TOPICS : British ‘Marshall Plan’ faces US scepticism

Mark Rice-Oxley:

Britain’s lofty ambition to turn 2005 into a breakthrough year for tackling global poverty has cleared the first hurdle, but development experts are unsure if it will prove a turning point.

Last weekend’s agreement in principle by the G-7, the group of seven countries to write off up to 100 per cent of debts owed by dozens of poor countries kick-started the British-inspired “Marshall Plan” for the developing world. But economists and charities warn of formidable challenges to truly transforming the relationship between rich and poor. They also note that the world’s foremost financial power, the US, appears sceptical of some of the British initiatives.

Debt-relief campaigners have for years argued that the heavy burden of repayments was stunting growth and exacerbating health, education and development problems in poor countries. Many countries still devote more resources to paying off loans to rich countries and international institutions than they do on healthcare. But simply forgiving debt is not that straightforward, experts say. Western governments want to know that the money they are releasing will go toward poverty relief and not be spent on presidential palaces and fighter planes. They also need to know that their domestic public is prepared to pay. Loans given by institutions like the World Bank originate in national treasuries, which are underwritten by taxpayers. Oliver Morrissey, professor of development economics at Nottingham University, says donors have gone a long way toward making relief more acceptable.

The G-7 agreement trumpeted by British Chancellor Gordon Brown calls for a case-by-case analysis of poor countries. Some who meet criteria for good governance and economic reform, like Ethiopia, Mozambique, and Uganda, stand to cash in. Others ruined by conflict and corruption, like Sudan and Somalia, may not. Then there are budget pressures. Britain estimates that its contribution to the debt-relief plan will cost as much as £128 million a year by 2015.

Three years ago, rich countries agreed to spend 0.7 per cent of GDP on aid to poor countries. Simply doing this would raise sufficient funds to enable the debt burden to be written off, while also allowing for dramatic increases in aid. Yet the target remains distant. On average, rich countries spend just 0.25 per cent, with the US currently below the 0.2 per cent mark. Some of the British ideas concern the US, particularly a plan to double aid contributions to $100 billion a year by issuing bonds, which would, in essence, drum up tomorrow’s aid money today. US Treasury Under-secretary John Taylor said the idea “does not work for the US.”

Beyond the issues of debt and aid lies another factor: is trade. UN figures show that trade restrictions cost poor countries billions of dollars yearly. Tariffs, subsidies, and other barriers make it extremely difficult for poor countries to generate their own wealth by building sustainable industries based on exports, experts say. “The manufacturing sector is one area where the terms of trade can have an impact, and currently they inhibit developing countries from being able to add value to natural resources,” says Richard Tarasofsky, an expert at the Royal Institute for International Affairs in London. — The Christian Science Monitor