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What debt relief means for Africa

This weekend, G-8 finance ministers agreed to cancel $40 billion in debt held by some of the world's poorest nations.

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It's one of the biggest write-offs of debt ever. And it could spark major improvements in the lives of the world's poorest people.

This weekend's $40 billion debt cancellation agreeded to by rich-nation finance ministers will, for instance, enable Zambia to hire 7,000 new teachers. Likewise, Tanzania will no longer spend 12 percent of its annual budget on servicing its debts. Instead, it could build new hospitals and roads.

In all, 18 nations - 14 of them in Africa - with 296 million people will be debt-free. Eventually, a total of 38 nations with 552 million people may get full debt relief.

For all the impressive figures, though, the deal strikes a middle ground. For some it's too small: At most, it cancels less than one-sixth of Africa's $295 billion debt - and leaves out crucial countries like Nigeria.

For others, it's too risky: By erasing bad debts - and allowing struggling nations to apply for new loans - it could spark a new cycle of dependency.

Either way, it does provide a respite from poverty's pressures. And it may help countries lift themselves up through better education, stronger agriculture, and expanded trade. "In theory, it primes the pump," says Stephen Hayes of the Corporate Council on Africa in Washington.

But who pays? Consider three things:

• First: In the short term, it's not all that expensive. The US will pitch in up to $1.75 billion over 10 years. That's its share of a pledge by rich nations to cover $16.7 billion in debt repayments the 18 countries would have made.

• Second: One of the larger bills - some $6 billion - will be paid by the International Monetary Fund (IMF). It's one of the global institutions to whom poor nations owe debt. And under the deal, it's supposed to cover those debts from its own "existing resources."


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