Switzerland backs G8 debt deal

The deal has gone down well in African nations Keystone

The Swiss government has welcomed a decision by the G8 group of leading industrialised nations to write off the debt owed by 18 of the world’s poorest countries.

The landmark deal was approved by G8 finance ministers earlier this month and is expected to cost Switzerland around SFr30 million ($23 million) a year.

“It is a key element in the fight against poverty, but it is not the only one,” said Serge Chappatte, deputy director of the Swiss Agency for Development and Cooperation (SDC).

The initiative, which was agreed in London earlier this month, is expected to be officially adopted by the G8 at its annual summit in Scotland on July 6-8.

Under the deal, the World Bank, International Monetary Fund (IMF) and the African Development Bank (ADB) would cancel the $40 billion debt owed by 18 countries – most of them in Africa.

Twenty other countries could also benefit from debt relief worth a total of $15 billion as long as they meet targets for good governance, democracy, fighting corruption and budgetary discipline.

According to Chappatte, these criteria mirror those of a previous debt-relief scheme launched by the Bretton Woods institutions – the World Bank and IMF – in 1996.

Chappatte pointed out that Switzerland was actively involved in helping governments in developing countries to manage their debt.

“We need to ensure that this debt remission is invested in the fight against poverty,” he said.

“Right now we lack information on how this G8 initiative will be put into practice. But it is clear that the lending institutions [World Bank, IMF and ADB] must not be weakened by the deal.”

Debt relief

With this in mind, the member states of the two Bretton Woods institutions are expected to bear the burden of wiping the slate clean.

In which case Switzerland’s share would be in the region of SFr25-30 million a year over a decade, according to Chappatte.

In view of the current state of the federal finances – last week parliament finalised SFr4.8 billion in cuts between 2006-2008 – the money would probably have to come from existing development-aid budgets.

“It’s up to the cabinet to decide. But we hope that some of the money will come from other sources,” added Chappatte.

This is a view shared by Bruno Gurtner, a senior economist at the Swiss Coalition of Development Organisations. But whatever the outcome, Gurtner welcomed the G8 decision.

“It’s a step in the right direction. But we must extend this to other heavily indebted developing countries, to between 40 and 60 nations,” he said.

Conditions

Gurtner also voiced concerns about the conditions that will be imposed on countries in order for them to qualify for debt relief.

“With their structural adjustment programmes – which have been modified under pressure from non-governmental organisations – the Bretton Woods institutions place too much onus on market deregulation,” added the economist.

The World Bank and IMF came up with the idea of structural-adjustment programmes in the 1980s, as a way of imposing economic reforms on developing countries in exchange for loans.

According to Chappatte, these issues lie at the heart of the Doha round of world trade talks. But he said that it was up to multilateral institutions to ensure that development policy was tailored to the specific needs of each developing country.

swissinfo, Fréderic Burnand in Geneva

In brief

Switzerland was one of the pioneers in the field of debt relief for poorer countries.

During the 1990s a number of debt-relief programmes were initiated for nations owing money to Switzerland.

Switzerland contributed to the launch in 1996 of the Highly Indebted Poor Countries Initiative proposed by the World Bank and IMF.

The G8 countries are the United States, Canada, Britain, France, Germany, Italy, Japan and Russia.