Clamour to end the Third World debt gets louder

News Analysis: The G7 has agreed to write off $50bn owed by poor countries, but aid campaigners argue it is only `crumbs of comfort'

BETWEEN LONDON's Waterloo and Westminster bridges yesterday, a human chain formed, banging drums and whistling. The noisy demonstration, organised by the Jubilee 2000 group, was intended to draw attention to a decision due to be made next weekend in Cologne at the summit of leaders from the Group of Seven.

That decision is exactly how generous these seven rich countries are prepared to be in writing off the debts owed them by 41 cripplingly poor countries. A preliminary meeting of G7 finance ministers this weekend produced a debt relief plan more generous than the existing initiative for highly indebted poor countries (HIPC), with $50bn (pounds 32bn) of Third World debt cancelled - but certainly not generous enough to satisfy aid campaigners.

These groups, along with the very poor nations themselves, argue that relations between the world's rich and poor have reached a turning point.

A letter from Chief Emeka Anyaoku, the Secretary General of the Commonwealth, sent to Gerhard Schroder, the German Chancellor and summit host, says: "In my travels to various countries, particularly the poorest, I notice a sense of desperation on the part of a number of highly indebted countries about the lack of tangible progress in easing their debt burden."

He goes on to say it is imperative that the existing HIPC programme drawn up by the International Monetary Fund should be substantially improved.

The most cursory glance at social statistics for the countries involved explains the sense of desperation he noted.

Angola, for example, is not even due to have a decision on debt relief until 2003 under the original plan. Its infant mortality rate stands at 125 per thousand live births, and another 209 under-fives out of every thousand also die. Less than a third of the population has access to clean water. Consumption per capita has been falling by about 8 per cent a year since 1980. Mozambique is one of the early beneficiaries of HIPC debt relief. It has similar infant and under-five mortality rates, a quarter of the population has clean water, and less than half of its children get primary schooling. Its agreed debt relief will save it $10m a year on an annual interest bill of $120m.

Faced with statistics like these 41 times over, it is easy to see there is a strong moral case for greater debt relief. The argument concerns funding it - both stumping up the extra billions and ensuring that scarce aid resources are not diverted from needy but not indebted countries like Bangladesh. A subsidiary concern is the issue of how to ensure that the resources freed are not - once again - wasted on civil war, corrupt dictators' overseas bank accounts and white elephant projects such as huge dams.

The G7 countries have agreed in principle that the existing HIPC plan, which has granted relief from interest payments amounting to about $3bn in today's money (out of a likely total of $12.bn), is inadequate in the face of a $200bn debt mountain. But proposals for additional relief range from a UK plan that would add about $41bn to the estimated cost downwards. Japan and Italy, struggling to keep government deficits under control, have been most reluctant to commit any more of their taxpayers' money to the plan. And the International Monetary Fund has fought vigorously against Chancellor Gordon Brown's proposal that it should sell $2bn of its gold reserves, using interest received on investing the proceeds to finance debt relief.

Increased generosity can take several forms. Countries have to jump several hurdles to qualify for debt relief. They need a six-year track record in implementing IMF-approved economic policies. They also need to demonstrate that their debt is "unsustainable" - for example, that interest payments exceed certain ratios to government and export revenues.

Organisations such as Jubilee 2000 and Oxfam - along with Mr Brown - argue that the qualifying period must be shorter and the hurdles lowered. They would also like to include another 10 or 12 countries.

Kevin Watkins of Oxfam's policy department said: "Gordon Brown has to be applauded for what he has achieved. It could have been a lot worse but it doesn't tackle the core of the problem." He added that some countries would still have debt payments of more than 20 per cent of government revenues.

Jubilee 2000 goes further, calling for all of the existing debt to be written off as a millennium gesture. Ann Pettifor, its director, said: "Despite flowery speeches and grand gestures, G8 leaders are offering only crumbs of comfort."

There is scant chance of a debt write-off, however. To find the amount of extra money involved would more than eat up all the resources the IMF and World Bank have available for their aid and poverty-relief programmes. Giving the indebted a clean slate could only come at the expense of those whose governments have not incurred such overseas debts in the past.

An additional complication now is that the G7 is facing a big bill for the cost of reconstruction in the Balkans after the Kosovo war. While this has not yet been costed in any detail, it is likely to amount to tens of billions of dollars.

But as Oxfam argues, the successful demands on G7 budgets demonstrate only too clearly what their priorities are. A "generous" HIPC initiative is likely to end up costing some $20-30bn over more than a decade. The Balkans will get as much in three or five years. Daily global military spending is $2bn - or about half the annual cost of providing a primary school education for all sub-Saharan African children. It is these priorities the world's leaders must decide on when they discuss their finance ministers' proposals next weekend.