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Analytical Studies

Objectives by Issue (Evaluative Criteria): 1998 Birmingham Summit


Major Developments Since the Denver Summit ~ Priorities for Birmingham

Major Developments Since the Denver Summit

The international development landscape over the last year has been affected by a number of events. In Asia, the currency and stock market crises negatively affected both regional and global economic prospects, while in Africa, the Americans and Europeans made significant efforts to integrate the continent into the global economy by adopting trade and investment promoting agendas and legislation. Accordingly, the September 1997 joint meeting of the World Bank and the International Monetary Fund (IMF) concluded that overcoming government corruption is key to creating an environment conducive to expanding private sector trade and investment in the developing world.

Debt relief has also been a central theme of the last year, with most G7 countries announcing funding for either bilateral debt relief, or for further relief under the IMF/World Bank Highly Indebted Poor Country (HIPC) debt initiative. Furthermore, the "Mauritius Mandate" was adopted during the September 1997 meeting of the Commonwealth Finance Ministers. The mandate included support for an UK proposal that all eligible countries be on the road to securing debt relief under the HIPC debt initiative by 2000, and that 3/4 of those countries requiring debt relief have packages arranged by the same year.

The battle against budget deficits has led some G7 countries to further reduce their official development assistance (ODA) spending. Canada's ODA budget is set to fall by 4.8% in 1998-99, and Japan is reducing its 1998-99 assistance budget by 10.4%. The UK, however, seems to have increased its ODA from 2.05 billion pounds in 1997-98 to 2.17 billion pounds in 1998-99. In November, the UK also released its first White Paper on international development in 22 years, and Japan and France have also reviewed their respective programs and delivery mechanisms. Finally, reducing tied aid has recently received high-level government attention, and is to be discussed in Birmingham.

Priorities for Birmingham

The final communiqué is likely to mention the need to deal with issues as reducing tied aid, maintaining adequate levels of development assistance, combating corruption in the third world, and further integrating the developing world (especially Africa) into the global economy. But only debt relief is likely to produce any substantive results during the leaders' discussions.

At Birmingham, the leaders will discuss the feasibility of implementing the Mauritius Mandate, which would require substantial financial resources to ensure the majority of eligible countries are on their way to achieving sustainable debt levels by the year 2000. Providing such assistance will help to free up domestic resources, and to expand the capacity of the least-developed countries to finance more of their own development needs. Over time, the freeing up of those resources may also reduce pressures on declining levels of global development assistance. Speeding up the implementation of the HIPC debt initiative will also respond to recent criticisms that the IMF, the World Bank, and the creditor nations have been too slow in providing relief to the countries that need it most. The UK's Chancellor of the Exchequer, Gordon Brown, has challenged the G7 countries to show the same resolve in relieving third world debt as it has shown in its efforts to support those countries affected by the Asian crisis.

Whether or not the G7 can respond to these criticisms comes down to this - how more rapid debt relief can be financed. Over the last year, most G7 countries, including Japan, Italy, Canada, France, and the UK have shown a willingness to provide millions of dollars in debt relief to some of the world's poorest states. Implementing the Mauritius Mandate, however, will be a multi-billion-dollar undertaking. The UK has proposed that the initiative be financed through the sale of some of the IMF's gold reserves. Although this is conditionally supported by the US and Italy, it is opposed by Germany and Japan. It is likely some financing will be agreed upon given the high profile the issue has had in the international arena in recent months. The exact extent of the financing, however, is by no means clear.

A reduction in tied aid is also an area in which the G7 can make some progress. Tied aid refers to the practice of requiring aid recipients to make development program-related purchases from the country giving the aid. The UK would like the G7 to discuss the elimination of tied aid as a means of increasing the value of aid to the recipient country, and thereby contributing to poverty alleviation. The European G7 countries seem to agree it is an important area on which G7 discussion is warranted. The recent (April 8-9, 1998) High Level Ministerial Meeting of the Development Assistance Committee (DAC) of the Organization for Economic Co-operation and Development (OECD) (which all G7 countries are a member) also "expressed overwhelming support for untying aid, in particular to [least-developed countries]".

Nonetheless, the issue has only come up recently in the context of the G7, but no substantive proposals have been put forward for discussion. Therefore, tied aid is unlikely to assume a prominent position in the Birmingham communiqu=E9, especially given the importance of the Asian crisis and the support for deepening debt relief. Birmingham, however, may produce a surprise on this issue, but is more likely to set the stage for an initiative coming out of the 1999 G7 Summit, which will follow the release of a DAC study on the issue.

Other issues on international development are unlikely to receive much attention from the leaders. The G7 regards combating third world corruption and promoting good governance to be vital for development to take place. But nothing new is likely to come out of Birmingham because of the intangible nature of the goal, the inherent politics in aid conditionality. Furthermore, all the G7 countries have repeatedly given strong endorsements for development issues in past summits and in their domestic policy-making.

Aid levels are also an important issue, especially in the context of the continuing global decline. A statement regarding the need to maintain adequate levels of aid is almost certain to find its way into the communiqu=E9. But no firm commitments on increasing aid are likely since Canada still plans to reduce its aid budget by $150 million next year. The European countries are also conscious of meeting the deficit criteria for entrance into the European Monetary Union. Japan too is set on reducing its deficit to 3% of GDP by fiscal year 2003.

Although there is a growing emphasis on trade and investment as a tool for international development, specific market access-enhancing initiatives are unlikely to emerge from discussions. There may be a sense little more can be done at this time. The US has already gone a long way toward increasing African access to the American market through the imminent passage of its "African Growth and Opportunities Act." The European countries may prefer to act within the context of the upcoming renegotiations of the Lome Convention, which gives African, Pacific-Rim, and Caribbean countries preferential access to the markets of EU members. For its part, Japan's current economic troubles may discourage it from exposing domestic firms to greater competition from the developing world. The Birmingham summit may simply reaffirm the G7's support for whatever market-access enhancing initiatives the members feel they are able to provide.

Document prepared by: Liz Gomery and Jason Krausert
April 1998

~ Objectives by Issue (Evaluative Criteria): 1998 Birmingham Summit ~

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