KÖLN INITIATIVE OFFERS LITTLE HOPE TO INDEBTED NATIONS

The wealthy industrial powers have again missed an opportunity to demonstrate genuine commitment to sustainable human development by writing off the crushing debts of the world's poorest nations.

In the face of growing international pressure for complete and immediate debt cancellation, G7 leaders endorsed a new debt initiative at their annual economic summit, held last weekend in Köln, Germany. Although touted as a framework for "faster, deeper and broader debt relief," the scheme merely polishes--rather than breaking--the chains of debt that shackle many countries to perpetual poverty. Worse still, the plan seems likely to strengthen the North's economic stranglehold over the developing world.

The Köln Debt Initiative envisions an "expanded" version of the Highly Indebted Poor Countries (HIPC) initiative, currently being operated jointly by international financial institutions. This would aim to reduce the overall debt of qualifying countries by more than half.

However, the HIPC initiative has never been capable of providing a foundation for equitable, long-term development. The scheme's emphasis on "debt sustainability" is intended not to enable poor countries to escape onerous debt burdens, but merely to make them "manageable" so that they continue to pay their wealthy creditors.

Furthermore, the price of eligibility for the programme is the slavish adherence to the economic prescriptions of the International Monetary Fund (IMF)--so-called "structural adjustment" packages--for up to six years. These packages, which may include such measures as currency devaluation, privatisation, and the elimination of subsidies on food and basic commodities, have added to the misery of many poor families.

Even World Bank and IMF staff have begun to question the HIPC programme. Three years after the scheme was introduced, 42 countries have been identified as potential beneficiaries, but only three have been "approved" and only two (Uganda and Bolivia) have received any relief. A recent internal report suggests that some countries may incur larger interest payments as a result of their participation. Independent research has also found evidence of a correlation between structural adjustment and increased debt.

The G7's proposals for financing the "super-HIPC" programme are equally problematic. The Köln initiative calls on the IMF to sell 10 million ounces of its gold reserves to raise part of the funds required. This announcement has been met with particular alarm in South Africa, where Finance Minister Trevor Manuel has warned that the sales could further depress gold prices already at a twenty-year low and prompt the closure of many of the country's mines.

The SACC shares the Minister's concern for the tens of thousands of miners--in South Africa and in other countries of the South--who could be retrenched if mine owners shift their resources to more profitable enterprises. At the same time, we also hear the cries of the millions of people in other indebted countries who are struggling to survive in the face of hunger, unemployment, and poverty.

Any assessment of the proposed gold sale must transcend narrow national interests. However, even from a global perspective, the plan is seriously flawed. G7 leaders are not planning to apply the proceeds of the sale to debt relief, but merely a portion of the interest on the proceeds.

The bulk of the revenue would be diverted to the IMF's Enhanced Structural Adjustment Facility (ESAF), which makes loans to finance the implementation of structural adjustment policies. This would diminish ESAF's reliance on contributions from IMF member countries and reduce its susceptibility to external pressure for reform. At the same time, it would increase the Fund's capacity to entice cash- strapped countries into accepting the disastrous "discipline" of structural adjustment.

The G7 Finance Ministers who drafted the Köln Debt Initiative portrayed the plan as a framework for poverty reduction. The SACC welcomes this emphasis on poverty reduction, but awaits a more convincing demonstration of the G7's commitment.

The Biblical concept of Jubilee, which has given moral momentum to the campaign for debt cancellation, involves a release both from debt and from slavery. It is time for economically powerful nations to abandon the assumption that they know what is best for those they have impoverished. It is time for a wealthy global elite to cease the promotion of systems of finance and trade that keep poor people in bondage.

We call on the G7 nations to acknowledge that social and economic policies must be designed by the citizens of the nations concerned, through open and accountable institutions, and not by self-appointed "experts" in Washington. We support the demand, made by the World Council of Churches at its Eight Assembly in Harare in December 1998, for the introduction of "a new, independent and transparent arbitration process for negotiating and agreeing upon international debt cancellation". This must be coupled with measures to strengthen civil society and to enhance people's capacity to shape the political and economic policies that affect them.

While we applaud the G7 nations for recognising the need to address the debt question as a matter of urgency, a more radical departure from the failed strategies of the past will be required if we are to realise the profound vision of justice embodied in the Jubilee ideal.

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