Global debt relief seen by many as moral task

Tuesday, October 24th 2000, 12:00 am
By: News On 6

By Charles Ornstein and Catalina Camia / The Dallas Morning News

WASHINGTON – On one side of the long oval, mahogany table sat Bono, lead singer of the Irish rock group U2, wearing a black leather jacket, his trademark goggle-style glasses and an earring. On the other sat Pat Robertson, founder of the Christian Coalition, in a suit and tie.

In between the two men in the formal White House Cabinet Room sat President Clinton and several Republicans in Congress who supported his impeachment.

What drew these ideological opposites together?

Relieving the staggering debt owed by 33 poor countries, mostly in Africa, so they can devote more money to health care, education and poverty reduction.

Debt relief has become somewhat of a pop culture rallying cry in the last year, drawing street protests in Seattle, Washington and Prague, Czechoslovakia. It has united Catholics, Jews and Protestants who see the year 2000 as a moral imperative for helping the poor.

Both major party candidates for president support debt forgiveness, as do a host of well-known companies – including Caterpillar, Goldman Sachs and Motorola.

"It's not often we have a chance to do something that economists tell us is the financial imperative and religious leaders say is a moral imperative," Mr. Clinton said earlier this month. "All of us feel a common obligation to do the right thing."

Standing in their way is Sen. Phil Gramm, a powerful Texas Republican and chairman of the Senate Banking Committee. He says the proposed $435 million in U.S. debt relief would benefit corrupt governments and encourage wasteful spending.

"Where I am from, College Station, Texas, it is a pretty hard sell to talk about forgiving billions of dollars of debt to countries that borrowed money from us and, in too many cases, simply squandered or stole it, and now they do not want to repay it," Mr. Gramm said on the Senate floor last week.

Debt relief charts

The debt relief issue is tied up in end-of-session wrangling on the 2001 foreign aid bill, one of three unresolved spending measures that Congress is struggling to complete before members hit the campaign trail.

Spreading the good times

In this era of unrivaled economic prosperity for the United States, many countries in Africa and Latin America are struggling to pay interest on money they borrowed decades ago, some under corrupt regimes.

The United States is the only major country that has not pledged its share to the global debt reduction, which would flow through the International Monetary Fund, the World Bank and various regional development banks. European countries, which have moved more swiftly, made their commitments contingent on U.S. action.

"This is like a bankruptcy proceeding, in which all the creditors have to back off together," said the Rev. David Beckmann, president of Bread for the World, a relief organization. "So, if the U.S. reneges on the deal, other creditors and other creditor governments will also back off."

Bolivia, for instance, spent $35 per person this year on debt payments, more than it spends per person on education or health. Honduras pays creditors four times the amount it spends on health care.

Both countries have qualified for debt relief, but they have not received it because Congress has not appropriated money to the international effort.

"The global debt relief program by the international institutions and the other countries is hanging on the United States," Treasury Secretary Lawrence H. Summers said. "Each dollar we budget will support more than $30 of debt relief globally."

Last year, lawmakers allocated $110 million to begin erasing up to 90 percent of the debt nations owed directly to the United States.

Even if Congress approves the president's request of $435 million, the new administration will still need to ask for more money. Another $375 million would be needed over the next two years to fulfill the $920 million pledge by Mr. Clinton at a meeting of the world's wealthiest seven nations in Cologne, Germany, last year.

Religious leaders say their campaign to eradicate poverty is rooted in biblical tradition.

"Every 50 years should be a time of Jubilee where slaves are free and debts are forgiven," said Thomas Hart, director of government relations for the Episcopal Church in Washington. "But the year 2000 isn't just another Year of Jubilee, it is a super Jubilee given that it is the millennial year."

Mr. Gramm acknowledged the weight of the religious lobbying. He was targeted by name on Mr. Robertson's 700 Club program.

"I do not think since Constantine the Great called his ecumenical council in Nicaea has there been a larger gathering of holy people in one place than the people who came to see me about supporting debt forgiveness," he said.

Speeding up the pace

The debt-relief plan began in 1996 when the World Bank and IMF suggested a comprehensive approach for the first time to help 41 of the world's poorest and most heavily indebted countries. At the 1999 meeting in Germany, the nations decided to hasten the pace but narrowed their list of eligible countries to 33.

About 20 countries are expected to receive relief within months if Congress goes along with the administration's request.

In order to qualify, nations must agree to open their financial records for public inspection, devote savings to poverty programs, promote responsible governance and involve citizens, churches and businesses in crafting outreach plans for the poor.

In total, the lending institutions and creditor nations would forgive $28.6 billion in debt, which would save the poor nations $50 billion to $55 billion over the life of their loans.

Take Mozambique, one of the poorest nations in Africa. That country owed $4.2 billion in 1998 dollars, before it received any outside help. After it exhausts debt relief opportunities, the country could owe as little as $496 million. All debt payments are on hold because of devastating floods that hit the nation recently.

As a result of economic reforms and the $3.2 billion in forgiven debt so far, the World Bank reports that the average annual inflation in Mozambique dropped to 2 percent from 47 percent four years ago. Although 68 percent of the population lived in poverty in 1996-97, school enrollment has increased and infant mortality has gone down.

In order for the debt relief effort to be fully operational, the IMF is seeking U.S. approval for its plan to revalue its gold reserves, which would free up $550 million for debt relief. Mr. Gramm has objected because he is not satisfied with the pace of internal reforms within the IMF and World Bank.

Mr. Gramm cited the example of the Ugandan president who bought a $47 million Gulfstream jet for travel just as his country was getting a check to relieve some of its debt. And Mr. Gramm singled out Chad, an African nation also in line for debt relief but criticized by the U.S. State Department for torturing, raping and killing its citizens.

"I intend to fight – and fight hard – to see that we do not take billions of dollars from American taxpayers to buy fancy airplanes for government officials and that we do not use it to basically subsidize corruption and the abuse of the very people we are trying to help," Mr. Gramm said.

Officials at the World Bank said the key component of debt forgiveness is whether countries have workable plans to reduce poverty.

"It's not the role of the World Bank, the IMF or anyone else, including the United States, to tell the president of the country whether or not he should have an aircraft to travel in," said Anthony Gaeta, a counselor for the debt relief program at the World Bank.

While critics may point out problems with the relief program and regions that are plagued by armed conflicts, Mr. Summers said, the consequences of inaction are real.

"It means the difference between life and death in many countries," he said. "Every day this is delayed, fewer children will be educated and more disease will go untreated."