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Contributions from
the Column
Facts and trends
Results of renewables 2004
The security threat of climate change
Growth engine micro finance
G7 split on debt relief
Kenya: accusations of corruption
USA authorises generic AIDS drugs
GDI course for university graduates
Arab Human Development Report
ACP countries and EU sugar-regime reform
03/2005
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[ Development funding ]
Agreement a long way off
Among the Group of Seven richest countries (G7), opinions differ greatly on debt relief for the poorest countries and a new direction in development funding. At a meeting in London in early February, the G7 finance ministers did indeed agree to forgive the Highly Indebted Poor Countries (HIPD) up to 100 percent of their debts with multilateral institutions such as the World Bank and the IMF, on a case-by-case basis. However, the group remains divided on whether and how such relief should be refinanced. The USA wants creditor institutions to simply write off the outstanding debts but most European countries and Canada are afraid that this could damage the position of the World Bank on the international capital markets (see also page 120 of this D+C/E+Z edition). Therefore, they propose refinancing the shortfall through the donor countries and by revaluing the IMF gold reserves.
After the debate had been started at the World Economic Forum in Davos, the G7 ministers remained split on how to provide additional funds for development cooperation. In Davos, French President Jacques Chirac had again suggested to raise international taxes, for instance, on financial transactions (Tobin tax) or aviation fuel. To the surprise of many observers, he met with the approval of German Chancellor Gerhard Schröder. However, the USA flatly rejected such taxes and the United Kingdom also reacted coolly. The option of introducing the Tobin tax had already been abandoned by the time the G7 conference took place only a few days after the event in Davos. In an interview with the online service FAZ.NET, Jeffrey Sachs, economist and head of the UN Millennium Project, described the tax as unenforceable and inefficient. The discussion is now revolving around a Europe-wide kerosene tax but observers currently see little chance for this kind of tax too. A number of EU members, including Britain, Ireland, Italy and Spain, have already expressed their disapproval.
The UK, in turn, is currently largely on its own with its suggestion of establishing an International Finance Facility (IFF). According to the proposal of Gordon Brown, the Chancellor of the Exchequer, donor countries would borrow money on the capital markets for the IFF on a long-term basis, in order to hand out more development funds in the short term. Germany and France indicated in London that, in their view, the suggestion is conceivable only as a pilot project at this stage – for example, to finance a vaccination programme – and, even then, they would only agree once the issue of refinancing was resolved. The USA and Canada are against the IFF. “Do you really believe that you can scoop money from 10 years from now and not have a problem in seven or eight or nine years?” asked Canadian Finance Minister Ralph Goodale. (ell)
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