G8 Summit 2005—One Year On

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  • by Anup Shah
  • This Page Created Saturday, July 01, 2006

The 2005 G8 Summit at Gleneagles, Scotland, promised a lot of debt relief, aid and other benefits, particularly for Africa. However, though the media reported a lot on the amazing sounding deals there was much less said on the use of fancy accounting and spin by G8 leaders in their declarations. Due to the 2005 G8 Summit’s prominence and the massive global public pressure at the time, a number of people have asked one year on whether there has been any positive progress.

On this page:

  1. Some limited progress
  2. But many reasons to be concerned about poor progress
  3. Mainstream Media Attention
  4. Are such grand promises by the G8 and others doomed for failure, and is it pointless trying to pressure them to do anything?

Some limited progress

Oxfam, one of the organizations leading the pressure on G8 nations to deliver on various anti-poverty measures feels that there is not enough being done, though there has been some progress.

For example, debt cancellation is already making a difference:

On 6 January 2006, the IMF cancelled the debts owed to it by 19 of the world’s poorest countries. This will change the lives of millions of people. In Ghana the money saved is being used for basic infrastructure, including rural feeder roads, as well as increased expenditure on education and health care. In Tanzania, the government is using the money saved to import vital food supplies for those affected by drought. Across Africa, lifting the burden of debt is allowing millions of dollars to be directed to fighting poverty instead of repaying rich countries.

The view from the summit—Gleneagles G8 one year later 1, Oxfam, June 6, 2006, p.3

Similarly, the UK government’s Department for International Development2, is quite upbeat about progress so far, though these and others are all quick to warn about complacency.

However, some may wonder that surely they would say positive things would they not? After all, highlighting as many positives as possible reduces criticism.

Authors and critics of global foreign aid programs such as economics professor, William Easterly, feel that many of these are large, top-down driven programs which are doomed to fail. In some regards, he is quite convincing. In his book, The White Man’s Burden; Why the West’s Efforts to Aid the Rest have Done So Much Ill and so Little Good (Penguin Press, 2006), Easterly suggests that instead, smaller more targetted steps should be taken, where accountablility is based on results, not in inputs (such as how much debt is cancelled, how much aid is given, etc.) He suggests free markets are the way though he does concede that the shock therapy kind of free market imposition as witnessed in the former Soviet Union is top-down and disastrous (he consulted and promoted such steps with the World Bank before realizing this was not helpful).

However, perhaps Easterly too is being oversimplistic? For example, as Oxfam also notes,

Zambia [is] reaping the benefits of cancelled debts.

The impact of debt cancellation in Zambia will reduce the country’s debt from $7bn to about $500m, releasing vital resources for reducing poverty. Zambia has just released its new budget for 2006, and the share of spending on both health and education has substantially increased. It has also removed fees for basic health care. Extra spending on education will include funds to recruit more than 4,500 teachers, and for the construction and rehabilitation of schools in rural and urban areas. Additional funds are going to HIV/AIDS control and mitigation programmes, primary and community health care, recruitment of medical personnel, and the purchasing of medical equipment and medicines.

The view from the summit—Gleneagles G8 one year later 3, Oxfam, June 6, 2006, p.3

That Zambia was able to provide free health care after debt cancellation suggests that some aspects of top down or aid through governments are important. However, as the OECD warns, when looking at aid in the form of government budget support, it requires political will from the recipient government and only when present, can be successful:

When a developing country’s government has the political will to reduce poverty, budget support can be an effective way for donors to deliver aid. Overall, it has helped to strengthen the relationship between donors and developing country governments, and encouraged better coordination between different donors. It has helped to strengthen planning and budget systems, making them more transparent and therefore accountable. It has also helped to prioritise areas of expenditure that target the poor like health and education.

Should OECD Donors Deliver Aid Through Poor Country Government Budgets?4, OECD, May 9, 2006

Side Note

As an aside, the same OECD evaluation also found that The team of evaluators found no clear evidence that budget support funds were, in practice, more affected by corruption than other forms of aid. This is interesting because many argue aid sent to governments are more likely to be corrupted away. However, the OECD report also warns that that donors should be prepared to better analyse political risks and gauge support for poverty reduction by a government. In some cases, the evaluation found that political risks had been under-estimated by donors. It was also too early to see clear benefits to the poorest in society: While there were increases in expenditure in areas such as health and education, any increase in the incomes of the very poor is not yet evident.

In addition, foreign aid is often criticized when all it does is add to the budgets of governments that are usually over bureaucratic and so is wasteful. The OECD notes that OECD donor countries now channel about US$ 5 billion—some 5 per cent of their aid—directly to the budgets of developing country governments which may not be as high as some get the impression, but furthermore, this system of delivering aid can be an effective way to strengthen the management of public financial systems in developing countries, and has helped to improve access to services like healthcare and education.

Like most studies, cautious optimism is perhaps warranted. The evaluation being referred to is a report, independent of the OECD, called An Evaluation of General Budget Support (1994-2004). It was carried out by the University of Birmingham on behalf of more than thirty donor and partner countries looking at the experience of Burkina Faso, Malawi, Mozambique, Nicaragua, Rwanda, Uganda, and Vietnam. The evaluation notes many recommendations along the lines of being careful, as this is not a panacea and that care must be taken with regards to accountability, political will, ensuring the poorest are effectively targeted, etc.

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But many reasons to be concerned about poor progress

Where pessimism from Easterly seems warranted is because so many recipient governments appear not to have this will, or accountabilty. What Easterly also argues, (and, as he also notes, so do many organizations and aid charities that are critical of rich country government aid/debt relief programs) is that the donors themselves are often unaccountable. What if they do not deliver on their promise? What if they (as has often been the case) knowingly lend to corrupt governments, or sell them arms, or in some way, make things worse? Where is their accountability?

Oxfam is also critical of some of the progress by G8 countries. Noting that after the July 2005 Summit much of the time since has involved intense wrangling over the details by the rich countries. Some rich countries and the World Bank and IMF themselves have made a number of attempts to water down the deal. For example,

  • In order to save money, the World Bank deal now only covers debts up to the end of 2003 [rather 2004, which was initially agreed]; a stroke of the pen costing poor countries $5 billion in debts that will not now be cancelled;
  • Many massively indebted countries still remain excluded from the deal;
  • Countries are still subject to what are generally considered as harmful economic conditions in return for the debt relief;
  • There is no recognition of the illegitimate origins of much of this debt in irresponsible lending such as debt incurred by unelected leaders in the 1980s. For example, the current South African government is paying back billions lent to the former Apartheid regime.
  • Aid delivery contains spin: for example, though there is a pledged increase, this is still only half of what was pledged back in 1970! (The accumulated shortfall in aid in 2003 figures is over $2 Trillion5.)
  • A deal at the 2005 Summit promised increased aid. Although 2005 aid levels did increase accordingly, 80% of that increase is made up of one-off debt cancellation deals for Iraq and Nigeria—it is not actually new money in the fight against poverty. Together these two deals add up to $17 billion of the $21 billion increase.
  • Technical assistance from rich countries is often expensive, and counted as part of the aid. The World Bank calculates that just one day’s consultancy costs can pay a teacher’s salary for a year.

What is the effect of this fancy accounting by rich country governments? Oxfam summarizes:

Debt cancellation for poor countries like Nigeria is important and necessary. The cancellation of debts owed by poor countries to rich ones allows countries to invest in education, health, and other anti-poverty policies, as we have seen.… In addition aid has to be massively increased. However, if rich countries use their aid budgets to pay for this cancelling of debts then in fact no new money is available for poor countries to spend on fighting poverty.

In 2002 at the Monterrey Financing for Development conference, rich countries promised to stop this practice of double counting debt cancellation as aid. Despite the promise the practice continues.

The view from the summit—Gleneagles G8 one year later 6, Oxfam, June 6, 2006, pp. 4-5

It is worth quoting Oxfam again on the examples and dangerous effects of disingenuous double-counting:

In addition to using aid to pay for debt cancellation, rich countries also count the full cost of the cancellation over a very short period. But the savings made by poor countries are spread over a much longer timeframe. This means aid figures are inflated by apparently huge amounts, even when the actual money available to spend fighting poverty is far less. For example, aid figures in 2005 and 2006 will include the full cost of cancelling $18 billion of Nigeria’s $35 billion debt. But the actual saving to Nigeria will be approximately $1 billion annually over the next 20 years. The net result is that despite aid looking as if it has increased enormously in 2005, the actual new money available to fight poverty is much less.… The danger is that this will mask a failure to increase the underlying volume of real aid in line with their Gleneagles commitments [made in 2005], allowing the G8 to take their foot off the accelerator.

The impact of this lack of generosity is that key global initiatives set up to fight poverty cannot find funding. The Education Fast Track Initiative (Education FTI), the Global Fund to fight HIV/AIDS, TB and Malaria and the new UN Central Emergencies Response Fund remain shockingly under-funded.

The overall message on aid is clear: the G8 are failing to deliver the aid increases they have promised; the inflation of figures by debt cancellation masks the paucity of resources on the ground, and this translates into children out of school, people dying needlessly, classes of 100 students per teacher, or 8,000 people to each health worker. Unless the rules are changed, aid figures will again be massively inflated next year due to the second tranche of the deals for Iraq and Nigeria taking effect. The G8 must use its meeting in Russia to change the rules, stop double counting debt cancellation as aid, and agree to cancel the debts of all the countries that need it to fight poverty. G8 countries must also set clear timetables for how they will deliver genuine increases in high-quality long-term aid and meet the promise of giving 0.7 per cent of their income by 2010 at the latest.

The view from the summit—Gleneagles G8 one year later 7, Oxfam, June 6, 2006, pp. 5-6, 8 (Emphasis added)

(This site’s section on foreign aid8 goes into more depth, looking at issues around the aid numbers vs. the aid promises, the quality/effectiveness of aid, and more.)

As Easterly has strongly criticized, given these and other concerns, making poverty history will likely not come from rich country governments, or even publicized concerts by celebrities, though the latter may indeed importantly help raise awareness.

Furthermore, as many argue, trade is equally, if not more important than, aid and debt relief because these latter forms of assistance are short term measures, but trade is the way towards long term prosperity. International policies and forums are typically dominated by the bigger, richer countries, often defending their own interests. This is understandable in some regards, but that is often accompanied by spin about how their preferred measures are beneficial for the poor. A major World Trade Organization meeting in Hong Kong, December 2005, proved to be unsuccessful for developing countries