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The 2005 G-8 Meeting: Any Hope For Justice?

Rethinking Bretton Woods | Fri, May 20, 2005

By Aldo Caliari

"As world leaders prepare for the July 2005 G-8 meetings in Gleneagles, Scotland, activists around the world are turning their their focus to three broad areas: debt, aid, and trade. ""The greatest hopes for positive outcomes at Gleneagles are pinned on the debt issue,"" Aldo Caliari, Director of the Center's Rethinking Bretton Woods project, writes in this article appeared in Center Focus. 

As other articles in this newsletter suggest, activists for global economic justice are focusing on several upcoming 2005 meetings in their efforts to promote more equitable development policies. June features a second biennial review of outcomes from the 20032 Monterrey Financing for Development Conference (see the FFD overview article) and the first ""Plus 5"" review of the Millennium Development Goals is scheduled for September. The World Trade Organization will also hold its Sixth Ministerial Meeting in Hong Kong at the end of this year.

One But one of the most important of these global gatherings will take place when leaders from the ""Group of 8"" (G8) industrialized countries meet July 6-8 in Gleneagles, Scotland. The agenda of each G8 meeting is traditionally driven by the host country, so there is symbolic importance in the fact that that the United Kingdom was also host when the G8 group reached historic agreement on $100 billion worth of debt cancellation in 1998. Since the UK will also hold the presidency of the European Union from July-December, there is some hope that the muscle of the G8 host will be applied to ensure effective European compliance with commitments made at the Millennium Summit.

In preparing for the July G8 meeting, campaigners have been concentrating on three broad areas in which they hope leaders will make progress: debt, aid, and trade.

Debt
The greatest hopes for positive outcomes at Gleneagles are pinned on the debt issue. It wasAt the at a UK-hosted G8 meeting 7 years ago, that the industrialized countries agreed to forgive $100 billion of debt to a group of 42 ""Highly Indebted Poor Countries"" (HIPCs). Translating that promise into action has not been easy: only some about $50 billion of that relief has been irrevocably committed, and only $30 billion of that has been actually disbursed. Among the 42 eligible countries, 18 have reached the end point of the initiative and had their debt stock cancelled, while 11 countries others are somewhere on the path to that outcome. The status of the remaining 13 countries is under review, and there is a chance that some of them will be excluded from full implementation of the promised debt forgiveness.

Moreover, access to debt relief for these 42 countries was conditioned on their implementation of economic policies that have since led to widespread poverty and erratic growth rates, causing in turn causing episodes of social and political unrest. In many cases,. countries reaching the end point of the initiative found themselves more indebted than they were at the beginning, due to factors (such as commodity price shocks and new borrowing) whose occurrence the initiative did not contemplate.

Since last year, the G8 countries have been engaged in discussions around about the need to cancel 100 one hundred percent of multilateral debt to a group of selected countries that, depending on the different proposals, might or might not include all the original HIPCs. But disagreements about the number and eligibility criteria for beneficiary countries, as well as sources to finance the debt cancellation, continue to hold up agreement.1 In an alarming backslide, the U.S, government, previously sympathetic to the idea of 100 percent cancellation, has now withdrew withdrawn its support for the cancellation of IMF debt.

Despite the obstacles to reaching a debt deal in Gleneagles, there is no better opportunity toopportunity to achieve progress in the near future. So Iit is important now to take the maximum possible advantage of the G8 meeting to demand debt cancellation for the largest possible number of countries, with the lowest possible level offewest possible conditionsality attached.

Aid

After declining in the 1990s, aid flows have started to increase this decade, partly as a reflection of the Monterrey Consensus commitments from the 2003 Financing for Development Conference. However, a recent report found that aid increases still fall far short of the levels that rich countries commitedcommitted in Monterrey. But the fact that G8 leaders will be discussing aid and debt simultaneously at least raises the possibility that governments may focus on the links between these two sources of development finance, and propose anpropose an integrated solutionâ€"rather than just offering a ""public relations"" deal on debt that ignores problems with aid flows.

For example, recent aid increases include significant sums for debt relief commitments, in violation to of the Monterrey consensus premise that more debt relief should not come at the expense of aid. Some analysts predict that aid figures in the next few years will be inflated by two important phenomena--the tsunami disaster and debt relief to Iraq--which will mask the otherwise-low low levels of aid and debt relief offered to most other countries. Since indebted countries see nearly three fourths of their aid leave as debt service payments to the multilateral organizations, it is past time for wealthy countries to propose debt and aid policies that reinforce, rather than offset, their each other's intended benefits.

Trade

G8 meetings clearly are not designed for trade negotiation, so trade issues will not be addressed at Gleneagles in a definitive way. However, the summit does provide a setting in which the world's main trade powers should can be asked to make commitments regarding their positions in upcoming trade meetings. More importantly, Gleneagles is an opportunity for member countries to commit to change the trade policies they pursue through the multilateral financial institutions they control.. At a minimum, they should commit to ensure that countries are not required to give up on a development-oriented management of their trade policies, in exchange for access to resources from multilateral lenders like the World Bank and the International Monetary Fund. G8 members should also agree to compensate developing country partners for the market access they have managed to unfairly obtained through their policy influence in the Bank and Fundlosses they suffer due to market access restrictions in rich countries, and the failure of the developed world to afford special and differential treatment to key developing country products.

July's G8 meeting is an opportunity for industrialized countries to reflect upon a broad range of their trade-related policies. For instance, the failure to solve the problems of price decline and volatility of primary exports in poor countries continues to cost some countries up to 51 cents for every dollar they those countries receive as aid. Tariff reductions required by trade agreements force many countries to replace lost tariff income with more regressive taxes, or new external debt. G8 members should better understand how negative trade policies can undermine their debt and aid initiatives.

The power of eight industrialized countries to influence global economic policy raises questions about its the G8's role and legitimacy, in a world of more than 190 nations. The G8 clearly dictates policy directions, and enforces them through the various multilateral institutions whose functioning they have come to dominate. Civil society groups will demand that the G8 use its position in an enlightened way to address the democratic deficit in the governance of global institutions.

The G8 Summit in Scotland will go a long way toward determining whether 2005 will be a ""Year of Development,"" or just another ""Year of Empty Words."" Unfortunately, as of this writing, no significant breakthrough has yet been achieved in any of the areas mentioned above. The Center of Concern continues to contribute to groups and networks that work on the areas of debt, aid and trade, promoting a holistic approach to integrating policies in these areas to enhance development outcomes for all.

Aldo Caliari directs the Center's Rethinking Bretton Woods Project.

Notes:
1 For an explanation of the proposals and their differences, see New Proposals for Debt Cancellation (Center Focus # 166 ). Get an update on the most recent G7 Finance Ministers meeting.

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