From Poverty to Power Green, Oxfam 2008 - weman

5 THE INTERNATIONAL SYSTEM FINANCEIn December 2002, Nestlé agreed to return a $1.5m settlement to theEthiopian government to be put towards famine relief, after a campaignby Oxfam and others. 29 These were high-profile brand-name companiesworried about their reputation. Vulture funds have no such scruples:although the G8, the IMF, the World Bank, and others have expressedconcern, no action has yet been taken. 30The way that debt and default have been handled represents a majorfailure in global governance, needlessly increasing the human sufferingthat inevitably accompanies economic crises and ratcheting upinequality in their wake. It has shielded banks and Western institutionsby imposing further sacrifices on those least able to cope.Twenty-five years of repeated efforts have failed to put an end todebt crises.Cancelling poor countries’ debts, while necessary, will not addressthe underlying reasons why debts build up unsustainably after eachdebt-relief exercise. Two sensible proposals would help to change theway that capital flows to poor countries. First, the poorest countriesshould receive grants, not loans. Second, creditors should share therisk, for example by tying remaining repayments to commodity prices(since a country’s ability to repay is linked to its export earnings), bylending at fixed interest rates, or by helping borrowers insure theirdebt repayments against shocks.Creditors also need to accept that both parties to a loan – lender aswell as borrower – must share responsibility for ensuring that themoney is wisely used. In 2006, the Norwegian Development Ministryshowed the way when it announced that it would cancel – withoutconditions – debts being paid by five low- and middle-incomecountries, on the grounds that they were incurred through Norway’sown ‘development policy failure’. The Norwegian governmentconcluded it had been at fault for carrying out ‘inadequate needsanalyses and risk assessments’ for export credits extended to Ecuador,Egypt, Jamaica, Peru, and Sierra Leone (the credits were related toNorway’s Ship Export Campaign of 1976–80, which sought newmarkets for its shipbuilding industry). 31Norway’s Development Minister Erik Solheim explained that,‘By cancelling these debts we want to give rise to an internationaldebate on lender responsibility’. The G8 looked like it might take up309