G8 debt deal under threat at IMF

By Steve Schifferes
BBC News economics reporter

Talks between Mr Bush and Mr Blair unlocked the deal

Even before the ink has dried on proposals to relieve poor countries' debts to international lenders, the deal agreed by the G8 at Gleneagles is under threat.

A number of European governments are apparently having second thoughts about proposals for debt relief which formed a key part of the help world leaders offered to Africa at last week's summit.
These proposals are in direct contradiction to what millions of campaigners and poor people were told by the G8
Stephen Rand,
Jubilee Debt Campaign
The Belgians have apparently proposed changing the terms of the deal to give lenders more leverage over poor countries than they would have if they simply wrote off 100% of their debt.
In a document that has been leaked to the activist group Jubilee Debt Campaign, Belgian official Willy Kierkens is quoted as telling the IMF executive board that "rather than giving full, irrevocable and unconditional debt relief... countries would receive grants".
The IMF would then be able to withdraw the grants if countries failed to meet IMF conditions such as implementing the Poverty Growth Reduction Strategy which is a pre-requisite for receiving debt relief.
The head of the Jubilee Debt Campaign, Stephen Rand, says: "These proposals are in direct contradiction to what millions of campaigners and poor people were told by the G8."


The proposals have also alarmed African officials at the IMF, if the leaks are accurate.
The three African directors representing sub-Saharan Africa say any change to the G8 debt deal "would delay benefits" and that it "does not seem appropriate that debt cancellation would reintroduce conditionality".
Britain is against changing the terms of the deal agreed at Gleneagles, a UK spokeswoman said.
The Gleneagles deal aims to foster good governance and root out corruption among governments receiving aid, she added.
The IMF will vote on the deal at its annual meeting in Washington in September.
Politics of aid
If the G8 countries stick to their guns, it is unlikely that the smaller nations on the IMF can derail the deal.
But as it only takes 15% of the votes on the IMF to block a deal, the attitude of larger G8 countries like Germany and Japan will be crucial.
Although they signed the debt deal at a meeting of G8 finance ministers in June, the Germans in particular were known to be unhappy with the plan for complete debt cancellation.
They are believed to have argued that this would create a moral hazard, with the poor countries who borrowed irresponsibly being rewarded, while other countries like Botswana who prudently avoided international borrowing receiving less aid.
And there is also the problem of funding the debt deal.
While the G8 finance ministers agreed to fully fund the World Bank and African Development Bank portion of the deal, there was a fudge when it came to paying for debt relief in relation to the IMF.
The finance ministers' statement says that the IMF debt relief "should be met by the use of existing IMF resources".
But, it adds, "in situations where other existing and projected debt relief obligations cannot be met form existing resources, donors commit to provide the additional resources necessary" on a "fair-burden sharing basis".
At the G8 press conference, UK Chancellor Gordon Brown suggested that the IMF had found additional resources by revaluing its gold reserves.
And indeed the Belgians also suggest selling up to $2bn worth of IMF gold to finance debt relief.
This however, has always been blocked by the US and Canada, who fear it will hurt their domestic gold producers.
Slow pace
Many activists have been disappointed by the slow pace of debt relief since campaigning began a decade ago.
That it has taken so long to get agreement on the multi-lateral deal is a reflection of the deep disagreements among the major industrial countries - and the slow pace at which such relief has been administered.

And the US has been reluctant to put up additional funds to pay for the World Bank's share of any debt relief.
It took high-level negotiations between Tony Blair and US President George W Bush to change this position - and open the way to a deal.
It probably helped that sums involved in debt relief are relatively modest - with the US, for example, expected to put in just $175m a year over 10 years.
The debt deal is worth around $1.5bn - critical sums to some very poor countries, but only 3% of total aid flows of $50bn per year.
And the amount is also modest because so few poor countries - just 18, perhaps rising to 27 in a few years - qualify for debt relief under the Highly Indebted Poor Country (HIPC) initiative.

Paris Club gives looters' names to Obasanjo
By Charles Ozoemena
Posted to the Web: Friday, July 15, 2005
ABUJA —MEMBER nations of the Paris Club have given President Olusegun Obasanjo a list of prominent Nigerians who allegedly siphoned public funds overseas. They want the president to go after them for prosecution. This was one of the conditions given Nigeria for the recent $18 billion debt relief.
President Obasanjo himself confirmed this yesterday when he received at the State House, Abuja, a Kwara State delegation led by Governor Bukola Saraki that went to felicitate with him for securing the debt relief. He did not, however, disclose the names of those involved.
"We must realise that this debt relief did not at all come easy…. They had shown me some of our highly placed people who are still misbehaving by siphoning money out of the country. Of course, we get more information; we will react to it and other reports," he said, adding: "Those who are granting us debt relief are no fools. They are convinced that what we are doing is right and they are also feeling that we need to be encouraged so that we do more for what we are doing."
He said payment of the balance of the debt owed the Paris Club would end the current deductions from states' allocations. Nigeria is expected to pay to the Paris Club $12 billion following the $18 billion relief. State governments owe several billions of the foreign debt, prompting the Federal Government to deduct part of the debt from their monthly allocations to service the debt.
President Obasanjo said when the $12 billion was paid, state governments would enjoy fully their statutory allocations. He said very soon he would convene a meeting of the National Council of States to discuss payment modalities.
On the N180 million deducted monthly from the statutory allocations to Kwara State because of the external debt, the president said: "There is freedom in not being shackled by debt. There is freedom of your own action and freedom for you to do what is good. Once we pay that off (the external debt), the N180 million being deducted from the allocations to Kwara State will stop and also for every state. N180 million can do something substantial for a poor state like Kwara."
He said the money ($1 billion) hitherto used in servicing the debts would be channelled into satisfying what he called "the human aspects of the needs of our people. We must get electricity and depend on power from NEPA." he said.
His administration, he noted, was more than ever before challenged "… to do more of the good things we are doing. We are challenged to continue to raise the profile of Nigeria before the international community and we are challenged to do what is right, to do good for the benefit of our people."
Governance, he said, was for the purpose of helping the well-being of the people, adding that the process of securing the debt relief was a long and tortuous one. The president said part of the reasons why the Paris Club (a group of developed countries in the West) reduced the country’s debt was because Nigeria had been playing key roles in peace keeping in Liberia, Sierra Leone, Dafur, Republic of Congo and Haiti. "This is because we believe in undivided peace in the World," he emphasized and commended the Kwara State government over its deal with the Zimbabwe farmers.

He lampooned those criticising the Kwara State governor over his agreement with the Zimbabwe farmers, arguing that "Agriculture is no joke, that’s why you don’t see many Nigerians in it. We have to encourage people to do it whether they are Nigerians or not."
Earlier in his remarks, Governor Saraki said they were in the State House to praise the president for securing the debt relief and for making history as the president that secured the freedom of the country from the shackles of debt burden. "You have secured a place in history as the president that freed Nigeria from the shackles of debt," he told President Obasanjo.
Describing Kwara as a highly indebted state in Nigeria, he revealed that N180 million was deducted from the federal allocations to the state on account of the foreign debt and was happy that the monster was being caged permanently. Kwara, he said, supported that the $12 billion balance of the debt be paid from the excess crude oil sales.