The Debt Relief Divide
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11/03/2005 This opinion piece by research fellow Todd Moss was published in iDM, a new magazine on development run by the British Parliament. In early 2005, major donors to the heavily indebted poor countries (HIPC) agreed in principle to erase "as much as 100 per cent" of multilateral debt, but they quickly got stuck on the details. The initial split was between the US and UK. The British government wanted the donors to simply cover any obligations of the HIPCs. The American proposal was for the bank to forsake future repayments from the HIPCs and merely reduce country allocations by the same amount. These differences must have struck outsiders as rather petty and arcane, yet the disagreement threatened to derail the entire process. In September, a second rift emerged between the G8 and the other creditors. Several of the smaller donors, apparently aggrieved that the big guys settled on a deal without them, balked at the terms. While there were multiple agendas underneath the surface, it was mostly cloaked in terms of protecting the World Bank. The US dismissed these concerns. These debt disputes are mostly an extension of other ongoing struggles: loans versus grants, aid quality versus quantity, and competing visions of the future international aid system. There is also a transatlantic philosophical gap about means. Europeans in general are much more comfortable with welfare-style assistance and the US embraces 'tough love.' The American economic model is much more based on creating opportunities for private action and is genuinely concerned about long-term dependency. Most importantly, do any of the machinations over debt relief really matter for poor countries? Debt has been the cause célèbre for anti-poverty campaigners and 2005 is potentially a breakthrough year. But in many ways – for both rich and poor countries – the rift over debt relief is merely a sideshow to the real battles over the essence of global development: the real issue is not so much about current debt but rather HIPCs’ future access to finance. Todd J. Moss is a research fellow at the Center for Global Development, an independent think-tank in Washington DC. |