June 13, 2005
Monday

Recognizing that 18 of the world's poorest nations are unable to repay their international loans and that trying to collect the money would only drive them deeper into poverty, the finance ministers of the world's wealthiest industrialized democracies, the G-8, agreed last month to cancel $40 billion in debt.

The rough outlines of the deal were worked out last week when British Prime Minister Tony Blair, who has adopted Africa as his signature cause, came calling on President Bush.

Critical to the deal was agreement on two key points: International lending agencies - the World Bank, IMF and African Development Bank - would be compensated for forgoing the loans and the cost of that compensation would not come out of the G-8 members' current aid programs.

The 18 beneficiaries include 14 African nations and four Latin American. The loan forgiveness is premised on certain standards of governance and on guarantees the money previously devoted to debt service will be redirected to health, education and development programs. Another nine African nations could qualify soon, bringing the total relief up to $56.5 billion.

Aid activists would like to see debt relief extended to a further 11 countries but this group includes hopeless dictatorships like Myanmar, anarchies like Somalia and nations ravaged by civil war like Sudan.

As always with debt forgiveness there is unfairness. "Those faithful in servicing their debt like Kenya are being ignored," Kenya's planning and development minister told Reuters.

And it is not as if debt forgiveness hasn't been tried before, although not on this scale and not so multilaterally.

The Bush administration has generally espoused direct grants to poor nations rather than loans that tend to result in ever mounting debt. Said U.S. Treasury Secretary John Snow, "It is my hope ... that this reform will conclusively end the destabilizing lend-and-forgive approach to development assistance in low-income countries."

The key to the success of debt forgiveness - and foreign aid generally - is continuous and exacting oversight by the donor nations and the international agencies to insure that the money is spent on worthwhile projects and not stolen or squandered.

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