G7 must act to now drop the debt

Published: 1 November 2005

Washington DC: As G7 finance leaders meet at the IMF and World Bank spring meetings this weekend they must act to cancel 100 percent multilateral debt owed by the poorest countries to lift millions out of poverty, said international agency Oxfam.

Washington DC: As G7 finance leaders meet at the IMF and World Bank spring meetings this weekend they must act to cancel 100 percent multilateral debt owed by the poorest countries to lift millions out of poverty, said international agency Oxfam.

Oxfam is calling on G7 countries to agree to debt cancellation, financed in part by selling some of the IMF’s gold. The IMF’s own report for the meetings shows that selling the gold is feasible and would not hurt the market or gold producing countries. Oxfam believes such a step would allow billions of dollars to be released and spent on education and health.

The G7 finance ministers have themselves promised to act. They pledged in February “to bring forward proposals for agreement” on both World Bank and IMF debt cancellation at these Spring Meetings.

“Since the G7 met in February, another two million people have died due to poverty,” said Oxfam International’s Advocacy Director Bernice Romero. “How long will leaders delay canceling debt and increasing aid?”

"The IMF's own data clearly shows that selling a portion of its gold reserves to cancel poor country's debts is a viable option,” said Oxfam’s Bernice Romero. “The G7 cannot make any more excuses for failing to act.”

For debts owed to the World Bank and regional banks, the US proposals for further debt relief and the UK announcement in 2004 to cancel its share of World Bank debt owed by the poorest countries are major steps. Oxfam urges G7 finance ministers to follow the British example and commit extra funds to cancel their shares of debt owed to the World Bank and regional banks.

Currently, the world’s poorest countries spend more on debt repayments - $100 million a day – than they do on health.

“For the cost of a cup of coffee per person each year in a developed country, one hundred percent of the poorest countries’ debts could be cancelled,” said Bernice Romero, Oxfam International’s Advocacy Director.

Oxfam calculates it would cost just over $3 per person annually in the UK, $2.20 per person in Japan and Germany, $2.10 per Canadian citizen, $1.80 per person in France and just $1.20 per US citizen, to cancel 100% of multilateral debt for 32 of the world’s poorest countries.

At least eleven countries that rely on debt relief to help reduce poverty, including Ghana, Malawi, Uganda and Zambia, continue to spend more every year paying back debt than they do on basic health services. In 2004 Zambia spent $150 million more on servicing debt than it did on educating its children.

NOTES TO EDITORS:

  • Each year, $900 billion is spent on defence globally and wealthy nations spend between $50-60 billion on development aid.
  • Debt relief works: in Tanzania for example, it allowed the Government to scrap primary school fees in 2001 enabling more than two million children to attend school.

IMF GOLD SALES:

  • The IMF holds the largest official reserves of gold in the world after the United States and Germany. This gold only makes up about 2% of the IMF’s total available resources. The IMF is currently holding 100 million ounces of gold, worth over $45 billion but hugely undervalued at $8 billion.
  • If the IMF were to sell just a tenth of its gold (334.48 tons) it would provide enough funding to prevent half a million mothers from dying during childbirth each year ($4 billion). Resources could provide health workers to attend births, purchase vital medicines such as anti-biotics, and pay for transport so pregnant women have access to treatment. Source: US AID
  • The US is currently opposed to using the IMF gold to cancel debt, yet the majority of the G7, including Japan, France, Italy, Canada and the UK all see it as a viable option.
  • An IMF paper (March 30, 2005) positively encourages governments to make better use of their gold reserves, and says this can be done without negatively impacting the market. It finds that gold could be sold to relieve the debt of poor countries, if: this is done through a small amount of phased sales that could be readily accommodated by the market, there is a clear and consistent communication strategy vis-à-vis markets and there is close consultation with other official actors (i.e. the Central Bank Gold Agreement).
  • In 1999, as a response to the Jubilee debt relief campaign, the IMF re-valued a small portion of its gold reserves to kick start the initial Heavily Indebted Poor Countries (HIPC) scheme. Under HIPC world leaders promised to write off $110bn of debt, yet less than $36billion has actually been cancelled.

What they promised: excerpt from G7 Finance Ministers communique Feb 2005

  • “We are agreed on a case-by-case analysis of HIPC countries, based on our willingness to provide as much as 100 per cent multilateral debt relief. To finance the relief of debts owed to the IMF and to enable the Fund to continue to play a role in the poorest countries, the Managing Director has stated that he will bring forward proposals at the Spring Meetings, covering the Fund’s gold and other resources and in an orderly way. For the relief of debts owed to the World Bank and African Development Bank we will work with their management and shareholders to bring forward proposals for agreement at the Spring Meetings to achieve this without reducing the resources available to the poorest countries through these institutions.”

Oxfam is calling for:

  • A ‘millennium financing plan’ that includes as a first step an announcement of 100% cancellation of multilateral debt owed by the poorest countries, financed in part by selling the IMF’s Gold Reserves.
  • As part of this plan, an immediate announcement of $50 billion extra aid annually to reach the Millennium Development Goals. At the same time, all donor countries should set clear timetables to reach the agreed target of 0.7% of GNP spending on overseas development assistance by 2010.

Contact Information

For further information, please call Caroline Green at Oxfam on 1 202 321 7858.