Nitin Desai: From the rich to the poor

A few weeks from now, the G-8 leaders will meet in the safe surroundings of the Gleneagles resort hotel in Scotland. After the mayhem of the Genoa G-8 summit in July 2001, these leaders of the rich and powerful have found it prudent to meet in out-of-the-way places where angry anti-globalisation protesters cannot disrupt their proceedings too easily.

Yet the G-8 leaders have been shaken by the vehemence of the demonstrators and the agenda of their meetings has changed.

From 2001 these meetings have sought to address the North-South divide, particularly the problems of Africa. In part this is a response to the demonstrators, in part a PR effort to use the high visibility of the summit and, in part, the effect of the change in the global development discourse brought about by the UN summits of the nineties.

(A confession here: I was deeply involved in the substantive and political work for these UN summits.)

We can see this in this year's summit as well. The demonstrators are out in the street demanding that we "Make Poverty History". Millions of children are wearing wristbands with this slogan.

Pop stars are agitating for more aid and debt relief. The PR dimension comes in as Tony Blair seeks to demonstrate that New Labour has not lost its passion for social progress. But the UN process has also played a role with its strong advocacy for the Millennium Development Goals, and for the special needs of Africa.

Aid, debt, and Africa are not the only issues before the Gleneagles summit. Mr Blair wants to bring the US into the dialogue on global climate change. Good luck to him.

The impact of the G-8 process is most visible in the climate for concessional finance for development. Donor support for aid and other concessions was, by and large, a product of a competition for influence in the Cold War and a continuation of imperial responsibilities in a few cases.

But, in some countries, mainly those who were not major players in the Cold War and did not have any significant colonial history, development assistance was an extension of welfare state values to the global sphere.

These motivations for development cooperation are not as relevant now. Colonial responsibilities are now forgotten, except perhaps in the EU-Africa relationship.

The welfare state is being questioned even domestically. The Cold War is over. The larger developing countries like India are seen as competitors rather than as clients. And, frankly, many developing countries themselves are less interested in concessions and more in normal commerce.

Development cooperation was threatened with collapse at the beginning of the nineties and the neo-con revolution in Washington looked ready to switch off the support system for aid altogether.

And then the 9/11 attacks came, as also the violent anti-globalisation demonstrations. The rich and the powerful were frightened and ready for a revival of aid.

This is where the United Nations helped by providing a substantive agenda drawing on a series of path-breaking conferences. The core of the agreements reached in these conferences was captured in the Millennium Development Goals, whose centrepiece is halving the number of persons earning less than a $1 a day, by 2015.

The first indications of a changed climate for aid came at the UN Conference on Finance for Development when the Europeans announced a big increase.

George W Bush, not to be left behind and ready to please his friend, President Fox of Mexico, the host of the conference, announced a big 50 per cent increase in the US aid commitment.

We can now see some results. Aid levels have recovered from the decline during the nineties. According to the latest Development Assistance Committee (DAC) estimates, total aid from DAC members rose by 7 per cent in real terms from 2001 to 2002 and by a further 5 per cent in 2003.

In nominal terms, official development assistance (ODA) rose by 18 per cent from 2002 to $69 billion in 2003. But about three quarters of the increase was due to the combined effects of inflation and the fall in the external value of the dollar.

The ODA/GNI ratio rose but is still well short of the average of 0.33 per cent achieved during 1980-92. The direction of aid has also moved towards the countries most in need and the bulk of the increase over the past four years is accounted for by the least developed countries.

The DAC has projected likely levels of aid for 2006 and 2010 on the basis of the stated intention. According to their estimates, if these longer-term commitments are met, ODA will pass $100 billion (at the 2003 prices and exchange rates) by 2010.

In the run-up to the Gleneagles summit, the most significant development is the European commitment to double their aid and reach the UN 0.7 per cent target by 2015.

The requirements of aid are larger than what is in sight. The Millennium Project has estimated that the aid levels would have to double by 2006 and treble by 2015 if we are to meet what is needed for implementing the MDGs.

Gordon Brown's proposal for an International Finance Facility, which has not yet been accepted by the US and other key donors, tries to meet this gap by borrowing against future aid commitments. If this is a more or less continuous process, it can help to raise the total amount available in the decade that we have to reach the MDGs.

The proposals for raising resources by some form of globally agreed taxation are unlikely to find favour any time soon though France and Germany seem to favour a tax on air travel.

Debt relief is the other issue before the summit. From the perspective of the Millennium goals, the main concern is with the external debt of low-income countries, which, at the end of 2002, stood at about $523 billion (of which nearly 80 per cent was public and publicly guaranteed debt).

To date, 27 countries have qualified for debt relief of more than $55 billion under the HIPC initiative of the Fund and the Bank. This is clearly not enough and a major deal to write off the debt of the poorest countries has been worked out at the G-8 finance ministers' meeting on June 10, 2005.

The main breakthrough here is the commitment to write off the debts owed to multilateral institutions, which will be suitably compensated by the treasuries of the rich countries. There are various wrinkles in this, like the use of past gold sale revenues in the IMF and the extent to which the debt write-off will eat into new aid.

The G-8 has not addressed the structural issues of trade and investment that inhibit growth. That will have to come from a forum where the rich and the poor are both represented.

That may happen when China, India, Brazil, and South Africa, which are associated with some G-8 processes, take their place in the photo-call.

But we must give credit when it is due. (Pun not intended!). The promise of new money and debt relief for the poorest countries is real. The success of the Blair-Brown team lies in the pressure they could exert on their reluctant European allies and on the US.

The US cannot be as unilateral and as obstreperous in this forum as it often is elsewhere. In fact the primary function of the G-8 summit process in today's environment may well be to socialise the neo-cons in Washington to the realities of an interdependent world.

The author is Honorary Professor at the Indian Council for Research in International Economic Relations.