SUNS  4367 Thursday 4 February 1999

Bonn, Feb 2 (IPS/Ramesh Jaura) -- Germany's new 'red-green' coalition government, in a switch from the tough stand taken by previous administrations, has launched a debt initiative to assist the world's poorest countries.

The move comes less than five months ahead of a summit meeting of the world's seven major industrial powers plus Russia - the so-called G-7/G-8 nations - due to be held June 18-20 in Cologne. Government officials of the host nation - to be joined by leaders of the United States, Canada, Britain, France, Italy and Japan - are optimistic of winning endorsement for the German proposal.

Developing nations owe Germany a total of 60 billion marks (about $37 billion). Last year, Third World countries transferred nearly one billion dollars to Germany by way of debt servicing charges.

"While preparing the ground for the debt write-off initiative for the forthcoming world economic summit, the federal (German) government will see to it that a central problem of the poorest countries is taken up at the highest decision-making level," said Development Minister Heidemarie Wieczorek-Zeul.

In an interview with IPS she said Germany hoped the development policy issue also would figure high in the G-8 talks "when we take up a comprehensive strategy for crisis and conflict prevention.

"I am optimistic that the Cologne summit will give concrete and positive signals for the developing countries," said Wieczorek-Zeul who is a vice-president of the Social Democratic Party (SPD), senior partner in the coalition government with the Alliance 90 and Green parties.

Wieczorek-Zeul is Germany's first development minister in 40 years have a seat in the prestigious Federal Security Council alongside Ministers from the Foreign, Finance, Defence and Economics Ministries. The Council decides issues of strategic importance to Germany, which currently holds the presidency of the European Union. Explaining the rationale behind the "Colgone Initiative",
Wieczorek-Zeul said that a high debt burden was "an obstacle to development for several of the poorest developing countries. The initiative...seeks to relieve them of their debt burden."

She gave as an example the debt-to-export ratio in the tiny West African country of Guinea Bissau which amounted to a staggering 1500 percent. In Rwanda the figure stood at 550%; in Mozambique and Nicaragua 500% and in Tanzania 300 percent. "This makes any kind of sustainable development impossible," she said.

Germany is considering writing off debts of about one billion dollar incurred by Bolivia, Cote d'Ivoire, Guyana, Nicaragua and Honduras.

"Independent of the Cologne Initiative, we will continue our policy of writing off the debts of the least developed countries (LDCs), accrued from (capital aid as part of) development cooperation," Wieczorek-Zeul said.
During the past 20 years, Germany has forgiven the debts of several LDCs, worth some $5.6 billion, that were due to it from concessional financial assistance. Since 1978, capital aid funds have been made available to the LDCs as non-repayable grants.

The German debt write-off move leans on the 1996 proposal of the World Bank and the International Monetary Fund (IMF) when, for the first time, the institutions considered cancelling debts owed to them by the heavily indebted poor countries.

A major aspect of the seven-point Cologne Initiative would speed up the debt relief process by which all countries entitled to participate, could ascertain the extent and date of their debt relief by the end of this year.

Wieczorek-Zeul said this would apply to those counties that observed the principles of the welfare state and the rule of law and were carrying out financial reforms in collaboration with the IMF and the World Bank. "Thus we can foster conditions for sustainable development geared to fighting poverty and inequality."

The German government wants the existing framework in determining the need for relief, to 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," Wieczorek-Zeul explained.

Using multilaterally co-ordinated procedures, Germany proposed the cancellation of debts from development assistance debts in the Paris Club for countries that qualified under the initiative for Highly Indebted Poor Countries (HIPC). The debtor countries, however, would be required to use funds released in this way for projects which fostered sustainable development geared to combat poverty and inequality, and which took account of basic legal and social principles.

In order to safeguard the share of multilateral creditors in the HIPC initiative the German government would, for the first time, make a contribution this year toward the World Bank's HIPC Trust Fund. It wants the IMF also to contribute to the HIPC without compromising its support to the poorest countries.

Germany also was 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, according to Wieczorek-Zeul.

All attempts to bring about a sustainable improvement in the living standards of people in the poorest countries through debt relief or financial assistance would fail if they came up against an unstable political environment marked by armed conflicts, she said.

The German government therefore wanted every debt relief initiative embedded in a comprehensive strategy for conflict prevention and this issue would be considered in depth during the Cologne meeting, she added.

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

The Cologne Initiative has the personal backing of Chancellor Gerhard Schroeder who wrote recently in the British Financial Times, that "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."