The G-8 agreement wipes out $40 billion owed by 18 African and Latin countries. It is a victory for Britain, which led the effort.
By John Daniszewski
Times Staff Writer
June 12, 2005
LONDON — Building on an accord between Britain and the United States, finance ministers of the world’s wealthiest nations agreed Saturday to wipe out $40 billion in debt owed by 18 of the world’s poorest countries as part of a major assault on global poverty.
The decision by the Group of 8, the world’s leading industrial nations and Russia, fulfilled a decades-old dream of anti-poverty activists, who have argued that payments on old loans drain the limited resources of the world’s poorest nations, most of which are in Africa, keeping millions of people mired in poverty.
British Chancellor of the Exchequer Gordon Brown, the major force in putting together the debt-relief package, announced that the poor nations’ debt to the World Bank, the African Development Bank and the International Monetary Fund would be wiped out. Richer countries have agreed to replenish the reserves of the funding organizations as necessary.
Brown said the debtor nations would be relieved of $15.6 billion in payments on the $40 billion over the next 10 years, and the savings would be funneled to urgent needs in health, education and infrastructure development.
The decision qualifies 14 countries in Africa and four in Latin America for immediate debt forgiveness. An additional 20 countries could qualify over the next two years. Brown said the total size of the debt relief package could eventually reach $55 billion, believed to be the largest such initiative in history.
U.S. Treasury Secretary John W. Snow, who was in London for the finance ministers’ meeting at a conference center near Westminster Abbey, hailed it as "an achievement of historic proportions."
Although some African countries that will not immediately benefit questioned the value of the agreement, a spokesman for South African President Thabo Mbeki declared the agreement "good news" for the continent.
"We are really encouraged by this decision and want to thank the British government and all the countries involved in this agreement," said the spokesman, Bhelo Khumalo. "It will go a long way to enriching the African continent."
The action by the finance ministers was spearheaded by Britain as part of a drive by Brown and Prime Minister Tony Blair to aid Africa and help fulfill United Nations goals to cut world poverty in half by the year 2015. Many parts of the world have made progress in recent decades, but people in many sub-Saharan countries are poorer than they were decades ago and are dying younger.
Brown said that the G-8 summit scheduled to begin July 6 in Gleneagles, Scotland, could see additional anti-poverty commitments from the assembled leaders of Britain, the United States, Canada, France, Italy, Germany, Japan and Russia. Among those initiatives could be guaranteed treatment for people with HIV/AIDS by 2010.
"I know it is the intention of world leaders to forge a new and better relationship — a new deal — between the rich and poor countries of the world and I believe that the advances that we have made can be built upon … in the next few weeks," Brown said. "This is not a time for timidity, but a time for boldness, and not a time for settling for second best, but aiming high."
The deal was seen as a victory for Brown, who in recent months has held long, tough talks with fellow finance ministers to gain support for his debt-relief proposal.
In a crucial breakthrough last week, the U.S. and British governments agreed that the debts could be forgiven and the international community would make up the funds that would be lost to the World Bank and the other lending organizations. Britain had originally proposed that richer countries assume the debt payments.
Blair pushed President Bush for action in a meeting in Washington last week. British officials reported on Friday that the White House made a significant concession, agreeing that money used to reimburse the lending institutions would not come out of future aid to the poor countries.
Over the next 10 years, the additional cost to the United States would be $1.3 billion to $1.75 billion. Britain would pay $700 million to $960 million, Brown said.
Writing off the multilateral debts of poor countries has been one of Britain’s priorities for its G-8 presidency, which starts next month.
It is also pressing for a doubling of foreign aid levels and for the creation of an international finance facility that would issue bonds based on long-term foreign aid commitments, and use the money to pay for vaccinations and infrastructure development in Africa.
Loans from international lending agencies are only part of the debt owed by the world’s poorest countries but are the most burdensome. The G-8 countries already have committed to completely forgive debt owed directly to them by the world’s poorest countries, and for some of the poor countries, the debt is already in the process of being canceled.
However, repaying debt to international lending agencies has been a condition for poor countries seeking access to credit markets.
The 18 countries that would qualify immediately for debt relief have already been approved under the World Bank’s Heavily Indebted Poor Country Initiative, in which they commit to good governance, adhering to an IMF-endorsed financial plan and rooting out corruption.
Max Lawson, policy advisor with the British charity Oxfam, told the Guardian newspaper that the debt agreement was "a seriously positive step."
But he said it amounted only to about $1.5 billion in relief per year for the eligible countries. Western experts believe an extra $50 billion a year is needed by African nations to overcome a legacy of poverty, political instability, corruption and disease.
Bob Geldof, the rock singer and activist who has campaigned for the eradication of poverty in Africa since the Live Aid concert of 1985, said he was happy with the decision. Geldof is organizing five concerts in Europe and the U.S. on July 2 to call attention to the issue.
"Tomorrow, 280 million Africans will wake up for the first time in their lives without owing you or me a penny from the burden of debt that has crippled them and their countries for so long — money we didn’t even know we were owed and never wanted in the first place, and money they could never pay," he said.
Snow, the U.S. Treasury secretary, said he hoped the accord would end a "destabilizing lend-and-forgive approach" in low-income countries. By removing "unsustainable" debt and giving the 18 countries increased development aid, they should be able to reach their goals, he said.
The 18 countries deemed to have qualified for the debt forgiveness are: Benin, Bolivia, Burkina Faso, Ethiopia, Ghana, Guyana, Honduras, Madagascar, Mali, Mauritania, Mozambique, Nicaragua, Niger, Rwanda, Senegal, Tanzania, Uganda and Zambia.
Nine other countries are expected to qualify within the next 18 months: Cameroon, Chad, the Democratic Republic of Congo, Gambia, Guinea, Guinea-Bissau, Malawi, Sao Tome and Principe, and Sierra Leone.
Daudi Balali, governor of the Tanzanian Central Bank, was quoted by the South African Press Assn. as saying the deal gave hope to his country.
"We can expand health and education services with this relief. We will also be able to improve our infrastructure," he said.
But officials in Kenya, which has been repeatedly condemned by Western diplomats for failing to sack corrupt ministers, said it was ineffective to provide debt relief only to the very poorest African countries.
Nigeria, which is not one of the 18 countries qualifying, rece
ntly threatened an Argentina-style default unless its debts were canceled. Nigeria is the continent’s biggest oil producer, but it also has the highest debt in Africa and is plagued by corruption. The benefits of oil production have not trickled down to most people.
African leaders made a strong call for debt reduction at the Africa Economic Summit of the World Economic Forum in Cape Town, South Africa, held June 1-3. They included Mbeki, who recently met with Bush to discuss the issue.
"It is now incumbent upon the beneficiaries that they should ensure that the money will really go to education and health programs," Mbeki’s spokesman told the South Africa Press Assn.
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Lifting a burden
The world’s wealthiest nations agreed Saturday on a plan to cancel at least $40 billion in debts owed by poor countries. The following is a breakdown of which countries could benefit:
• Eighteen countries are immediately eligible because they already have reached targets for good governance under the Heavily Indebted Poor Countries Initiative, set up by the World Bank and International Monetary Fund in 1996. They are Benin, Bolivia, Burkina Faso, Ethiopia, Ghana, Guyana, Honduras, Madagascar, Mali, Mauritania, Mozambique, Nicaragua, Niger, Rwanda, Senegal, Tanzania, Uganda and Zambia.
• Nine countries are likely to qualify soon. They are Cameroon, Chad, Congo, Gambia, Guinea, Guinea-Bissau, Malawi, Sao Tome and Principe and Sierra Leone.
• Eleven countries participating in the 1996 initiative could eventually qualify. They are Burundi, the Central African Republic, Comoros, Republic of Congo, Ivory Coast, Laos, Liberia, Myanmar, Somalia, Sudan and Togo.
Source: Associated Press
Times staff writer Robyn Dixon in Johannesburg, South Africa, contributed to this report.
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