Germany's helping hand:  Personal View by Gerhard Schroder:
The G8 should embrace a radical plan of debt forgiveness if the  world's poorest countries are to have a fresh start.

Financial Times (London), January 21, 1999, Thursday, London Edition, Pg. 18

    On the eve of the 21st century, we are faced with the task of using the opportunities of globalisation to create sustainable growth, socially equitable and ecologically responsible development. This is vital for the economically less developed countries.

    We are currently focusing on overcoming the economic, monetary and financial crises in some Asian countries, in Russia and in Brazil. Given the urgency of their problems, that is understandable. However, we must remember that even 17 years after the international debt crisis emerged in 1982, it is still the poorest countries whose high burden of debt service is the heaviest encumbrance on sustainable economic development.

    Although the international community has made several attempts to make debt problems more bearable during the past few years, it is clear that without a radical debt reduction in many of the poorest countries there is no hope of bringing about a fresh start. There is also little chance of making sustainable and significant improvements in living standards.

    Against this background the German government has announced an initiative on overcoming the debt problems of the poorest developing countries.

    In cooperation with the World Bank and the International Monetary Fund, a new, enlarged range of instruments has already been created in the form of the debt initiative for Heavily Indebted Poor Countries (HIPC). This aims to find a lasting solution to these countries' debt problems.

    The strategy is based on the approach that debt relief by donors is linked to economic recovery and reform measures by debtors. Structural and social reforms aimed, for instance, at developing primary health care and an efficient education system - as well as the necessary micro and macro-economic adjustments - are crucial elements of the initiative. Following these principles, a considerable reduction in the debt burden has already been achieved in seven countries that have so far received commitments on debt relief of about $ 3 billion.

    Our task now is to enhance this instrument in close co-operation with the World Bank and the IMF. The heads of state and government of the Group of Eight countries (G8) - at a summit due to be held in

    Cologne in June - should send a clear message of support for the poorest countries. With the Cologne debt initiative, the German government wants to invite its partners to lend their support.

    The initiative is aimed first and foremost at intensifying and accelerating the implementation of HIPC. Our aim is to enable as many countries as possible to make the necessary adjustments and receive debt relief quickly and comprehensively.

    To this end the German government is proposing the following steps:

• To speed up the debt relief process in which all countries entitled to take part can ascertain the extent and date of their debt relief by 2000. This shall apply to those counties that observe the principles of the welfare state and the rule of law and are carrying out reform programmes in collaboration with the IMF and the World Bank. Thus we can foster conditions for sustainable development geared to fighting poverty and inequality. The existing framework in determining the need for relief should, of course, be used to its fullest extent. For some counties confronted with particularly difficult problems, however, this might not be enough. In exceptional cases, therefore, the Paris Club should consider total cancellation of commercial credits and loans.
  
• Using multilaterally co-ordinated procedures, we propose binding and complete cancellation of debts from development assistance in the Paris Club for countries that qualify under HIPC. The debtor countries should use funds released in this way for projects which foster sustainable development geared to combat poverty and inequality, and which take account of basic legal and social principles.
  
• In order to safeguard the share of multilateral creditors in the HIPC initiative, the German government will make a contribution towards the World Bank's HIPC Trust in 1999. The IMF should also be enabled to make its contribution towards the HIPC without compromising its support to the poorest countries. The German government is therefore prepared to make available funds to help continue the Fund's so-called "enhanced structural adjustment facility" (through which the IMF assists its poorest members).

    However, all attempts to bring about a sustainable improvement in the living standards of people in the poorest countries through debt relief or financial assistance will fail if they come up against an unstable political environment marked by armed conflicts. Every debt relief initiative must therefore be embedded in a comprehensive strategy for conflict prevention. At my request, the G8 summit in Cologne is to consider this issue in depth.

    Elements of a crisis prevention strategy could include early international co-ordination talks based on early warnings. They could also include support for developing countries, for countries in transition and for regional organisations in their own efforts to improve early recognition of (and reaction to) crises and disasters.

    In view of the high cost and human suffering caused by armed conflicts in the poorest countries, funds made available for a successful strategy aimed at crisis prevention represent an investment that will create a high stability dividend.