Press response - July 13, 2006

Mind the (Growing) Gap – Debt, Aid, and Trade

1.2 billion people are still living in abject poverty as Prime Minister Stephen Harper heads to St. Petersburg for the annual Group of 8 (G8) meetings. With new promises on energy and security waiting in the wings, it is timely to reflect on how far the G8 has moved on its pledges since last year’s Gleneagles Summit.

According to British Prime Minister Tony Blair, 2005 was to be “the year for Africa”. The Africa Commission report, the Make Poverty History campaign and the Live 8 concerts focused attention on full debt cancellation, more and better aid, fairer trade and tackling poverty. Progress on these fronts, among others, was to help Africa “make serious inroads into poverty”, and towards achieving the United Nations (UN) Millennium Development Goals.

On these issues, G8 leaders agreed to fully cancel the debts owed to the World Bank, International Monetary Fund and African development bank by a number of countries, and to double aid to Africa by 2010 and make it more effective. They also encouraged a balanced outcome and successful conclusion of the World Trade Organization Doha Development agenda.

One year later, 15 countries in Africa, and four in Central and Latin America have received $36 billion in debt relief. This is an important step towards poverty eradication. It is the first time that the G8 agreed to full cancellation of multilateral debt for highly indebted countries. Now, after a long and painful process, countries such as Zambia are finally able to introduce free health care, hire 4,500 new teachers, build and repair schools, and introduce HIV / AIDS programmes. This is a good start, but Zambia seems like more the exception than the rule.

The deal didn’t include enough countries. In fact, it only covered one third of the 60 countries most burdened by poverty. 17 countries in Africa, with a population of more than 3.8 million people living with HIV, are still waiting on a deal. Meanwhile, UNAIDS (the United Nations agency mandated with tackling the disease) is short 6 billion to fight the global epidemic this year alone.

No country is actually free of external debt. At best, Burkina Faso and Uganda will have 90% of their debts cancelled. Mozambique on the other hand will receive only 40% cancellation. Furthermore, of the four Central and Latina American countries covered by the debt deal - Nicaragua, Honduras, Guyana and Bolivia – the deal actually covers less than a third of these countries’ external debt. Bolivia, one of the poorest countries in Latin America, with over 63% of their population living below the poverty line, still owes $1.6 billion to the Inter-American Development Bank (IDB) - enough to put 32 million children into school.

Debt forgiveness was subject to conditions. The vast majority of countries that have now got debt relief spent more than six years implementing countless conditions. This included cutting social funding from education, introducing user fees in health care facilities, and privatizing such essential services as water. Countries like Kenya – excluded from the deal because its debt is now considered “sustainable” – allocated as much in 2005 to debt service payments as to health, water, roads, agriculture, transport and finance combined.

What about aid? Gleneagles promised an increase in aid of US$25 billion by 2010 with a further US$25 billion by 2015 – essential for meeting key development targets. However, Germany, France and Italy have yet to commit themselves to the increased funding they promised. In the United States, Congress drastically cut a proposal to increase foreign aid by $3 billion. And in Canada, in what was Finance Minister Jim Flaherty’s first budget, there was no mention of any new aid commitments by the government – a first since the late 1990s.

And Trade? The current negotiations at the World Trade Organization were supposed to be the “Round for the developing world”. A year later, and the development agenda has been all but dropped. A forthcoming agreement around the triangle of issues relating to agricultural subsidies, increased market access and non-agricultural market access, now seems deadlocked. For its part, Canada has sought to restrict special and differential treatment for developing countries, pushed for aggressive cuts to developing countries’ industrial and agricultural tariffs, and sought to open their service sectors to foreign competition. As such, today’s trade conditions seem set to fix the terms for tomorrow’s debtors.

Campaigns such as Make Poverty History have been important for shedding light on aid, trade and debt. And the Liberal government had a long way to go to live up to this agenda one year ago. But Prime Minister Harper, going into his first G8 Summit, and the rest of the G8 leaders only seem to be widening that gap.

Fraser Reilly-King is the Coordinator of the Halifax Initiative, a Canadian coalition of development, environment, faith-based, human rights and labour groups that works to transform the international financial system and its institutions, namely the World Bank, the International Monetary Fund and export credit agencies. It is a member of Make Poverty History.