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16.06.2005 Feature Article

Debt Cancellation Raison D'Atre

By GNA
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A GNA Feature by Boakye-Dankwa Boadi

Accra, June 16, GNA - The G-8 spearheaded by the United Kingdom on Saturday June 12 2005 announced the cancellation of the debt owed it by 18 countries to the tune of 40 billion dollars with Ghana's portion standing at 4.1 billion dollars.

The affected debts are those owed to the International Monetary Fund, World Bank and the African Development Bank. Africa's debt currently stands at 300 billion dollars and is still rising.

Other African countries to benefit from the decision are Senegal, Mali, Mauritania, Ethiopia, Uganda, Tanzania, Mozambique and Rwanda. The rest are Zambia, Madagascar, Benin, Burkina Faso and Niger. Nine other countries hope to qualify in the next year- and- a-half bringing the total sum of debt relief to just over 55 billion dollars. The Minister of Finance and Economic Planning, Mr Kwadwo Baah-Wiredu on Monday said the debt relief by the G-8 countries was an opportunity for the Government to increase spending in the major sectors of the economy.

Speaking in an interview with the Ghana News Agency, Mr Baah-Wiredu explained that the debt relief from these multilateral institutions would increase the stock of money available to the country to engender an accelerated pace of development in the years ahead. "What this also means is that we will now have more funds to go round providing for health, education, roads, port development, rail-roads and up-scaling services throughout the country," he said. Mr Baah-Wiredu said Ghana's debt to other multilateral donors such as the Nordic Fund, Arab Bank for Economic Development (BADEA), OPEC Fund, International Fund for International Development, European Development Fund, however, still stood adding, "we must work hard at meeting our payment schedules."

According to the Finance Minister, the relief was for countries already benefiting from Highly Indebted Poor Countries (HIPC) relief since they had consistently met the criteria of effectively fighting corruption and promoting good governance.

The Government has said Ghana would receive HIPC Relief of 3.6 billion dollars spread over a 20-year period.

Mr Baah-Wiredu said Ghana was this month due to be making a number of loan repayments and he was in the process of checking if this money should be paid and how much should be paid considering the news of the debt relief granted by the G-8 countries.

Organizations such as Oxfam, Jubilee 2000 have advocated for the total cancellation of debt the poorest countries owed to the world's richest countries over the years.

The rich countries had not heeded to this call, however, recent overtures of British Prime Minister, Tony Blair under the Africa Commission Project has pointed to either reducing or cancelling the debt owed to the world's rich.

The UK, which would hold the G-8 Presidency in July, aims at increasing development aid to the poorest countries most of which are in Africa.

Addressing a press conference on Tuesday, Mr Baah-Wiredu said the Government was waiting for the "fine details" to know the exact amount that the G-8 nations would forgive Ghana.

The Heads of States of the G-8 countries and the shareholders of the multilateral institutions would meet in July and September this year to come out with full details.

Mr Baah-Wiredu said Ghana's existing debt stock of the institutions such as the International Monetary Fund (IMF) and the World Bank (WB) was about 4.1 billion dollars representing about 80 per cent of Ghana's total debt.

He said at the IMF/WB Annual Meeting in Washington would come out with the modalities for the debt cancellation including the cut-off date would be determined.

On the benefits and implications for the country, Mr Baah-Wiredu said the relief would assist government to channel more funds into the poverty alleviation programmes and projects. It would also help to reduce the pressure on the country's foreign currency obligation due to the reduction on external debt servicing. Economic growth would be stimulated with the adoption of appropriate economic policies designed to facilitate poverty reduction as well as make positive impact on the balance of payment.

He said countries in the first line of debt forgiveness were 18 nations that have reached the Completion Point under the HIPC Initiative, including four Latin American and 14 African countries. Mr Baah-Wiredu said: "We support and accept the offer proposed, we as a nation must see it as a challenge to mobilize more resources to accelerate the pace of development.

"While others continue to support us, we realised that the responsibility for developing our society lies in our own hands." President John Agyekum Kufuor has said the inclusion of Ghana in the 100 per cent debt write-off by the G-8 countries was the reward for her opting for the HIPC Initiative in 2001.

A statement from the Office of the President quoted him as saying: "We opted for the HIPC Initiative in 2001 to allow us breathing space to reorganise our priorities and this is the reward for all." President Kufuor said, however, that the move, which was a feather in the cup of the New Patriotic Party (NPP) Administration, provided inspiration for hard work.

The statement said Ghana's inclusion followed from her successful record time of HIPC completion and eligibility in the United States Marshall Plan dubbed "Millennium Challenge Account" in which Ghana hoped to reap about 290 million dollars annually.

President Kufuor said the dividends of democracy borne out of the pursuance of good governance, investing in the people while establishing economic freedom through prudent economic management, should elicit widespread support for the concept of Ghana incorporated.

While the Government is relishing the windfall, others have called for caution since the G-8 had not yet spelt out the modalities for the debt forgiveness.

The Integrated Social Development Centre (ISODEC) on Wednesday said it welcomed the cancellation of Ghana's debts by the G-8 because it represented yet another victory in the push for total and unconditional debt cancellation.

It is also welcomed the deal "especially given that multilateral debt constituted the largest portion of third world debt", a statement in Accra signed by Betty Wood for Media and Campaigns Coordinator of ISODEC said.

"We recognise that the deal reached during a G-8 Finance Ministers meeting in London on Saturday June 11, constitute an important milestone in the struggle to rid our world of poverty in the run up to the 2015 Millennium Development Goals (MDG) target date", the statement said. It, however, cautioned against complacency as the fight against poverty and the flawed world economic order would persist for some time.

The statement observed that the cancellation of the debt would free resources urgently needed to deal with the country's pressing developmental needs.

However, it said, "we are concerned that without the policy space to determine how we apply these resources, to engineer an increase in domestic production, and access to essential services among other things, the benefit to be accrued would not reach the poor," neither could the sustenance of their livelihood be guaranteed.

The statement said ISODEC believed that if the offer would make any difference in the lives of Ghanaians living in poverty it would depend on the conditions attached to the package and its usage.

The statement said that ISODEC would continue to demand among other things an end to the situation where aid was used as a tool to pry open the economies of poor countries for the dumping of heavily subsidised inferior quality imports to destroy the domestic production base. "We shall also persist in our demand for an end to the use of non-tariff barriers to deny poor countries access to the markets of rich countries," the ISODEC statement said.

One might be wondering why this largess from the world richest nations. Could it be the last kicking of a dying horse? An appeal for the reorganisation of the world financial system was launched in July 2000. Many international leaders, including former Heads of State and Government Trade Unionist, Parliamentarians and Businessmen and Businesswomen endorsed it.

Schiller Institutes Chairwoman, Helga Zepp-LaRouche has recently issued a fresh appeal and the text of her appeal is currently in circulation worldwide. One would wish to share the content, which is reproduced below, to enable readers to make their own judgement.

" The paradigm shift of the last four decades, a period in which the world economy increasingly abandoned manufacturing and gave itself over untrammelled speculation, now draws to an end.

"The world financial system is about to implode. Hanging over a gross production worldwide of a mere 40 trillion dollars and the accumulated physical capital, is a gigantic bubble umpteen times that size - 2,000 trillion dollars worth of financial turnover. "The impending bankruptcy of General Motors and potentially, of the entire U.S. automobile industry, is but one of many factors that could well lead to the collapse of the U.S. dollar, and thereby, that of the entire financial system.

"To prevent the world's people from suffering the untold harm that the breakdown of the system would unleash, we the undersigned demand that an emergency conference be convened, to agree upon a new financial architecture along the lines of the Bretton Woods System launched at Franklin D. Roosevelt's initiative in 1944.

"We stress that Lyndon LaRouche is the economist, who has best grasped the causes of the systemic crisis, and who has, moreover, put forward a package of measures that would adequately deal with it: a New Bretton Woods agreement.

" We the undersigned further stress that the Italian Chamber of Deputies has taken up LaRouche's proposal, and on April 6, 2005, voted up a Resolution calling for "an international conference at Heads of State level, in order to lay the basis for a new and just world monetary and financial system."

"The following measures must be implemented if we are to alter the mistaken course that we have followed since President Nixon did away with fixed exchange rates in 1971, a course that has led to the present upsurge of a grotesque and predatory form of capitalism, thanks to unchecked "globalisation," after the fall of the U.S.S.R. The new Bretton Woods Conference shall decide as follows.

1 There shall immediately be re-established fixed exchange rates.

2. A treaty shall be enacted between governments, forbidding speculation in derivative products.

3. The debt shall either be cancelled or re-organized.

4. Fresh credit lines shall be opened by the State, to create full employment by investing in critical infrastructure and technological innovation.

5. The building of the Eurasian Land-Bridge, as the keystone for rebuilding the world economy, is the vision that will bring about not only a new "Wirtschaftswunder," (economic miracle) but peace in the 21st Century.

6. A new Peace of Westphalia will ensure that for no less than the coming half -century, raw materials shall be extracted and processed for the benefit of every nation on this planet.

"We the undersigned believe that so-called "globalisation," this predatory form of capitalism, has shown itself beyond all doubt to be bankrupt on every front, whether economic, financial, or moral. " It is Man, who must stand at the centre of the economy, and accordingly, the economy must serve the common weal. The purpose of a new world economic order is to guarantee the inalienable rights of Man."

The world financial system has been built on inequities and any system that is unjust cannot endure. Some of the inequities that come readily to mind include the payment of subsidies to farmers in the rich countries while governments of the poor countries are coerced into removing subsidies on agricultural inputs for their farmers.

Let us look at a classical scenario. An entrepreneur in a poor country imports timber-extracting equipment from a rich country, with a credit line offered by a financial institution in the rich country. By computation, the equipment should be able to extract 100 tonnes of timber to be exported to the rich country to pay for the cost and allow the entrepreneur in the poor country some margin of profit. However, the equipment breaks down after extracting only 80 tonnes of timber. Instead of the supplier of the equipment taking responsibility for manufacturing inefficient equipment, the entrepreneur in the poor country is held responsible and is expected to pay up the credit in full.

Indeed our elders had over the years been sceptical about the economic relationships between Europe and Africa and this has been captured in some of their wise sayings: "Asiserape ne nomaa nomaa agro ye ebye agro pa ni?" Literally meaning: "Could the game that birds play with the termites that fly out after the first rains be a fair game? No matter the angle one looks at the world economic system, it has been skewed too much to the advantage of the people in the rich countries. It is estimated that for every 100 dollars spent on a child in a rich country about 50 cent is spent on a child in a poor country.

The world economic system has developed systemic entropy and no matter how the Leaders of the G-8 tried, the system is doomed to fail. The gangrenous limb of the world economic system - the poor countries - has infected the whole body.

Does the refusal of the French and the Dutch electorate to approve the European Union Constitution portend any danger? Would the Leaders use the Parliaments of their countries to ratify the Constitution and thereby establish an autocratic world power over and above the heads and wishes of the electorate?

An unjust system cannot stand the test of time since the building blocks of the universe is goodness. May those who are spiritually inclined look at Daniel 2:36 to Daniel 2:46 in the Bible. 16 June 05

GNA
GNA, © 2005

The author has 219 publications published on Modern Ghana. Column Page: GNA

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