The Hindu Business Line : Africa's debt deal: Not out of the blue

Africa is the flavour of 2005, described as a "make or break year" for the continent on which the UN, G-8 and international financial institutions are all focussed because it is where poverty is more intractable than in other parts of the developing world.

DOES the G-7 accord for immediate write-off of debt of some 20 poorest countries totalling $40 billion mark a dramatic turn in rich countries' development aid policies?

Certainly not, however significant the deal, which in a way, represents a culmination of the highly-qualified debt relief scheme in operation since 1996 under the IMF-World Bank's Heavily Indebted Poor Countries (HIPC) Initiative. The US has now stepped in to share equal honours for "an achievement of historic proportions", according to the Treasury Secretary, Mr John Snow, with Britain, which has been leading a campaign to rid Africa of poverty with debt cancellation and greater volumes of aid.

The debt being written off 100 per cent is what the identified countries, mostly in Sub-Saharan Africa, owe to the International Monetary Fund (IMF), World Bank and the African Development Bank. Relieving some of the poorest Sub-Saharan African countries of their unsustainable debt burden is but half a step for a continent at the bottom of social development, afflicted by poverty, hunger and disease (with about 30 million infected by HIV/AIDs) and children lacking primary education and dying before the age of five. Further, according to the latest UN status report, Africa will see a rising proportion of those living in extreme poverty by 2015, the year set for halving global poverty under the Millennium Development Goals (MDGs).

For the British Prime Minister, Mr Tony Blair, the agreement among the Finance Ministers of the G-7 (leading industrial countries) is something to put on show as he presides over this year's G-8 (Russia included) Summit in Gleneagles, Scotland, from July 6-8.

Desperately seeking a reincarnation after the Iraq misadventure of 2003, Mr Blair had decided on an international campaign early last year to change Africa's continent-of-despair image and set up a Commission on Africa. The Chancellor of Exchequer, Mr George Brown, was already at the forefront advocating doubling of international aid to $100 billion a year to achieve the Millennium Development Goals 2015.

Championing the cause of bleeding Africa could be the best way to make Britain's presidency of G-8 and the European Union in 2005 a crowning achievement for Mr Blair. Accordingly, he has put Africa as his topmost priority for the G-8 Summit — a debt write-off of the poorest countries of the continent and not less than an additional $25 billion of aid a year by 2010, as proposed by the Commission on Africa.

His other priority is to get the US on board a new international accord on global warming after the rejection by President Bush of the Kyoto Protocol which, however, secured the requisite ratification to become effective early this year. Mr Blair's dash to Washington evoked the President's praise for his ally's unflinching support in his war and Mr Bush listed his other concerns but fell short of the Prime Minister's expectations on scaling up aid as well as on climate change.

The President rejected outright ideas such as doubling of aid through targets or creating a new mechanism like an International Finance Facility (IFF) to raise resources in the capital market for financing development.

He is sticking to his own plan of promoting cleaner technologies to reduce carbon emissions. All that Mr Bush agreed to was only a debt write-off limited to countries "on the path of reform".

Finance Ministers of G-7 countries meeting in London have now agreed that donor countries would make additional contributions to the World Bank and the African Development Bank in lieu of debt cancelled by these institutions. In the case of IMF, it was noted that its debt relief could be financed from existing resources (which include proceeds from gold transactions of late l990s). Immediately, 18 eligible countries having reached the "completion point" under the HIPC initiative — 14 in Africa and four in Latin America — would see cancellation of their $40-billion debt. Their bilateral debt had already been written off.

In the third phase, the remaining 11 out of a total of 38 countries declared eligible under HIPC initiative, presently beset by conflicts across borders or internal strife and governance challenges, could get relief to take the total debt cancellation to $55 billion. Even after this seemingly vast exercise, the immediate beneficiaries would together get $1.5 billion a year on average from debt cancellation which would be negligible for programmes towards attainment of MDGs.

Despite the euphoric statements in London, there is scepticism about Mr Blair making much headway on doubling international aid to $100 billion a year by 2010. Nor is a breakthrough likely on trade issues.

President Bush is unlikely to relent on aid increases beyond the pledges his administration had made in 2002 for MDGs.

Conversely, the European Union has announced its commitment to reach the UN aid target of 0.70 per cent of GDP by 2015 to become the global leader in development policy. This would mean its current $40 billion of ODA would double to $80 billion by 2010 or 0.51 per cent of combined GDP of EU-15 (excluding the ten new members). The European Union is willing to go along with Mr Brown for a token IFF which would raise $4 billion to be utilised for combating AIDs and other epidemics. With most nations still lagging behind pledges made at the 2002 Monterrey Conference on Financing for Development, and the proposed IFF not taking off, prospects for a breakthrough such Mr Blair pines for at the Gleneages Summit appear clouded.

Also, apart from what needs to be done for sustained growth of world economy and correction of global imbalances, Mr Bush would advance his own concerns at the Summit which could even short-change Mr Blair's priorities.

According to the UN, the number of poor in Africa had risen from 227 million in 1990 to 313 million in 2001. The UN Secretary-General, Mr Kofi Annan, has, therefore, appealed to world leaders to seize the opportunities at the forthcoming Summits of G-8 and UN General Assembly in September to make possible the achievement of not only poverty reduction but also universal literacy, health and sanitation and other goals set for 2015.

The new World Bank President, Mr Paul Wolfowitz, the Iraq war strategist, has also made Africa his highest priority and wants to transform the continent.

Would he succeed, where his renowned predecessor Mr Wolfensohn could not, in convincing President Bush that international security cannot be divorced from ridding the world of scourge of poverty and disease?

Like Iraq, Africa also holds strategic attractions for the US, especially its oil/gas. A National Intelligence Council report says in the next ten years, the US is likely to draw 25 per cent of its oil needs from West Africa surpassing the volume imported from the Gulf region.

Africa's 4 per cent growth last year was boosted by its oil producers but most countries are importing at high costs. Foreign oil companies are capturing much of the price gains, according to an Unctad assessment.

(The author is, a former Chief Editor of PTI.)

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