Report: Devilish Details: Implications of the G7 Debt Deal

This report was originally published by EURODAD

This weekend’s debt deal by G7 Finance Ministers received massive media coverage in South and North alike. The determined efforts of debt campaigners around the globe undoubtedly pressured Northern Governments and the IFIs to look seriously at the debt issue. It is because of us that governments and officials were forced to recognise that existing debt relief initiatives were wholly insufficient and that a new deal had to be struck. While the final deal had some better features than had been expected recently, campaigners need to be very clear about what this deal actually represents and its serious limitations. There is broad agreement among civil society organisations that the deal doesn’t go nearly as far as the overblown rhetoric which accompanied its release. And that it has some worrying strings attached.

On the positive side, the final deal does include IMF debts and does offer permanent debt stock cancellation. There is also an indication that the country list may grow from its current very limited number.

The deal as presented by G7 Finance Ministers last weekend covers 18 countries, i.e. those which have reached ‘completion point’ under the Heavily Indebted Poor Countries (HIPC) Initiative. A further 9 countries – currently at the HIPC ‘decision point’ could become eligible for this deal over the next couple of years. Other countries could also conceivably be included since work is reportedly underway on an expanded list of HIPC countries. See annex for the full HIPC listing with countries’ status under the initiative.

Of the 18 countries covered, the proposed deal is not nearly as generous as G7 Finance Ministers would have us believe. If we take the text of the ambiguous and vague communiquÉ at face value, the 18 countries involved will receive dollar for dollar reduced aid from the International Development Association (IDA). To receive new IDA flows, they will then have to comply with controversial World Bank and IMF conditions and policy performance criteria. And the G7 statement implies that a new layer of anti-corruption/good governance conditions may be added.

In sum, the deal does not represent the “historic breakthrough” claimed by UK Chancellor Gordon Brown or “the most comprehensive statement that finance ministers have ever made on the issues of debt, development, health and poverty”. A coalition of UK NGOs has calculated that, rather than the announced “100 per cent debt cancellation” deal it is in fact a 10 per cent deal. And these figures only cover low-income countries. There has been no mention at all by policy-makers of the debt distress faced by any middle-income countries. There remains much to be done to ensure campaigners and the broader public are not misled and that the debt campaign goes on.

In this briefing, Eurodad outlines some of the key areas of concern on:

 Country lists;

 Conditionality;

 Extra money to spend;

 Which debts are included;

 100% debt cancellation rhetoric;

 Inequality in debtor-creditor relations.

We also include some key facts and statistics on the debt deal. The briefing is intended to assist civil society colleagues to better understand the details of the deal, what it will mean for the countries involved (and excluded) and how it will be implemented in practice. This will help us with our continued advocacy on the debt issue in the coming weeks and months. This advocacy will be essential: at this point the deal remains a G7 proposal only. It will have to pass two further stages before it can be implemented.

Firstly, the proposal will need to be presented to the governance structures of the World Bank and IMF before it can become policy. In the communique, G7 Finance Ministers propose that the Boards of the IMF and World Bank look at these proposals at the forthcoming Annual Meetings of these two institutions. Secondly, IDA donors beyond the G7 will need to agree to put extra resources into this deal to cover the cost of the cancelled debt to IDA.

There is therefore still time to push for a much better deal – and indeed the deal as proposed by the G7 could change shape over coming months as it passes through these two further phases of negotiation.

Read the briefing