Transcript
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M: I'd like to welcome everyone to this panel discussion on international debt, and I'd like you all to know that we will be taping the proceedings, and for those of you who would like a printed copy of Bishop's remarks, I could make that available to you later. I'm first going to introduce Bishop James Ottley, and in due
course, I will also introduce our two respondents; Gerry Flood from the U.S. Catholic Bishops Conference, and Tony Gaeta from the World Bank. And I'm appreciative of all three of you being willing to participate in this panel discussion. James Ottley, until 1994, was the Episcopal Bishop
of Panama. And in 1994, he was named Anglican Observer to the United Nations. He studied business and psychology at the University of Panama, and received a master's degree in clinical psychology at the Caribbean Center for Advanced Studies in Puerto Rico. He received his Masters of Divinity from the Episcopal Seminary of the Caribbean, and has done further theological study at Virginia Theological Seminary, and Episcopal Theological
Seminary of the Southwest, in Austin, Texas. He is the author of "Making Sense of Things," "Somos Anglicanos," and "By Word Indeed." He is one of the foremost spokespeople on this subject in the Anglican Communion with people like Desmond Tutu, Njongonkulu Ndungane. We welcome you and we're grateful for your participation, Bishop.
OTTLEY: Thank you very much, Brian. I'm going to sit, since we're not many. Originally I thought I would stand and use the podium, so if this is all right with you, this is the way I would prefer to proceed. My first words must be words of thanks to Princeton Theological Seminary, and to World Vision for inviting me to comment and participate and share my reflection on the international debt crisis.
Globalization and the economic and political forces established with it a dramatic change to the world in which we live in. Despite progress and technological advance meant in signs of economic growth, in certain places poverty and underdevelopment continue to limit the bounds of human potential. A question of poverty, has been discussed at many times in many places,
however, people still seem to be unaware of the breadth and magnitude of this problem. In this regard, it is important to note the following facts, and I'm sure you probably have heard them before, but about 1.5 billion live in absolute poverty in the world. Most of these people go hungry every day, 70 percent of these are women and children. More than half the world, half the people on this planet, earn less
than two dollars a day; that is more than three billion people. U.N.D. peace statistics indicated approximately 1.75 billion people lack safe drinking water, and 100 million people in our world today are homeless. About eight million go hungry every day, and there are approximately 150 million who are undernourished. I say this because these are alarming statistics, which reveal
how much further we need to go to make this a truly better place for all of the people of God. The fourth chapter of the Gospel according to St. Luke, Jesus put the good news to the poor at the top of his coming out message. When the question was put to Him as to whether He was the one who is to come, or do we wait for another, Jesus responded, "Tell John what you have seen and heard, how the blind recover their sight, the lame
walk, the lepers are made clean, the deaf hear, the dead are raised to life, the poor hearing the good news." It is significant that in these instances, that another of Jesus' responses was one of compassion to the spiritual physical and economic needs of those around Him. When the disciples are (inaudible) because the multitude that followed Jesus were without food, Jesus' response was not one of panic, but rather make the people sit down.
Their needs were attended to in such a fashion that there were leftovers, even for others. God created the world, that the world is good, which means that all of creation is good and all of creation, including its people, must equally benefit from God's generosity. As God's people, we are called to use our minds, our hands to make this world a place that lifts up the dignity and value of all people. The secretary general of the United Nation,
Mr. Kofi Annan, in an address at the World's Bank conference in Toronto on June 22nd, 1998, said, "We are all here because we believe poverty to be intolerable in a world of plenty. And we are all here because we are convinced, indeed we know, that this poverty can be ended in our lifetime with our hands and with our minds." On another occasion, he said, "So long as every fifth inhabitant of our planet lives in absolute poverty,
there is no real stability in the world." (inaudible) [Gustavo Batres?] has also said, "The question for us in the twentieth century is, how do you say to the poor that God loves them? God loves you." This continued to be a valid question when we observe the widened gap between the rich and the poor of the world. Recently I heard a story of a woman, who we'll call Barbara, and Barbara is a 50-year-old grandmother who lives in a
two-and-one-half-room basement apartment with her pregnant daughter, Charlene, and their three young children. Determined to provide stable home for her grandchildren, Barbara carefully managed to feed, clothe and teach discipline and love them in spite of enormous odds. She does this even through drug trafficking, even though drug trafficking and related violence are rampant in her neighborhood. The reasons for Barbara's problem are many, among them are lack of education,
employment opportunities, healthcare and community support. But the boomerang effect of the Third World debt crisis have aggravated our situation. The negative effects of reduced social spending and the limited job creation have perpetuated conditions of poverty for many people, even in this country. Many countries with purchasing power directed toward acquiring goods made in the U.S. and other parts of the world are now directing their spending towards servicing
the debt service. As members of a global community, which is increasingly interdependent, the crisis that disrupts the economies of trading partners equally affect the economies here and also elsewhere; Asia, Mexico, the Pacific are recent examples. The point I'm trying to make here is that the problem of the international debt crisis has become a global problem. Just yesterday, a man,
as I entered into one of the [halls that's building?], a man approached me and he said to me, "Are you going to speak about Russia and are you going to speak about the United States?" I said, "In a sense, I'm going to speak about us all. But definitely I'm not going to say anything directly about Russia." As more money is spent in the debt service, less money is spent in the countries and social and human service programs, which contribute to the total development of the whole person.
How do you say to the poor with these types of statistics that God loves them, that God loves me? The poor and working people throughout the world have suffered the most. A child born in Tanzania today inherits a $250 debt burden. The Tanzania debt is not renounceable; thus all citizens, even though yet unborn, inherits a tremendous debt. Most of these persons
have little to do with that burden that have been imposed upon them. Most African countries have repaid their loans or debts, or they're still paying in compound interest from the past. Over 120 million people were or are officially unemployed, and many more are underemployed. It should be noted that more women than men live in absolute poverty, and millions of people are refugees that have become international displaced persons.
This creates difficulty in terms of stability for their own country, as well as their host country. You see, we must recognize that most -- that some of the political and economical [violence?] which we experience in our world has a spiral effect, which is exasperated by the debt crisis. For the sake of the children and all humankind, I think it is critically imperative that we seek ways to end poverty and hunger, and that
we fight unemployment, underemployment, war, conflict and violence, racism, sexism and discrimination, repression, oppression and human rights violations and environmental degradation. At the center of this, I believe, is the international debt crisis. Recently I attended a meeting sponsored by the World Bank, in which Mr. Alfredo Sfeir Younis, the bank representative of the United Nations, stated that the key issues presently for the bank are the eradication of poverty,
the environmental sustainability, financial development, the negative impact of globalization, value and here we said stressing what we believe, referring to the United States, as how we as a society should move forward. He continued to say the present situation of poverty is intolerable, and must be changed. The bishop of the Anglican Communion meeting in Lambeth
on August 4th in 1998, in reference with international debt and economic justice says, "We believe that God created a good world for all persons. It is a world in which we are bound together in a common humanity, formed in God's image, and in which each person has equal dignity and value. With immensurable generosity, God has given bountiful resources for all of us to share. We are responsible to hold God's gifts in trust
for one another, seeking the good for wrong." This is a very important statement, for it lifts up and raises a generosity of God and the gifts of God to the world, a world where people of diverse cultures, wherein all are embraced by God's love, as a world where God, therefore, calls us, our minds and our hands, to be used for the benefit of all, so that everywhere, the people of the world enjoy the benefits of all of God's
creation. If this is to be a better world, then we must respond to the needs of the poor. We must press for the eradication of poverty, and this must be at the top of our list. At this point it might be necessary to refresh our mind concerning the how of the international debt crisis. You will, no doubt, remember that in 1997, '98 there was a debt crisis of credit over supply. And here is how some of the members of the subsection of the international debt crisis
of Lambeth referred to that in a letter written to Mr. James Wolfensohn, President of the bank. The crisis arose from the accumulation of large surpluses by the oil-producing countries, which the bank to which they were entrusted could not handle within the then existing lending system. According to Professor [Thurwald?], professor of Economics of the University of Kent at Canterbury, a consequent plummeting of interest
rates threatened to bring on a banking collapse, which would, in his view, have been quite as severe as that of 1921. The crisis was overcome first by adopting a newly-elaborated system for banks, so syndicate in order to be able to make sovereign loans, and secondly by a campaign encouraged by the bank and the fund to offload the surpluses in loans to countries developing funds, attracted by the very low interest
rates then prevailing. The primary motive at the time was not to foster development, but to get rid of surpluses. And though many of the loans were carefully placed and wisely used was by no means the rule, some lenders did little to ensure that the borrowers would, if conditions changed, be able to service their loan. There were no standards, provision ensuring that the projects receiving major loans
would contain a revenue-earning component. Professor Thurwald points out that the whole world financial system and its structures benefitted from virtually consequences of credit over supply. He considered that equal benefits should be equal sharing of the cost, but in this example, the major cost was borne, and is borne, by the borrowers. Admittedly, where banks had to make substantial
provision for bad debt, many small investors, particularly mutual funds in the U.S., took losses under investment, as you are aware, as they did later in a small bank and saving crisis. But their losses, though painful, are not of an order to be compared with a total loss of subsistence, suffered by millions in the borrowing country who, in any case, had no part in the decision to take the loan. A situation such as described
cannot be laid at the doors of any of the presidents of the bank, nor of their colleagues. But here is an issue of justice in which the bank and the fund are involved, which are to be taken into account in dealing with the debt crisis. So far as can be discovered from available evidence, that has not happened. Also contributing to the crisis above was the fact that loans were made without proper supervision. Some borrowers who were corrupt used loans
that were intended for humanitarian needs, for their own personal and military purposes. Prices fell and interest rates increased, despite the fact that the projection were in favor of the reverse. Now, the bishops at the Lambeth Conference took very serious the international debt crisis, and thus passed a very lengthy resolution touching the issue of the eradication of poverty, recognizing the work that had been done by the political leaders, finance
ministers, church leaders and people of creditor nations, NGOs and said the following: Recognizing the importance and the urgency of the issue of international debt and economic justice, this conference adopts the following statement, whose excerpts I would like to share with you. "We see the issue of the international debt and economic justice in the life of our belief in creation. God has created a world in which we are bound together in a common humanity
in which each person has equal dignity and value. God has generously given to the nations immense resources which are to be held in trust and used for the well-being of all, and also offered us in Christ, Jesus, (inaudible) from all that destroy healthy human life, a pattern of giving which God desires all to follow." And I'll continue. "Mindful of the work done by the political
leaders, finance minister, church leaders and people of the creditor nation, we welcome the framework provided by the historic heavily-indebted poorest countries of 1996. We particularly welcome the approach of bringing all creditors together to agree upon debt relief, and the emphasis on debt (inaudible) participation. We welcome unilateral initiatives taken by governments and international finance institutions to
strengthen the capacity of debtor's nation to manage debt portfolios and to cooperate together. We welcome the commitment by leaders of the eighth most powerful economies in Birmingham of May 1998, to consider withholding future taxpayer subsidy loans intended for arms sale and other unproductive purposes. And while recognizing these achievements, we wish to assert that these measures do not yet provide
sufficient release for the hundreds of millions of people whose governments are diverting scarce resources away from health, education and [sanitation?]. We have heard and understood the point of view that poverty reduction is more important that debt cancellation; nevertheless, we conclude that the substantial debt relief, including consolation of unpayable debts of the poorest nation, under an independent fear and transparent process
is a necessary while not sufficient precondition for freeing these nations and their people from the hopeless downward spiral of poverty. Because indebted nations lose their autonomy to international creditor, debt cancellation is also a necessary step if these governments are to be given the dignity, autonomy and independence essential to the growth and development of democracy. The
need for debt relief for the poorest nation is urgent; children are dying and societies are unravelling under the burden of death. We call for negotiation to be speeded up so that the poorest nation may benefit from such cancellation by the birth of the new millennium. The imagination of many, rich and poor alike, has been gripped by the task of this call. This response can be harnessed
for the cause of the development." And it goes on to talk of the call and people of creditors nations, I'll just say a few of these, to deduce measures that will make debtor's nation to be trade fairly with creditor nation. Fair trade would allow debtor nation to develop their economic domestic economies. This, in turn, would allow them to pay their debt which remain, and to take their rightful place in the community of nation.
And they call upon political leaders, finance ministers and corporate executive tradition and ruler, religious leader and the people of debtor nation to accept independent fear and transparent procedures for agreeing about debt relief, to adopt much greater transparency and accountability to the process of accepting and agreeing on new loans, to adopt measures for disciplining elected and paid government official
who corruptly divert public funds, and also to provide for sanction against private sector persons and body who act corruptively. You also call in political leaders and finance minister in both creditor and debtor nation to develop in a spirit of partnership a new, independent, open and transparent forum for negotiation, and agreement of debt relief for highly-indebted nations. In particular, we call on all of
them to cooperate with the United Nation in establishment to a mediation counsel whose purpose would be to respond to appeals from debtor nation unable to service their debt, except at the great human costs, to identify those debtor odious, and therefore not to be considered as debt, to assess independently and fear that the assets of liability of indebted nations to hold to account those in authority in borrowing countries and
for the way in which loans are being spent, to hold to account those in authority in borrowing countries for the way in which loans have been spent. To hold to account those in authority lending nation to the nature for their lending decision, to the [man?] repayment of public funds corrupted diverted to private accounts, to ensure through public monitoring and evaluation that any additional resources made available from debt relief
are allocated to projects that genuinely benefit the poor. Then the bishops finally say, "We commit ourselves to supporting the objective outlined above, in the countries in which we live, whether they are debtor nation or creditor nations. We will seek also to highlight the moral and theological implications, mindful of the wisdom held within our faith tradition. We shall work with them as we are able to examine the
issue of credit and debt, and the nature of the economy. Furthermore, we call upon the members of the Anglican Communion to cooperate with other people of faith in programs of education and advocacy within our diocese, so that we may help to raise public awareness of these vital economic issues that impact so deeply in the daily lives of the poor. And finally, we call on all the primates to challenge their diocese to fund international development programs
recognized by province at level of seven percent of annual total (inaudible) and income." The bishops didn't feel that they could actually call on countries to do that, if they weren't themselves willing to pick up the call and to respond in a level of equal importance. The Lambeth Conference has demanded action on international debt and economic justice, not only from governments and banks, but also from churches.
the resolution and final report on the debt asked bishop to challenge their diocese, taking money from their own budgets to help pay for international development, and to cooperate with other faiths in advocacy program. It asked the church commitment to support a series of requests to both creditors and debtors nation, government, including the mediation council, which would include developing nations. The issue of the international debt crisis
has brought us to a very crucial place in our lives; we're now being forced to examine our values, our leadership, our leaders and leadership. It has caused us to realize that we are indeed our sisters, our brothers' keeper. Mutuality and interdependence is a must if we are to live in a world where we are all to be respected, where the dignity, worth and value of all God's creation must be celebrated.
The story is told of a banquet that was called on one occasion; it's a parable where the banquet was called on one occasion with a number of people to come to the banquet, and apparently billions of people came, and they sat around a very large table. But under that table there were some other people, and the people who were under the table were only able to glimpse the light that came through the cracks of the table. What was
even more disturbing about this parable, that the people who were under the table were only from time to time able to eat the crumbs that fell from the table. Probably even more disturbing for me about this parable, every now and then, one of the persons who were under the table were lifted from under the table and put to sit with those around the table. And as time went by, that person who was lifted from under the table to sit with those who were around the table forgot the people who were sitting, who were under the table. And then one day a man came.
And as He came through the door, the people who are seated around the table ran to Him to give him a privileged seat around the table, and instead of sitting with those around the table, He went and sat with those under the table, and they break bread, and they will rejoice. And I always said as I read that parable, if the parable ends there, it would be a very tragic parable. And I don't know how it happened, but somehow the people who were under table
were able to join with those around the table. And indeed, there was a feast. If the world is to be a better place, and all of the people of God, in terms of the debt, in terms of poverty, let's work together towards the nation of the poverty that affects us all. Peace will come when we do what is right and good. Peace will come when we act justly, love and walk faithfully
with our God, according to Micah 6, when nations put away their machines of war, when nations beat their swords and their spears into rakes and shovels, when nations decide not to lift up their swords against nation, nor even again be training for -- never nor ever again be training for war, peace will come according to Isaiah 2-4. Peace will come when we use our minds or hearts and hands to eradicate
poverty in this world, so that the gifts of God's creation may be enjoyed by all. Thank you.
M: I would next like to introduce Tony Gaeta. He's an officer in the External Affairs Department of the World Bank, working on governance, human rights and debt issues. He is the principal author of the 1998 report, "Development in Human Rights, the Role of the World Bank." Mr. Gaeta joined the department in 1995 as a manager for international trade policy. A member of the Corruption Action Plan working group, he later
contributed to the development of the bank's report on anti-corruption policies. Prior to joining the bank, Mr. Gaeta was director of research planning at the Center for Strategic and International Studies, a Washington based policy institute. While at CSIS, he published and commented widely on European economic and political affairs, and contributed to a chapter on the Role of Religious Intervention in Post-World War II Franco-German
Reconciliation, and the book, Religion, The Missing Dimension of Statecraft. He remains an adjunct fellow with the Center. Tony received his JD with a concentration in International Law from American University, where he also earned an MA in International Economic Policy. He graduated with honors from St. Lawrence University, receiving his BA in literature and government. Thanks, Tony,
for coming today.
GAETA: Let me first say what an honor it is to be here, and to speak alongside Bishop Ottley, and to say how not extraordinary it is for the World Bank to be represented a forum like this. We all know the work Mr. Wolfensohn has done with Lambeth and meeting with the leaders of all the principle religions of the world to discuss issues of debt, but much wider than debt; issues of the future direction of a global economy
and how we build a global economy that reaches out to those who aren't represented at the tables in finance ministries, or in Wall Street, or in London, or so on. So it is a -- you know, a few years seemed extraordinary, but now it's run of the mill. Just on Thursday, we did a -- I was privileged to be with another group at the Virginia Theological Seminary to discuss debt and global economic integration. So it's
a great sign. I guess one of the things I liked about Thursday is we had plenty of time for discussion from the floor, and more of an exchange, so I will be definitely brief. Bishop Ottley referred to the highly-indebted poor country initiative, which was agreed to with the IMF and the rest of the international community two years ago at our annual meetings in 1996. And what is --
the point of the HIPC initiative, they call it, is that it brings together for the first time in the whole sort of traumatic history of developing country debt all strains of debt; commercial debt, bilateral debt and multilateral debt. It's the first time that they announced the community put everything on the table, looked at who owes what to whom, how it can be paid for
so that we ended sort of once and for all the endless rescheduling process that put developing countries in a really bad position, because it diverted an enormous amount of attention and didn't seem to get anywhere. We know that before 1996, the debt situation wasn't getting any better. In fact, over the last 10 years, it's only gotten worse, the $2 billion increase in Third World,
in HIPC country debt just in the last 10 years. So that signal is important, and it's also important to recognize that at a time where everybody's talking about global financial crises and new economic architecture, and better surveillance of financial flows, that the World Bank and others have not forgotten about the suffering that Bishop Ottley referred to in Africa particularly, and
highly-indebted poor countries in general. Just a brief word about some of the progress that they -- there are 40 highly indebted poor countries that the world community has identified as sort of being eligible for debt relief under this program. In two years, 10 country cases have been identified. And already six billion dollars of debt has been identified for
those countries. We expect to move about 19 or 20 countries into to have been considered under the initiative by the year 2000, so by the end of the year 2000. This is enormous progress. I mean, there's a perception out there, the HIPC, to the extent that you're following this, that this initiative was a great idea, it was a great advancement for the world community to identify the problems
and what needed to be done, but it's going too slow and somehow that once the relief is made available, it's not enough. I don't want to get into numbers, but just to give an example, Bolivia, for instance, which reached its completion point, which means it had gone through a period of economic reform programs in conjunction with the World Bank and IMF
is being granted 760 million in debt relief. It reduces the -- one of the criteria -- it reduces its debt to export ratios, about from 350 percent to 218 percent, which is an enormous advancement in their ability to sustain their debt payments. In Mali, it's reduced its debt servicing
from about 250 million to 128 million, and the numbers are similar for many of the other countries. Ultimately, what the plan does, and what we're all trying to do as an international community, is in a realistic, pragmatic fashion, identify the amount of money that the international community is going to make available in a pot to reduce the debt that's out there, alongside development assistance
that is becoming increasingly scarce for all the rest of the countries in the world that desperately need development assistance. So we have identified this amount of money, and thankfully through the pushing and the urging and the interaction of civil society in general, but particularly in church groups, that pot of money has grown by two billion dollars over the last couple of years. So once this amount
of money has been identified, and we identify the need on the other hand of the 40 countries, we try to come up with a formula that says for a country -- the idea is debt sustainability, for a country to work its way out of debt, which means economic growth, but also within a context of social spending, primary health and education spending is the bottom line. We have come up with a formula
that many people disagree with on both sides; some people think the criteria that has been developed that we call what makes a country sustainable is too harsh, and it doesn't allow enough money for education spending and health spending and other incredibly important areas of social development. Others believe that there's moral hazard arguments, and many people argue that debt relief in and of itself is a bad thing because it reduces
the kind of discipline of countries that they need to have. I mean, it's always been our feeling that we face a lot more important moral hazards by not doing what needs to be done than by any kind of moral hazards by trying to extend as much generosity within a framework that we think countries will be able to grow and make the kind of commitments to the important down payments on poverty reduction and social development that need to be done. So
the debate -- I guess in a good way, the debate now is over numbers, and it's over ratios and it's over sort of how do we get this thing to be better, which is a much better ground to be on than where we were a few years ago, that this was impossible, that countries that have gotten themselves into debt have done so because they don't know how to manage their money, and they're spending too much on military spending, or they're spending too much on -- too much of it is going out of the country, all of which is true. I mean, nobody
who is involved in the HIPC initiative, certainly from the World Bank but I believe everywhere, contends that there were no bad lending. There is lots of bad lending. But at the end of the day, we're faced with a situation where there is a finite amount of money that creditor nations have agreed to make available to address this incredibly important
but still a discreet part of the whole poverty pie. And we are working as well as we can to see what we can do with that amount of money to move countries into position where they're growing and they're addressing the poverty needs that haven't been addressed as well as they should, while making sure that we're addressing other needs of development in other parts of the world. So I would say
last comment, and I'm looking here at a set of notes that Mr. Wolfensohn made last week when he spoke at Seton Hall at a similar conference, he said that the role of the church and of activists is key. He makes it very clear that we're constrained, you know, the World Bank is essentially a credit union, you know, loans that aren't paid back affect
its ability to extend loans to other countries that don't have debt problems or countries who do have debt problems, but for a number of other reasons, we're trying to manage this pot of money as well as we can. We know that the HIPC initiative is here in the first place because of pressure put on politicians, and by finance ministries and by multilateral institutions. We know that these funny ratios that we've decided on that work
are where they are, and are much better than they would be otherwise because of that pressure. And we know that we'll get -- that there's more room to get better and more room to improve by continued pressure being put on governments and on us. So rather than whatever the perception is that the bank, or the IMF, or any other multilateral development banks resist or resent the kind of pressure
that's put on them, in fact, it's just the opposite. We know it's the only way for this to improve, and it's the only way for Jim Wolfensohn and others to get the message out that poverty reduction is the goal of the institution, we are involved in a lot of other financial reform and banking reform and corporate governance series -- all that is -- that's all part and parcel of poverty reduction. It certain never comes
before it. So again, I'm grateful for this opportunity, and I hope that we can have some time to discuss it further.
M: Thank you. Our second respondent is Gerry Flood, a graduate of the University of Pennsylvania Law School. After a clerkship with the federal judge for the southern district of New York, he practiced law for three years at Dechert, Price and Rhodes in Philadelphia. He left private law practice to work for USAID in its Latin America bureau, spent three and a half years in the aid mission in Peru,
thereafter went to work for the World Bank as an operations officer. During 26 years at the bank, worked mostly as division chief for various country operations divisions in Latin American and Caribbean region, as well as Asia. Was also division chief for industrial development and finance in Latin America and the Caribbean, and his final assignment was resident representative in Nigeria. After retirement from the bank in 1995,
he did consulting work for the International Aid Office of the Salesians of Don Bosco. Since mid-1996, he has been working with the Office of International Justice with Peace at the U.S. Catholic Conference. With the USCC, he has worked on international trade and other economic issues, and on the problem of international debt of poor countries. Thank you, Gerry.
FLOOD: Thanks, Brian. If you don't mind, I'll stand. At least that way, you may fall asleep, but I won't. And I've found that it's common in these responses to issue disclaimers, so I think I shall, although I guess it's already there in what Brian said, and that is, I'm not an ethicist, I'm not an academic of any kind. I'm a development practitioner who, for the last two years, has been exposed to the United States, well, Catholic social teaching
in the United States Catholic Conference. And hopefully some of it has rubbed off. Respondent normally is supposed to critique the presenter's paper, but I think that my main response to Bishop Ottley's presentation would be to say, "amen." There's not a whole lot I really can disagree with in what he says. So if you will, I thought it might be more
useful and fully in line with the theme of the panel if I shared with you some of the main points that arose at a conference just last week at Seton Hall University that's already been alluded to. It was organized by the Catholic Conference of the United States Bishops, with the participation of Seton Hall and the Vatican. The subject of the conference was Ethical Dimensions of International Debt. I should qualify that, we were really talking about poor country debt, we're not talking about Indonesia, Russia
and the like. It brought together representatives of just about every actor who has a role to play in international debt; the World Bank, the IMF, the U.S. Treasury, State Department, Executive Directors with the bank and the fund representing Germany, Italy and the United Kingdom, senior officials of U.S. private investment banks, senior government officials of three heavily indebted poor countries -- Honduras, Zambia and Uganda -- and also well-represented,
we're non-governmental organizations from the United States, Europe, Africa and Latin America. Finally, of course, Catholic Church officials and ethicists participate, and including many from the U.S., but also from the Vatican. And we were joined by the archbishop of Tegucigalpa, Honduras, and the archbishop of Lusaka, Zambia. I've already used up a bit of my 10 minutes just identifying the participants, but I think getting these people together around the table to speak openly and frankly about an issue of
serious concern to millions of the world's poor was an important accomplishment in itself. By the way, if I do too much puffing, you can start hissing anytime you please. But I felt it was a pretty successful activity, and so that I wanted to share some of the key points. Obviously, I can't cover everything that was discussed in two days, but I can I think maybe touch on a couple of the highlights.
The conference began with a discussion of the ethical framework, dealing with the problem of poor country debt. Much of the initial discussion was couched in familiar biblical terms, and the language of the bishop's converts at Lambeth, quoted by Bishop Ottley, captures the essence of what was said at Seton Hall. First, God has created a world in which we are bound together in a common humanity, in which each person has equal dignity and value, and second, God has generously given to the
nations' immense resources which are to be held in trust and used for the well-being of all. These basic tenets take on a new dimension in our increasingly interdependent world. The standards of justice and charity, which may be in the past were considered to be applicable largely to domestic societies, must be applied to relations among states and peoples across national boundaries. The theme of human dignity, the fact that each man has a value equal
to that of every other man, was repeated during the course of the conference, and I would say that there was kind of an atmosphere that was created by the references to human dignity and the common good that was really quite beneficial in terms of bringing different people with different views together, and having what I thought was a very constructive discussion. Now let me turn to some of the highlights themselves.
The first point that was stressed by many speakers, particularly on the creditor's side, is that debt can't be viewed in isolation, it must be seen as one part of a larger problem, the problem of poverty. I didn't hear much opposition to this thought from the side of the debtors or the NGOs. The main difference between creditors and debtors seems to be on emphasis. The debtor and NGO representatives see debt as one of the most important, if not the most important, obstacle to poverty alleviation. Some are of the view that unless these obstacles
are removed from many poor countries, there can be no real reduction in poverty. The creditors agree that it must be removed for some countries, not by necessarily cancellation of all debt, but by substantial reductions to sustainable levels, however defined, and seem to believe that major debt reduction was essential in a relatively few number of countries. In other words, they seem content that the existing comprehensive debt relief program, the HIPC,
which has been alluded to, is satisfactory as a vehicle for dealing with the problem of poor country debt. Perhaps to be fair, maybe more fair, I think that the point was made by particularly Mr. Wolfensohn and Mr. Camdessus of the IMF, that the main constraint on granting greater debt relief to a large number of countries
is money. By the way, this was supposed to be off the record, this whole conference, but the points that were made by Mr. Wolfensohn and Camdessus have been made, and many public for us, so I'm not revealing any secrets. Let me quote from Mr. Camdessus. "Since many creditor countries have yet to make their contributions to enable the IMF to play
its full part in HIPC, it is not plausible that this group of countries will be convinced of the need for a new round of debt forgiveness." Second, as we are well aware, development budgets are increasingly constrained. This has created a strong risk which is already materializing that more debt relief could lead to lower aid flows to other equally needy countries. On the debtor and NGO side, there was a recognition of the problem
of political will, but that however difficult, the demands of international justice require a major effort to immobilize grass roots support in the U.S. and Europe, particularly, for more generous debt relief for impoverished, heavily-indebted countries, and that this must be done without sacrificing the needs of other poor countries. In some countries, this effort is already underway with much of the impetus coming from churches.
The Lambeth Conference is a notable example. Pope John Paul has made debt relief of poor countries a major theme of Jubilee year 2000, and let me just quote from his document which he issued a few years back on the coming of the third millennium. "The Jubilee Year was meant to restore equality among all the children of Israel, offering new possibilities to families which had lost their property, and even their personal freedom.
The riches of creation were to be considered as a common good of the whole of humanity. The Jubilee Year was meant to restore this social justice. If we recall that Jesus came to preach the good news to the poor, how come we fail to lay greater emphasis on the church's preferential option for the poor and the outcast? Thus in the spirit of the book of Leviticus, Christians will have to raise their voice on behalf of all the poor of the world, proposing that Jubilee is an appropriate time to give thought, among other things, to reducing substantially, if not cancelling outright, the international debt which seriously threatens
the future of many nations." It was these statements, actually, were the inspiration of the Seton Hall conference. Now in line with the concerns about political will, there was much discussion about the relative importance of debt relief versus grant or near grant aid. U.S. government represented a stress that aid has advantages; for example, the transfer of expertise and technology, which debt relief doesn't provide, and if aid provides the resources
necessary to pay debt service due, is there any real advantage to debt reduction? I would insert my own observations here -- debt reduction is, hopefully, a one-shot deal, while providing aid to free up resources for annual debt service requires a continuing inflow of aid funds. Can we count on this in an era of declining aid flows? Also, debt reduction, at least as far as the U.S. bilateral debt is concerned, is extremely cheap. Because
of the United States Treasury right down to the value of poor country debt in the current year, they say the appropriation required for the debt reduction packages expected to come up for approval over the next year under HIPC and under other debt relief programs, such as in the Parish Club, is practically zero. Finally, there is an important point made by the bishops of Lambeth. Substantial debt relief is a necessary step if many poor countries are to be given the dignity,
autonomy and independence essential to the growth and development of democracy. I would add here that one rather, to me anyway, disturbing argument used as a reason to favor aid over debt relief offered by representatives of a creditor nation, which shall go unnamed, is that debt cancellation or debt reduction means a loss of leverage. If one thinks that creditors have important advice to offer impoverished debtor countries the argument seems to be,
once you relieve the debt problem, the country will feel free to ignore your advice. I hesitate to characterize the attitude of mind behind this leverage argument, I'll let you do that yourselves. An interesting presentation was made by a scholar who is one of the leading economists on Africa, and has been working for one of the international financial institutions for six months. He said that the main issue was poverty relief,
and it doesn't matter whether it is through aid or debt relief. He said the evidence is that countries with reasonable policies -- he said not terrific policies, just reasonable policies -- speaking primarily of economic policies -- have reduced poverty, and that countries who have such reasonable policies contain three quarters of the world's poor. Moreover, the cost of getting a person
out of poverty is cheap, only a thousand dollars, and in some countries, he cited Uganda, only about four hundred dollars. His suggestion was that the most efficient use of scarce resources was to concentrate them on the countries with reasonable policies; that is, these countries where three quarters of the world's poor reside. He also commented that the recent review of the IMF structural adjustment facility, which is used also to support debt reduction programs,
shows that while much more must be done to protect the interests of the poor, that adjustment programs have been shown not to be anti-poor, per se. There, in effect, he's saying that the poor have not suffered, as a general rule, from structural adjustment programs. Where the poor were left out, it was because of sequencing problems. Policies were not adopted in the right order. Also, he admitted that policy
reforms under adjustment programs can't benefit the lowest 15 to 20 percent of the population because they're out of the market economy, and therefore, they're not affected by economic policies or debt burdens. From an economic standpoint, I can understand the efficiency argument. Concentrate scarce resources where they can yield the highest return. From an ethical standpoint, however, the concept of each human being having the same value as every other human being means to me that
one quarter of the world's poor living in countries usually characterized as basket cases cannot be abandoned. How to reach them, of course, is the question. And one device or means of reaching, that is, many people think can have a very positive impact on this issue is microcredit, so even though you may be concentrating a very heavy percentage
of your aid resources on those three quarters of the country, there's still room for microcredit programs, which are very inexpensive, and can have a large impact at the local level, and can be channeled around these basket case governments directly to the beneficiaries is a vehicle for dealing with this problem. But I'm not going to claim there's any easy answer; it's a tremendous challenge to reach the poorest of the poor.
The many other points raised at the conference, for example the indication by an investment banker to the finance minister of one of the debtor countries, who was -- she was worried that debt relief would cut off access to new foreign investment. His response was that debt relief combined with market-oriented economic policies would make the country more attractive to foreign investors. Also, the plea of NGOs was less that there should be
no economic or socio conditions to debt relief, then that civil society should be an active participant in the design and monitoring of the conditions, so as to ensure the inclusion of the interest of the poor in the process. I can't go into these points; maybe in the discussion we can go into some more of them. Mr. Camdessus said some things which I'd never heard before in his speech, which were very interesting, if you want to talk about them. Suffice it to say that no fundamental issues were resolved
at the conference. But I believe it represented an important advance in creditor-debtor dialog which can be built on perhaps some new doors have been opened here and in poor countries to advance the cause of poor country debt relief. As the NGO person from Zambia said, maybe after the exchange of the last few days, we'll be able to sit down with government officials back home more easily and openly to increase their awareness of the needs of the poor that we see every day, and take to the needs of the poor
whose sufferings in their policymaking and in their dealings with the international financial institutions on debt relief and other poverty-relieving measures.
M: Before we start taking questions, I think because of the size of our group, it would be helpful for the panel if we could just go around the room and say your name and what organization or church you represent.
WOLFORD: Kathy Wolford, (inaudible).
MINEAR: Larry Minear from the Humanitarianism, the World Project at Brown University.
M: Linden (inaudible), Episcopal priest in Princeton.
TOLLEFSON: Kristin [Tollefson?], Anglican, here at the Seminary.
TUBBY: I'm Derek [Tubby?], I'm from New Zealand, and I've studied (inaudible) and came as an interloper with a strong interest as a Christian.
M: Steve (inaudible) of World Vision.
Someone want to kick it off? Steve?
Sure. The one thing I've been [curious?] about the resources available for debt relief and poverty reduction, one of my concerns about the Jubilee 2000 campaign is, while I see it as being very strong in certain countries such as the UK, I don't see it having as much strength in countries such as Germany, in particular, which has been one of the major obstacles within the G7 for debt relief. And it seems to me that one of the key roles for the churches, broadly speaking, the Anglican community
and the Catholic churches and the Lutheran churches, has to do with the policies of the G7 governments and the resources they're willing to put up for debt relief. I don't think the U.S. Treasury has done nearly as much as it could in terms of support for the bank and the funds to make that, and Germany has been pretty [backward?], at least up until the change in government. And I think as much as the churches speak to the multilateral institutions, I also feel that there's perhaps an even more critical role
in what they say to the six or seven key finance ministries, and I wondered if among the Catholic churches, or in the Anglo Communion there's much coordination in terms of taking this message to finance ministries?
OTTLEY: Three years ago we had a forum at 850 -- at Episcopal Church Center on the international debt crisis. Many people who attend, and even those after we wrote a report, reacted negatively to it; they thought this was something you shouldn't talk about. Just recently, Lambeth had the conference, saw the debt crisis as one of its major focuses. That's new within the communion.
I think of all that came out of the conference says to me, and I think to a lot of other people, that the communion now, including the archbishop of Canterbury, is going to take this issue seriously. Following up, and even before the conference, the archbishop made it part of his agenda to speak to the president of the World Bank, Mr. Wolfensohn. I believe that what I heard at Lambeth is that these same countries that you
refer to, and especially Germany, would be one of the targets of the archbishop of Canterbury would want to do something in terms of his own office to alleviate, because we didn't even talk about alleviate, but in terms of reducing this problem of poverty and of the debt around the world. So I certainly think it's on our agenda as the Anglican Communion. What happened here in the States will be different in terms of the presiding bishop of the Episcopal Church. You probably know that just about two days
ago, we had a conference, and part of what we talked about was Lambeth. I think that with the right initiative taken by the presiding bishop here of the Episcopal Church that we might very well be in touch with Mr. [Ruben?] in terms of the treasury here. So it's on our agenda. That's all I would like to say.
GAETA: Yeah, well, I can tell you that following that conference, we had a little bit of a sort of a postmortem with some of the NGOs, and their reaction was, you know, maybe really we should be spending less time beating on the World Bank and the IMF and really go after the finance ministry, exactly the point that you're making. And I think it is very important, and it would make Mr. Wolfensohn happy if we did that I think, and Mr. Camdessus.
But and there are several countries where this is a real problem. And certainly in the U.S. Bishop's Conference, through our relationships with bishops' conferences in other countries, Germany being one, we are encouraging this kind of more, say, activist role on their part and dealing with their own government. And we had actually a series of meetings with the German church people
who came to our conference on this very subject. Also, you have the G7 meeting, and I think that there's a feeling that good preparation for that particular meeting next year can be an important vehicle for bringing a kind of consensus around the need for more generous debt relief. But without U.S. leadership there, I'm not sure much is going to happen. So I think that
particularly for our conference, I think a particular objective has to be working with our U.S. government officials to try to push them in this direction.
M: Two quick points, if anybody doesn't know about the Jubilee 2000 story, and one of the most active and positive countries today on the debt scene is the United Kingdom, and I think it's no coincidence that last year in June at the G7 meeting in Birmingham, Jubilee 2000 managed to get 50-plus thousand people to join hands around the conference center to protest the debt situation, so that kind of activism
definitely pays off. And secondly, it occurs to me for like this, it raises a fundamental question about the role of the church and religion in economic justice and debt as one small part of that is to look at the United States which, by all accounts, has one of the largest church-going percentages in the world, is many ways the least generous country in terms of development
assistance on debt relief and other areas. The countries that seem to be -- the Nordics in particular, Holland and countries that are, by all indications, are less-frequent church-goers, are by far the most generous and the most active.
Except for the church.
GAETA: And so -- but it raises -- we had this discussion the other day about how we get on some issues of the church community in the United States is enormously effective, in some maybe discreet part of the church. The religious community in the United States, you know, ideas on how -- on other issues, other sides of the religious community of the United States becomes more politically effective or socially effective is a question, is a larger question.
M: Could I make another comment if we don't have an immediate question?
Do you want to do that any further? Do you want to -- Gerry, you want to --
FLOOD: No, now what was my thought? You ask a question, and then I'll remember what it was. But no, the point I was going through my addle brain here was that Jubilee 2000 USA, which is made up largely of church groups, Protestant and Catholic, it's got some other groups in it, but mainly religious groups, has been trying to put forward a legislative proposal to the United States Congress, and we've been working
on that. I've been helping the Jubilee group on this, informally, not really as any kind of official representative of the conference, but the conference that's obviously following this closely. And what it's trying to do is to sort of expand the envelope. Monsignor Martin from the Vatican at the conference talked about the people who change the world are those who are idealistic, but also realistic. And so that's what this attempts to be, it attempts
to be something that is motivated by idealism, but also takes into account political realities, and tries to push the envelope in terms of putting more money and making more generous provisions for debt relief for poor countries. And this particular initiative which is sitting on a congressman's desk right now waiting for his okay as a sponsor, we hope we kind of can
put in sort of a very practical way the objective of many people, particularly the Jubilee 2000 group, I would say. But many others are interested in this poor country debt relief program can put forward something which can get the support, both of the administration and of the congress during the next session. But to make any of this possible is going to require a major grassroots effort, and there's going to be --
Jubilee 2000 and others are going to try -- are going to be developing a strategy for encouraging support for this proposal, once it gets to the next stage, that is, where we have a sponsor. We're looking for, obviously, by self-partisan support, we already have the agreement of Bread for the World that they will make this proposal the subject of their major offering of letters next year. So it's a sort of a plea for support, and then when the time comes from
some of the groups that are seated here.
M: In terms of poverty reduction, you mentioned you were quoting from someone regarding nations with reasonable policies. Did he elaborate a little bit more on (inaudible) --
FLOOD: Unfortunately, he didn't. And he kind of escaped before we really had a chance to quiz him on that. And I think he was talking about people who have got inflation reasonably under control, who have policies which are market-oriented, if not fully open economies, countries where they are reducing the role of government and even a private sector in a larger role,
that sort of thing. But I really would like to see his research on this, because I think it's very -- the ideas they're promoting here are very interesting, but a little hard to figure out exactly what he meant. Also, this concept of poverty being -- you could bring a person out of poverty with $1000, I thought that was extremely interesting. But again, we didn't hear what the --
how he got to that figure. And I think -- but it's -- I think it's important research, and I think it's really worth pursuing it further, and finding out more about what's behind it. It's the World Bank that must be doing this, right?
GAETA: Yeah, just as a footnote, we are in the forthcoming weeks releasing called "Aid Effectiveness," and it does a review of what -- when aid has been effective and when it has not. And it makes a very stark conclusion that countries that have had, broadly, the right set of policies in place, which means not just economic policies but also that -- and it gets us away from the old thinking that this
state is bad, the right kind of institutional mechanisms in place have used -- it's been a great investment, and have used aid wisely. The other side that is going to change the whole sort of -- the whole calculus on aid assistance in the future, those countries that have not had broadly those policies and institutions in place, aid has been an unmitigated disaster, and has done zero good. It has been -- it essentially has -- there is no, one cannot find any
good that has come out of that assistance. So it moves us further in a direction that we talked about earlier, that aid is going to be going towards hopefully an increasing number of countries, but right now is still a discreet number of countries. And if you want to get that, give me your name and address, and I'll send you a copy of the report. Sorry.
OTTLEY: Yeah. I just want to make a point that if it is a good initiative, I refer to it, I think just about all of us refer to it. And I think it's involved in the question, in a way. It's an initiative, and it's a good one, because it's one of the -- probably one of, I think, one of the most creative that have come out of the World Bank. However, having said that, that's not the answer. I think we still need to continue to press the World Bank and other institutions as well. The problem is not just the World Bank, I mean, it's World Trade Organization, and
a number of other institutions as well. So we're not just talking about the World Bank. But the one -- we haven't even mentioned the IMF, which is even a different -- is at a different place. So the fact that there is this initiative, which I think it's probably creative, but it's not sufficient. And if we're talking about the eradication of poverty, although as I said before, it will not -- it will alleviate some places.
When you talk of a place like Uganda, for instance, if you hold -- your debt is 112, just to give a number 12 billion, and you've been forgiven 12, it doesn't do anything in terms of education and healthcare, and all the other things that we need to see happen if we're going to make this, see that this world be a better place. So let's be in partnership, if we can, with the World Bank at this particular point, and
other institutions who make those progressive steps. But we need to keep our eyes and our ears and our mouth open, so that we might help them to go the other step. I think we have a golden opportunity now that we have not had even two years ago, or a year ago. And that's why I mention what Sfeir Younis said in terms of the eradication of poverty. But the bank was not speaking that way even a year ago, as far as I know. But they are now. And we need to
take advantage of that and try to be in partnership with that at this particular time, but at the same time be aware that HIPC and other things that develop are not the last word.
M: I'm interested in -- forgive me if I get the name wrong, Mr. Gaeta made about debt sustainability. I'd like a little bit more on that. And I didn't hear why, perhaps didn't follow what were the criteria. And put that alongside debt remission, or forgiveness, which is, as I understand, the main policy of Jubilee 2000. What do you mean
by "debt sustainability?"
GAETA: First I'll give you broadly, then I'll give you the how we've come around the formula that's been developed. Debt sustainability, again, means, and it's the art of the possible, but it means moving -- I mean, debt in itself is not a bad thing. Most countries are in debt, most people are in debt. The aim of HIPC, given its resources and given the broad outlines of agreement, is to work with a country
over a certain period of time, first a three-year sort of qualifying period in which the bank and the fund and other multilateral development banks through ongoing assistance work with a country to improve its economic policies as we've talked about, and to increase its, or improve its spending on health education. A wide range of social policies in Uganda, for example, a key part of the
relationship has been in shifting money away from higher education back into primary education, to get more children into school. So it's a long-term strategy of working with a country to get them to a position where we think that they're ready to use debt relief in the right way. The way sustainability is defined, and it's not a
perfect definition, as debt, 200, 250 percent of debt to export ratios, debt to export. So if you can get a country down to 200 or 250 percent of debt to export, or 20 to 25 percent of debt servicing, you put a country in sort of the ballpark of where it is able to -- once it's improved its policies and once it's made the kind of investments in social spending that it should,
along with continued foreign assistance, it can work its own way out of its debt situation. People are -- Oxfam, for instance, argues that 200 to 250 percent is way too high. In fact, the ratios for all but one of the countries that have gone through so far are below 200 percent, they're right around 200 percent, which is at the upper range of what Oxfam would have called for, at 150 to 200 percent.
But the further down the scale you go, the more expensive it is. So in a sense, HIPC itself is being implemented as progressively and vigorously as it can be, under its constraints, under its design. It would be nice to move, I think I'm allowed to say that, to move to closer to the Oxfam guidelines. And certainly
is room, and there's going to be a full review of HIPC that the board has agreed on, early next year. It would be nice to be more explicit in the way that you link debt relief to social spending, kind of just have to do even more in the areas that we all know are important to reward countries more who are making the right investments. So, but, you know, broadly,
that's the way we've come around to debt sustainability. The ratios are not scientific, they don't indicate anything other than, you know -- in outside, we know that you have to get at least here. But given the amount of resources we have, or anticipate having, along with judgments on commodity prices and the whole range of other things, gives us a rough ballpark that a country is getting to the point where it can work itself out.
M: Yes, perhaps if I could -- could I ask a supplementary while we're on the subject? There's a slight diversion, perhaps, but --
(inaudible).
Say you took that, encouraging countries in social spending. I mean, is this a formal sort of structural just in programs which you would require a government to do? Now, one of the problems, as alluded to earlier, the three of you, I think, was a question of misappropriation of debt aid, and in the past, particularly towards, say, to take one example, military spending. Now, you see, when you get to that area,
you've got an area where there's collusion between corrupt regimes and arms suppliers, many of which may be in the developed world. Now what -- you know, I think there may be questions there about whether the intention is just directed to the receiver of debt in terms of who is to be a good boy, as it were. And there's strategies about addressing
perhaps the suppliers of arms and things like that. And that becomes a little difficult, because of course that affects the economies of developed countries. Have you got any comments on that sort of issue?
If I can just add to that question a little bit, because I think we're probably heading in the same direction, I think it's laudable that we try to offer debt relief to nations in exchange for policies that are reasonable and will hopefully streamline their economic policies. But, you know, there are nations on the receiving end, there are rogue nations, there are rogue leaders of nations who are not willing to toe the line, and who will do that at the cost of the poor person down at the bottom
of the rung. To me the picture is of a woman in India who has to walk seven miles in the morning to collect water, who has a $500 debt on her head which she had no say in. You know, how does that work? Where does the quality of equitability in something like this to be worked out?
OTTLEY: Part of the resolution of Lambeth is asking that those kinds of loans be not made, which I think is a good thing. I'm from the Republic of Panama, and I happened to be seated on a plane once, and I was beside someone who had been to the country, and he says, "I've just been from your country. And we're going to sell you a plane that you don't need, but you're going to buy it anyhow, and it costs something like" -- I think then is said something like 20 million, or 2 million, I don't remember the amount. And we bought the helicopter. And he says, "You're the only one that will have that
helicopter. You may never use it, but you'll buy it." Those are the kinds of things, and very often those loans were made through the IMF or through the World Bank, but for the kind of element that was of no benefit to the country. Lambeth has said that those kinds of loans should not be made, and they should certainly be -- that's why we're calling for a monetary type of a commission that would look at those kinds of loans. And again, how you decide which is the
highest indebted, poorest country? Those kinds of things still need to be monitored. But yes, I agree with you, I think we need to be careful that certain countries, where there are corrupt leaders, because the debt will fall on our children and their grandchildren, and not necessarily on the people who make the loans, who very often take a lot of -- we know, for instance, where the money was taken from the countries as well. So we're talking about not only arms, but the kind of supervision.
We think there ought to be transparency, accountability not only at the level at the lender, but there ought to be something within the country that assures that the money that are borrowed, if not most of it, be spent for what it said it will be used for, if we go into the lending and borrowing, I mean.
M: Now, you've almost said everything I was going to say.
OTTLEY: I'm sorry.
FLOOD: But that's – no, no, no, that's good. No, I think that from an ethical standpoint, we're not interested in debt relief for its own sake, but to the extent to which it can contribute to the reduction of poverty. And if you -- the question is how you translate that into practical action. And this is very, very difficult, I mean, for example, Oxfam International has come up with a proposal that countries should be rewarded by extra debt relief, if they agree to put 80 percent of the benefits of the relief into
education, health and so forth. And you know, that's one way. It's kind of a social conditionality. Others have objections to that approach. They say, first of all, we're not well enough versed in the way in which you can really reach the poor, that we can make those formal conditions. For example, one of the
persons from the IMF, they're struggling with this, now, said that well, you know, we can insist on a certain allocation of budgetary resources to education, but how do we know that they're going to be used for primary education instead of university education? There are a lot of problems like that. I think one of the good examples is Uganda in this respect. This is a case where they set up a poverty action program,
and this was done not through coercion, but through good dialog, I think, between the World Bank and the country, which resulted in establishment of this thing, so that they deliberately allocate what they identify as the monetary benefit of the debt relief to poverty alleviation programs. That's sort of an idea way, I mean, where you specifically allocate it.
It's not fool-proof, money is fungible, right? But that may just free up the government to do more of other things, so there's no fool-proof way to do it, but that's, I think, a good example of an effort in this area. Now, you know, in terms of this whole corruption issue, I worked in Nigeria for a number of years. I think the regime that was in power there is one you could rather quickly say was one you would want
to benefit with that relief, because you know where it would go, no matter what structure you set up, it wouldn't achieve the purpose intended. So why provide debt relief to Nigeria? It still leaves the big, big question as, then, how do you reach the poor in that country? However, then there are gradations between that, and how do you judge, and who should judge? I think the idea of this mediation counsel, sort of an independent arbitrer of these kinds of questions
is good in theory, but I have serious questions as to whether it will materialize in this world of ours. I somehow think that maybe other ways it can be certainly tried while this kind of concept is being developed, is concentrating heavily on the role of civil society in the countries, and work towards strengthening their role and their ability to participate in dialog
with the government and with the international agencies. As a matter of fact, at the end of the day, in the discussions we had last week, that's what one of the, I would say, the most vociferous supporter of debt cancellation said. He says, "Look, I don't care what else you do, but get us into the discussion on all this stuff so that we can make sure that the needs of the poor are taken into account."
GAETA: Yeah, let me --
M: Well, we're going -- I don't want to give too many --
GAETA: I'm going to just follow up on the question -- oh, if you want to go ahead and --
F: This is just another question that I had been dying to ask in this dialogue, because the conversation usually goes so much the other way. What's the effect on the World Bank as an organization, just as an example, of debt cancellation?
GAETA: Well, we are funding the debt, we are funding our contribution to the debt relief through a special fund that some creditor countries are contributing to, and some profits made on the part of the bank -- and "profits" isn't the right word -- revenue made on the part of the bank that lends at higher interest rates. There's two parts of the World Bank; one that lends on not market rates, but with interest rates that are higher than concessional. And then
there's a part called the IDA, International Development Association, that lends at essentially zero in rates of interest. We're funding the HIPC initiative through the former. In sort of the grander sense, we're able to make these loans, we're able to earn money in capital markets because of the high ratings of the bonds that we issue. If a number of countries begin to -- if we began to forgive too many
debts and our capital got too low, we would cease to be able to make the kinds of loans that we want to make to all developing countries. So it's an accounting game to some extent that we have to keep at a certain level to be able to make the kind of lending that we do at concessional rates of interest, to the very poorest countries. So that's a constant worry, and it became a more acute concern leading up to this point with the amount of lending that had to
be done to East Asia over the past year with, you know, billions of dollars to single countries, like Korea, for example, that used to not borrow from this concessional window, but has sort of dropped back into it. So it's a concern that the financial peoples at the World Bank have to deal with all the time.
FLOOD: Yeah, right. If I may just add to that, the way in which the World Bank finances the debt relief is through an allocation of its annual net income. It takes some of the profits, in other words, from its operations and uses that to pay off the debt of these poor countries, so it pays itself out of its profits. Now, the World Bank has allocated $2 billion to that. And that's probably -- I think that's pretty generous, actually, particularly at a time when their profits are sort of declining,
and sort of points out the fact that maybe the focus of attention has to be if you're going to expand this whole concept of poor country debt relief, again, these are our national treasuries, that they're going to have to put in more support into this thing. You can't expect the World Bank indefinitely be dragged out on its profits for this purpose when they do have all these other demands, which Tony is talking about.
GAETA: If I could make -- oh, I never answered your question. How we worry, how we make sure that countries aren't spending too much in arms and things that we don't think they should be spending. Ultimately, the World Bank is not a policeman for the entire world. You know, it's a financial credit union, the countries pool resources and lend out to affect poverty. What we do know though, ultimately it's going to be the people of the countries that make those decisions and, you know,
bring their pressure to bear on their governments. And the only way that happens is thorough improved judicial systems and through -- and better ability of civil society to associate and to bring their opinions to bear on the government. And we are working on those things as well. We do, we fund a lot of judicial reform projects; we've just released a handbook on laws relating to the association of non-governmental
organizations that we hope will become a model for countries to follow so people can associate and bring their voices to bear. We work in training journalists to improve the role of the press in countries. So we sort of supplement all of these activities, knowing that when we give financial assistance will achieve so much without the kind of civic infrastructure that's required to move countries into a position to
oust people when they make the wrong kind of decisions with their citizens' money. So that's the sort of the broadest way I can answer it. I'm sorry.
M: Larry, do you want to --
Well, I just had a general question following some issues close to myself, which I think was in part answered by this last exchange. To what extent has the effort to deal with the international debt crisis been upstaged by the broader international economic crisis now, for better or for worse? It sounds to me like the bank's ability to forgive countries has been constrained by increased lending to
some of the major priorities. But I'm just wondering, are there other, either economic or political, dimensions of the broader crisis that impact on that issue?
GAETA: Well, quick, financially I think it has an effect that we need to -- it does have an effect. But at the same time, you know, there's been no stopping the work that's been going on on the IDA side, our work in Africa, and in the poorest countries. I think the bigger question is sort of intellectually, what has it taught it? And intellectually, it's taught us that countries as, you know, as vibrant as Thailand and Indonesia, and others
in East Asia, that economic policies get you only so far. And open markets are great, and they're necessary for economic growth and poverty reduction. But without rules to -- without proper corporate governance, without rules to compel firms to disclose information to shareholders or to the press, or to society at large, you get a concentration of economic and financial power held too closely by
too few that ultimately undermines the strength of the economy. So it's taught, it's reinforced lessons that may have been forgotten in economics 101.
M: Isn't much of the lending, having much of the debt generated not by ODA lending, but by commercial lending?
FLOOD: Not in the countries that's involved with the HIPC initiative. Because we're really talking about the very poorest countries, and either they've had virtually no commercial debt because they never were credit-worthy for that kind of borrowing, or the commercial banks have written it off. So the commercial debt of these countries, the HIPC countries, is relatively quite small. We're mainly talking about bilateral and multilateral debt, government to government
and World Bank and the like.
M: We're going to have to close, and I'm going to quote a theologian: "If we act now with realism and with foresight, if we show courage, if we think globally and allocate our resources accordingly, we can give our children a more peaceful and equitable world, one where poverty and suffering will be reduced, where children everywhere will have a sense of hope. This is not just a dream, this is our responsibility." And that was James Wolfensohn from his address on October 6th, and Tony brought plenty of copies
for us, including his booklet. And thank you, everyone on the panel.