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| World Economy - Comment |
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| Too little, too late, too slow Published: September 21 2000 17:13GMT | Last Updated: December 19 2000 16:27GMT |
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 Deeper, broader and faster, promised the leaders of the group of seven leading industrial countries when they met in Cologne last year. It was another way of acknowledging that debt relief for many of the world's poorest countries had been too little, too late, and too slow. Under pressure from non-government organisations, and confronted by the realities of poverty, the G7 summit admitted the weaknesses of the initiative drawn up by the World Bank and the International Monetary Fund and launched in 1996. But as protestors prepare for Prague, it seems that the creditors have still proved slow learners. For all the changes since Cologne, they have not grasped the fundamental realities of the continuing burden of external debt. Much has happened over the past year. The Bank and the Fund have changed the terms of the heavily indebted poor countries (HIPC) plan. Under the enhanced terms, the definition of debt sustainability - debt servicing as a percentage of export earnings has become more reasonable; there is a stronger link between debt relief and poverty reduction; and the size of debt relief will double to $28bn. But welcome though these changes are, they do not go far enough. As an Oxfam report last week argued, these headline figures are misleading. Figures from the enhanced HIPC debt relief applied to 12 countries shows that some of the worlds poorest countries will continue to transfer more to their creditors than they are able to invest in basic services. In five of these countries - Zambia, Tanzania, Senegal, Mauritania and Cameroon - debt repayments will exceed the combined health and education budgets, after relief. In the case of Zambia, one of the countries worst affected by Aids, around 40 per cent of government revenue will be consumed by debt servicing. Getting the terms right is a complex business. Conditionality remains a vital factor. But there is surely something serously wrong when a country undergoing reform and committed to a credible poverty reduction programme spends more on debt service than on health and education. The Oxfam proposal is that there should be a 10 per cent ceiling - or fiscal cap - on the proportion of government revenue transferred to creditors in the form of debt service is a sensible suggestion. There will be objections to this. Certainly, relief should not be granted without some evidence of sound policy and a commitment to the alleviation of poverty. But at the end of the day, creditors must be prepared to wipe the slate clean of the mistakes and calamities of the past. Only then will those desperately poor countries have a reasonable chance of doing better in future. |
