Debt Write-Off Linked to Poor Countries' Good Governance

By Patrick Goodenough | July 7, 2008 | 8:16 PM EDT

( - Hundreds of millions of people in 18 poor countries in Africa and Latin America are expected to benefit from a decision by the U.S. and the world's other top industrialized nations to write off foreign debt owed by countries whose rulers have embraced reform.

British Chancellor (finance minister) Gordon Brown, whose country currently chairs the Group of Eight, said Sunday the agreed debt cancellation had to go hand-in-hand with transparency and good governance.

The decision was made at a meeting of G8 finance ministers in London at the weekend, in preparation for a G8 heads of state summit in Scotland next month.

It wipes out more than $40 billion in debts owed to multinational institutions by 14 African countries and four in the Western Hemisphere -- Bolivia, Nicaragua, Honduras and Haiti.

Nine others, all in Africa, could join the list in the next year or so, if they meet specific obligations in line with an earlier World Bank/International Monetary Fund (IMF) program, the Heavily Indebted Poor Countries (HIPC) initiative.

Treasury Secretary John Snow in a statement outlined the HIPC criteria -- "improving governance, reducing corruption, and completing a program with the IMF that demonstrates a commitment to sound economic policies."

"At the center of our proposals is greater transparency," Brown told British television.

"They realize in African countries that if they're not transparent about what they do they will get less help and they realize also that they're accountable in the end to their own people and not just to donor agencies around the world."

A statement released by the British Treasury on behalf of the G8 ministers said the World Bank and IMF would be asked to report on improvements on transparency and the drive against corruption, "to ensure that all resources are used for poverty reduction."

"We believe that good governance, accountability and transparency are crucial to releasing the benefits of the debt cancellation. We commit to ensure this is reaffirmed in future bilateral and multilateral assistance to these countries."

The G8 countries have agreed to compensate the World Bank and the African Development Bank for writing off the debt.

Britain is also pushing another initiative as part of its broader anti-poverty campaign, which aims to double aid to poor countries through a new mechanism known as the International Finance Facility (IFF).

Brown envisages poor countries being able to access aid now by using wealthy countries' future aid commitments as collateral, but the plan has drawn opposition within the G8 from the U.S. and Japan.

The full debt cancellation decision will be announced at the G8 summit in Gleneagles, Scotland on July 6-8, by which time Britain hopes also to have won over detractors to the IFF proposal.

World Bank chief Paul Wolfowitz, on his first visit to Africa in his new role, praised the debt write-off decision, calling it "very important, successful outcome."

Groups campaigning against poverty and Third World debt generally welcomed the proposals, but said they did not go far enough.

The Jubilee Debt Campaign argued that more than 60 countries need debt relief in order to meet the U.N.'s Millennium Development Goals, which include cutting poverty and disease by half, by 2015.

The campaign also that some of the HIPC obligations were "designed to protect the assets and interests of creditors rather than promote growth, poverty-reduction or stability."

The finance minister of Ghana, one of the 18 countries due to benefit immediately from the decision, welcomed the announcement, saying it was directly linked to the West African nation's practicing of democracy.

"There is dividend in democracy," Kwadwo Baah Wiredu was quoted as telling a local news service.

"We still owe [other creditors] but the relief from the IMF, World Bank and African Development Bank represents about 80 percent of the national debt," he said.

The other African countries to benefit from the weekend decision are Benin, Burkina Faso, Ethiopia, Madagascar, Mali, Mauritania, Mozambique, Niger, Rwanda, Senegal, Tanzania, Uganda and Zambia.

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Patrick Goodenough
Patrick Goodenough
Spencer Journalism Fellow