Chapter 7
Box 7.3 Aid overshadowed by trade and debt

While global aid giving appears to be making a modest recovery after years of consistent decline, the public perception of its importance has been overshadowed by two other issues which have claimed worldwide attention: international trade and foreign debt.

An inconclusive meeting of the World Trade Organization (WTO) in Seattle in the United States at the end of 1999 drew attention to the way that developing countries are dis-advantaged in the current international trade regime. Figures from the specialist United Nations body which addresses trade and development issues (UNCTAD) suggest that rich country protectionism, involving low-technology industries alone, costs developing countries approximately US$ 700 billion per year. A figure that dwarfs both improved aid flows by a factor of nearly 14 to one, and average private foreign capital inflows by at least four times.

Dissatisfaction in Seattle among African and Latin American country groups was marked. Their complaints were both about the undemocratic running of the world trade body and the failure of mostly wealthy OECD countries to fulfil their existing international commitments to open domestic markets to developing countries. Each year, OECD countries subsidize their domestic agriculture by US$ 350 billion – twice the value of developing country exports, and nearly seven times the value of foreign aid.

Around the world, the Jubilee 2000 Coalition campaign for debt relief gained pace and both enormous public and political support. The coalition estimated that for every dollar of ODA going to the least developed countries (LDCs), the same amount was drained away in debt servicing. For all developing countries, the figure rises to around US$ 9 of debt service for every US$ 1 of aid according to the coalition.

US President Bill Clinton chose the closing moments of the World Bank and IMF annual general meetings in Washington DC, in September 1999, to declare a readiness to cancel 100 per cent of eligible bilateral debt owed to the United States by qualifying highly indebted poor countries (HIPCs). The announcement came after the meetings had been told that no further concessions were likely.

The British chancellor, under pressure from campaigners, matched Clinton’s pledge two weeks before the end of the millennium. Importantly, the US commitment remained dependent on support from a reluctant Congress. As at April 2000 (amid the run up to US elections), any progress on debt relief remained deadlocked.

It is still unclear whether, when and how the high profile of the issue and its attendant rhetoric will translate into significant new resources being made available to spend on health and education in highly indebted countries. Debts owed to countries like Britain and the US are a fraction of total outstanding debt and remain only part of the picture. Multilateral organizations like the World Bank and IMF also play a big part. The route to eventual debt relief for poor countries is labyrinthine and tangled with myriad conditions, economic uncertainties and political complexities.