, were impeding action. The log jam over competing proposals continued at the spring meetings of the World Bank and the IMF.
“Progress has stalled, not because of disagreement over the principle of debt cancellation, but over the mechanics of how to finance such cancellation,” said Debayani Kar, communications and advocacy coordinator for Jubilee USA Network.
The experience of debt relief so far is pointing to the conclusion that, while it is an important step, it needs to be just one part of an overall strategy to help developing nations. This was one of the conclusions of a paper published by the Centre for Global Development, a Washingtonbased think tank.
Its authors, Nancy Birdsall and Brian Deese, said that the fundamental objective of debt relief “is to ensure that the debt burden of the poorest countries is sustainable over the long term. Sustainable debt can then be managed without undue fiscal strain, contributing to macroeconomic stability that, in turn, encourages private sector investment and growth.” But in the years since the inception of the Highly Indebted Poor Countries (HIPC) programme it has become evident, they argued, “that the HIPC debt relief system does not guarantee countries’ debt will remain sustainable”.
They said that in 2002 the IMF judged that up to half the countries then benefiting from debt relief would be thrown back into unsustainable debt by the following year. The causes ranged from drought to a decline in commodity prices, and also the need to borrow further sums when promised aid does not arrive.
But there is also some positive news on the economic front in Africa. It was reported last month that African economies grew more than five per cent in 2004, the highest rate in eight years. As well as higher commodity prices, economic growth was spurred by greater political stability in some countries and a significant rise in official development aid to Africa. Agricultural production also benefited from the end of the drought of 2003, which hit Ethiopia, Malawi and Rwanda.
Nevertheless, the IMF and the World Bank each believe that Africa would have to double economic growth, to about seven per cent a year, during the next decade if it is to meet targets on reducing poverty set for 2015. In April, the “2005 Global Monitoring Report” warned that “under current trends, sub-Saharan Africa as a region will not meet any of the goals”.
Some additional help may be on the way. Chancellor Gordon Brown announced a deal by European Union countries to double development aid. This could mean an extra £14 billion pounds annually within five years. Doubts over the agreement exist as Germany, Italy and Portugal say they may not be able to afford the increase.
According to the undertaking, the 15 richest EU member states will reach a target of spending on aid of at least 0.51 per cent of their national wealth by 2010. The other 10, poorer European member states, which joined the Union last year, agreed on a 0.17 per cent target. Nations still struggling to pay their debts are no doubt hoping that an agreement will also be reached at the July summit.