During his six years in office, Clinton has seldom been perceived as particularly engaged with international development issues. Now he was saying that debt relief–perhaps the most controversial element in the debate on economic development–lay at the heart of poor countries’ ability to make desperately needed progress. Clinton’s words, delivered at the joint meeting of the World Bank and the International Monetary Fund, seemed to dismay the mandarins who’d gathered for their prestigious annual business bazaar. They immediately–and correctly–sensed a less-than-subtle pressure on commercial lenders to similarly forgive developing-country loans.
The value of Clinton’s pledge lay less in the amounts involved–about $6 billion is owed to the United States by poor countries–than in the fact that he unambiguously endorsed debt relief as a key instrument for jump-starting economic development. In effect, Clinton was articulating a new “development doctrine.” According to the World Bank, the 41 most indebted countries–33 in Africa alone–owe the United States and other Western lenders nearly $300 billion. An additional $1.3 trillion is owed by these countries (and others) to the World Bank, the IMF, regional development banks and commercial banks. Many countries are not only using up all their foreign-exchange earnings to service such debt, they’re also borrowing to pay back loans that date back more than a generation. That leaves little to spend on economic and social development.
While Clinton’s announcement resonated well throughout the developing world, it also raised troubling questions:
How far are rich countries prepared to go in forgiving debt? Last June, the G7 countries–the United States, Britain, Germany, France, Canada, Japan and Italy–came up with the so-called Cologne Initiative, which recommends canceling up to $50 billion in poor countries’ debts. The Paris Club–a consortium of donor nations–has also offered cancellation of an additional $55 billion in debt. The G7 have called for a complete cancellation of all bilateral concessional debt–what’s known as Official Development Assistance (ODA)–and have asked the Paris Club to push for the forgiving of commercial debt up to 90 percent. All this sounds nice in public–but the fact is, most donor countries have few expectations that poor countries will ever repay their debts. Rich governments can write off foreign loans without much fuss. But are private commercial banks–mindful of their bottom line, shareholders’ sensitivities and market reaction–willing to cancel loans?
Will debt cancellation truly boost development? The debt accumulation by developing countries started in the early 1970s, when world prices for their commodities, minerals and oil were high. Western governments and banks were eager to offer loans that recipient countries promised to use to build infrastructures and strengthen health, social and educational services. In the cold-war era, there was also political mileage to be gained through such lending. But, as Jubilee 2000, an international group that’s calling for debt cancellation, points out, corrupt leaders squandered funds on white-elephant projects, and often used foreign money for self-aggrandizement. The quality of leadership in most developing countries hasn’t improved significantly in recent years, so what’s going to stop corrupt leaders from embarking again on the borrow-steal-spend-and-plead-forgiveness cycle?
Who’s going to monitor expenditures in the developing world? Bill Clinton may be well intentioned in his demand that the money saved from debt servicing should be used to help alleviate poverty. Unfortunately, a vast majority of developing countries lack not only skilled and honest leaders, but also local institutions that can work constructively to promote social and economic development. Perhaps donor nations should use the money from debt cancellation to create an international corps to engender better governance. Though this might invite charges of interference in local sovereignty, donors can institute standards of economic and democratic compliance. And if developing countries want to move faster to meet the rising expectations of their own constituencies, they have to work with societies where civic discipline, honest leadership and transparent government aren’t considered luxuries.
Countries rich and poor have an opportunity this week to fashion a new working relationship on these issues at a global meeting in Durban, South Africa, hosted by the Berlin-based watchdog Transparency International. What’s needed aren’t warmed-over platitudes about debt forgiveness, but specific plans to incorporate techniques of governance and monitoring that will address the deepening crisis of global poverty. Debt can be canceled with the flourish of a pen, but global poverty can’t be wiped out by diktat.
