Calling for a "Made in Canada" Proposal Percent Debt Cancellation
By Michael Bassett
This weekend Finance Minister Ralph Goodale will join his counterparts from 20 developed, emerging and developing countries at the regular G20 Finance Ministers meeting. Prime Minister Paul Martin created this grouping of countries in 1999. It stands as an example of the Canadian leadership on the international stage that Mr. Martin has often spoken of, but little delivered since becoming Prime Minister last year.
The G20 Finance Ministers meeting in Berlin is an opportunity for Canada to deliver on the many promises made for Canadian values to be reflected internationally. It can do this by securing support for 100 percent debt cancellation for the more than 50 poorest countries that need debt cancellation to meet the Millennium Development Goals. A Canadian proposal for debt cancellation advanced at an international meeting that includes industrial, emerging and developing countries can build support where the G7 Finance Ministers failed and reflect our values, our strengths and our multilateral commitments.
In recent months, for the first time in over five years, 100 percent debt cancellation for the poorest countries is squarely on the table at the international level. These debts often exist because of past lending to corrupt regimes for bad projects that have had little to no developmental benefits for the people in the poorest countries. High interest rates and penalties have led to ballooning costs and virtual debt treadmills where countries pay more in debt repayment to the richest countries than they allocate to health costs or they receive in development assistance. The vast majority of these debts are owed to the World Bank whose institutional culture of lending created the insurmountable debt situations these countries are facing today. Governments increasingly agree on the goal of 100 percent debt cancellation, but a central stumbling block remains: how exactly to pay for it and whether conditions should be attached to cancellation.
Leadership has been shown from the Americans and the British who set out two competing approaches to pay for the debt cancellation each with strengths but also ultimately with flaws. The American proposal was criticized by governments and civil society because it would lead to a reduction in the amounts of financing that would be granted to the poorest countries and because it covered a smaller number of countries.
The British proposal took a different approach in that it covered more countries and proposed a revaluation of IMF gold to cover some of the debts. However, the remainder of the costs to cover the debts would have to come from donor countries' official development assistance budgets and strict conditions were applied to all countries receiving cancellation, proposals that met with resistance from some countries.
The Government of Canada should use this weekend's G20 meeting to prove to the world that it is serious about debt cancellation and is ready to back up its promises with leadership that shows heart, courage and intelligence.
A "Made in Canada" approach should be advanced through which debt cancellation be paid for with the use of World Bank and IMF resources, including World Bank loan loss provisions (worth US$3.5 billion as of June 30, 2004) and World Bank retained earnings (US$24 billion as of the same date), as well as a revaluation of some of the IMF's 103.4 million ounces of gold. This approach holds the World Bank and IMF responsible for their roles in creating the debt crises many countries face today.
If any additional funds are required for debt cancellation they should be in addition to the existing commitments to increase the Canadian aid budget. Debt cancellation should also allow developing countries to set their own paths and not attach conditions in return for cancellation. Increasing the capacities of citizensï¿½ organizations to hold their government accountable to international commitments to reduce poverty is a more sustainable approach to assuring that resources are directed to poverty reduction goals.
This weekend's meeting is an opportunity for Canada to begin to map a path on the international stage where promises are met with determination. A role for Canada internationally where we propose lasting solutions rather than sit on the sidelines.
Michael Bassett is the Coordinator of the Halifax Initiative. Formed in 1994, the Halifax Initiative is a coalition of development, environment, labour, human rights and faith groups deeply concerned about the international financial system and its institutions. Since our founding the coalition has established itself as the Canadian presence for public interest advocacy and education on international financial institutional reform.