SUNS4503 Monday 6 September 1999

Bonn, Sep 2 (IPS/Ramesh Jaura) -- The international movement 'Jubilee 2000' has launched a concerted campaign urging the industrialised states to provide adequate funds so that the poorest countries might have a debt-free start in the new century.

The move comes nearly four weeks ahead of the joint annual meetings of the International Monetary Fund (IMF) and the World Bank from Sep 26 to 30 in Washington. Decisions taken there will be of crucial importance for the success - or failure - of what has come to be known as the Cologne Debt Initiative - at the G-7 summit in Cologne in June this year.

At that time, the G-7 agreed to write off up to 90% of the debts of the heavily indebted poor countries (HIPCs). The total debt stock of world's 42 poorest countries - largely from Africa, with a population of 700 million - sums up to $207 billion.

The Cologne summit linked eventual debt write-offs to "firm commitments" by beneficiaries "to channel the benefits into improving the lives of all their people," which is tied to market-oriented economic reforms.

The G7 called upon the World Bank and the IMF to develop specific plans for "an enhanced framework for poverty reduction". This call "is merely an indicative nod" to the problems of development, wrote Harvard University economist Jeffrey Sachs in a recent column for 'The Economist'. He considers the Cologne
Initiative a well-intentioned but an inadequate beginning, as "the barriers to development are often more subtle than the current emphasis on 'good governance' in debtor countries suggests."

Jubilee 2000 and NGOs backing debt write-offs do not wish to wait until the elements of the proposed framework have been made known.

"The Cologne Debt Initiative is an uncovered cheque," warns Barbara Unmuessig from the World Economy, Ecology and Development (WEED) - an NGO supporting Jubilee 2000. In fact, Unmuessig fears that the political will is lacking to mobilise the necessary funds.

This fear is not groundless. The G-7 finance ministers say in a report that "the final costs of the initiative depend on a number of incalculable factors and the actual payments will have to be made over a longer time period.... We will carefully consider any contribution to an enlarged HIPC-Trust Fund."

Another case in point is the attitude of the German government, which is one of the biggest creditors of the 41 countries. At the close of 1997, they owed Germany more than 15 billion German marks - some $8.15 billion. The biggest share, $5.7 billion, stemmed from export guarantees, followed by $1.5 billion from official development assistance (ODA).

According to official German government sources, the implementation of the Cologne Initiative would reduce the bilateral debt by $2.36 billion. Subsequently, the German exchequer will have to forego between 33 and $43 million every year.

This, as German Chancellor Gerhard Schroeder remarked at the G7/8 summit would not be too much of a burden on the German taxpayer, because these are debts that have not been serviced in the past years.

"It is therefore not honest to argue the way the German government and some German parliamentarians do and justify the development ministry's budget cuts by counting the loss in revenues from repayments and interest expected by the Cologne Debt Initiative," says WEED spokeswoman Unmuessig.

Considering that poverty reduction is a major objective of the Cologne initiative and of the German economic cooperation policy, to the WEED spokeswoman the German "development politics seems cynical and devoid of credibility".

Indeed, much to the disappointment of the development NGOs and even the minister in-charge of economic cooperation and development (BMZ), Heidemarie Wieczorek-Zeul, the BMZ budget has been cut from $4.23 billion to $3.91 billion this year.

"At this rate," warns Peter Molt, chairman of the Association of German Development NGOs (VENRO), "our official development assistance will comprise only 0.2% of the Gross National Product (GNP) in the year 2003 - in contrast to the 0.7% to which Germany has committed itself." Presently the ODA-GNP ratio is 0.26%.

Opposition Christian Democrats' development policy spokesman Klaus-Juergen Hedrich, who was parliamentary state secretary in the development ministry until a year ago, accuses Schroeder of "breaching his promise" to increase ODA to bring it up closer to the level of 0.7% of GNP.

This promise was given in the coalition agreement between the SPD and the Green Party and then repeated in the final communique of the Cologne summit.

Against this backdrop, 'Erlass 2000' - as the Jubilee 2000 is called in Germany - is asking organisations and individuals to send e-mails and faxes to three persons (development minister Wieczorek-Zeul, finance minister Hans Eichel; and the new Bundesbank president Ernst Welteke) who, in its view, are in a position to influence the course the debt initiative takes at the forthcoming IMF-World Bank meeting.

Germany ranks third among the World Bank's shareholders and together with Japan is second after the U.S. in respect of membership quota of the IMF.

WEED's Unmuessig notes with satisfaction that the 'red-green' coalition government has announced its intention to pay $27.2 million to the HIPC Trust Fund.

However, "considering that a lot of money is needed for the financing of the multilateral debts and taking into account that Germany is one of the main creditor countries, the sum of $27.2 million is a rather humble contribution that needs be raised significantly," she said.

However, since the funds have to be taken from the national budget which is undergoing strong cuts, she considers it unlikely that Germany will raise its contribution to the HIPC trust fund.

It is equally doubtful that other major industrial nations which provide the bulk of some $55 billion in ODA, would come up with sufficient resources, enabling an effective implementation of the Cologne Debt Initiative.