SOUTHERN AFRICA: NGOs welcome debt deal with caution

[ This report does not necessarily reflect the views of the United Nations]

JOHANNESBURG, 26 Sep 2005 (IRIN) - The World Bank (WB) and International Monetary Fund (IMF) have endorsed a deal to cancel $42.5 billion owed by 18 poor countries, but debt cancellation campaigners have criticised the list of beneficiaries as being "too small".

On Sunday the international financial institutions announced that they would back an agreement concluded by the Group of Eight (G8) industrialised nations at their July summit in Gleneagles, Scotland, to cancel the debt owed by an initial 18 countries followed by a possible 20 as they become eligible.

According to WB president Paul Wolfowitz, "Across Africa and around the world, leaders in 38 countries will no longer have to choose between spending to benefit their people and repaying impossible debts, often the legacy of governments past."

The 18 qualifying countries have passed the strict economic reform monitoring process of the IMF and WB's Heavily Indebted Poor Countries (HIPC) initiative. Three of them - Zambia, Madagascar and Mozambique - are in southern Africa.

"We know of more than 60 countries who are in desperate need of debt cancellation, as they are unable to achieve their Millennium Development Goals (MDGs)," said David Woodward from the New Economics Foundation of Jubilee Research, a UK-based NGO. The MDGs are a set of development targets that range from halting the spread of HIV/AIDS to halving poverty by 2015.

Woodward argued that the point of debt cancellation was to help countries hamstrung by debt service payments to channel savings into meeting their MDGs.

"The criteria for qualifying for debt cancellation should be if the country is able to service its debt," he added, rather than economic reform measures and government spending cuts that tend to undermine the poverty reduction targets of the MDGs.

Peter Henriot, director of Zambia's Jesuit Centre for Theological Reflection (JCTR), supported Jubilee's call for widening the list of benefiting countries but acknowledged that "it is a step in the right direction - 10 years ago we would not have imagined anything like this".

The much-needed relief also made it critical that civil society organisations in beneficiary countries watch government spending more closely. "We will be monitoring our government's 2006 budget to ensure that the freed-up money is spent on poverty eradication programmes," said Henriot.

The Jubilee Debt Campaign noted that in 2002 more money was spent on debt servicing than health or education in many countries, including Cameroon, Ethiopia, Guinea, Malawi, Senegal and Uganda. Zambia allocated approximately two and three percent of its Gross Domestic Product (GDP) to education and health respectively, but nine percent to debt servicing.

NGOs have raised concerns about the possible conditions attached to the cancellation deal. "As you know, the countries are the HIPC countries, so the conditions will be the ones that are already applying to the completion point; there will not be new conditions," IMF managing director Rodrigo de Rato told a press conference at the end of its annual series of meetings with the WB in Washington.

About 70 percent of the debt covered by the deal is due the WB, with the remainder owed the IMF and the African Development Bank.

News reports said the breakthrough in the debt deal came on Friday night when the G8 countries pledged to replenish WB's coffers depleted by the forgiveness of billions of dollars of outstanding loans.

"We will move swiftly to give the Bank's board of directors a paper outlining a compensation schedule and a monitoring system, a process that can be completed within weeks," said Wolfowitz.

The executive boards of both the WB and IMF need to approve the deal, but that is seen as a formality.

[ENDS]