Finding a way to help the poorest countries

Debt: Industrial nations must find a better development tool than paying interest forever.

June 16, 1999

WHEN the Group of Seven government leaders meet in Cologne, Germany, on Friday, beating back the Asian recession will be the foremost concern, followed by reconstruction in the Balkans.

The $107 billion debt of the 700 million people in the 42 poorest nations will not loom large when the numbers involved in Japan's potential recovery are tossed about. This debt (including $7.8 billion to the International Monetary Fund, $38.6 billion to the World Bank and $6 billion to the United States) is the biggest problem only to the debtors.

Leading creditor nations are reportedly prepared for the IMF to sell off enough gold to provide $2 billion or so in relief. Many creditor governments and banks have written off the loans on their books. Yet under a 1996 plan, nations are struggling to meet IMF standards of rolled-over debt, to pay off loans that were taken from governments and to consolidate earlier loans from commercial banks, which wise financiers encouraged them to incur.

Many countries pay more for debt service than for health and education. But health and education would be the real investment in their productive capacity and their future ability to repay debt and buy products and services from the developed nations.

A worldwide group called Jubilee 2000 has urged that international financial institutions forgive the debt, providing a fresh start. The argument is that this would give a productive boost to development and would recognize that much of the principal will never be repaid anyway.

That course presents problems. One is that other debtor nations, more able to repay, would clamor for equal treatment. The giant of these is Russia, whose situation should not be confused with that of barren little Burkina Faso. Another is that rulers of the 42 countries might use a good credit rating to buy more weapons with which to oppress their people.

Something on the order of a creditors' committee could deal with such problems and set conditions for forgiveness. There is enough merit to selective debt forgiveness, which Professor Jeffrey Sachs of Harvard University and other economists advocate, that the Group of Seven should at least consider it.

Even if the leading industrial and financial powers are not prepared to go all the way, they ought to examine the proposal in detail. And if they don't buy the idea, they ought to be able to explain what is wrong with it.

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