With the recent debt relief announcement by the G7 finance ministers the way is paved for genuine debt relief for the world's poorest countries. Or is it? Village presents a quick guide to a prickly subject. By Colin Murphy

1.What is debt relief?

Debt relief means rich countries paying for, or canceling, the national debts accumulated by poor Third World countries.

Third World governments racked up huge debts in the 1970s and 1980s, as many struggled to deal with the challenges of independence, nation-building and mass poverty (inherited from colonial times). Western banks were eager to lend, especially for large infrstructural projects, as they had excess reserves deposited by the oil-producing countries, which had had a windfall after raising prices during the oil crisis. And during the Cold War, leading rich countries were happy to put our money into corrupt client nations, such as Mobutu's Zaire (now the Democratic Republic of the Congo).

In the 1980s, a crash in commodity prices and a steep rise in interest rates hit indebted countries hard. The International Monetary Fund and World Bank stepped in to bail out their debts to commercial banks, and imposed Structural Adjustment Programmes intended to sort out poor countries' economies.

Structural adjustment basically meant belt-tightening, but the IMF and the World Bank had very particular prescriptions for how to do this - involving priviatisation, charging for social services and purges of the public sector.

Under a series of deals worked out in the late 1990s, the world's richest countries agreed to cancel the "bilateral" debts owed by poor countries (that is, debts from poor countries directly to individual rich countries).

But these countries still owe huge sums of money to "multilateral" institutions such as the World Bank, the International Monetary Fund and the African Development Board.

2.What have Gordon Brown and the G7 finance ministers just announced?

Under the plans announced by Gordon Brown on Saturday 11 June, leading rich countries will pay-off the multilateral debts of 18 of the world's poorest countries, 14 of them in Africa, worth €33 billion. A further nine countries could be eligible for debt relief within 18 months. These countries are all among the 38 countries in the Heavily Indebted Poor Contries (HIPCs) initiative, which have been singled out for debt relief based on both their levels of debt and of poverty.

These plans were agreed in advance of July's G8 summit (see below) by the finance ministers of the G7 countries (the G8 minus Russia).

3.Will this make a big difference?

Supporters of debt relief claim to have evidence that it works. In Malawi, money saved through debt relief has been used to train 3,600 new teachers a year. In Benin, 43 per cent of debt relief in 2002 was spent on education, and 54 per cent was spent on health, which went on staff for rural health clinics, AIDS and malaria programmes, access to safe water and immunsation. (These figures are from a paper published by Oxfam and others, Do the Deal.)

Critics argue that providing debt relief to countries that are corrupt, or are implicated in ongoing conflict, is counter-productive, and will just further embed corruption and conflict.

Uganda has been the first country to complete both stages of the HIPC initiative and so is a leading recipient of debt relief, and of aid. But it has been implicated in the ongoing conflict in the Congo, where rival militia have been responsible both for smuggling of natural resources and for conflict resulting in over three million deaths.

Research by the British-based debt relief organisation, Jubilee, found that while debt relief had led to a sharp increase in education and health spending, military expenditure in recipient countries had remained more or less constant.

And the total amount of debt relief is not actually that much – according to Action Aid, it amounts to about ten per cent of the debts of the 62 poorest countries. To qualify, individual countries have to complete the stages already set out in the HIPC initiative – the so-called "conditionalities". The 18 countries due for immediate debt relief have already completed these – but it took the most recent, Zambia, nine years.

And, as Andy Storey argues (opposite), the debt relief package comes with exactly the same kind of conditions that accompanied the loan agreements that got poor countries into so much trouble in the first place – the conditionalities of privatisation and market reform that may jeapordise the ability of poor countries to manage their own economies and to democratically decide on political and economic policy.

4.What's happening in Gleneagles next month?

From 6 to 8 July, Gleneagles golf club in Scotland will host a summit of the G8, a grouping of the world's richest democracies (the US, Canada, Japan, Britain, France, Germany, Italy and Russia). (The G8 also meets with finance ministers from South Africa, India, China and Brazil, and invites representatives from the EU to its annual summit.)

Britain currently has the presidency of the G8, and prime minister Tony Blair and chancellor Gordon Brown have attempted to focus the agenda for Gleneagles on poverty in Africa and on climate change.

Blair says the G8 must agree on action that will help achieve the United Nations Millennium Development Goals on reducing global poverty, providing primary education for all and combating AIDS, by 2015. This should include commitments from the G8 countries to achieve the target of giving 0.7 per cent of gross domestic product (GDP) in aid by 2015, and cancelling 100 per cent of debts owed by 62 poor countries to multilateral institutions. Blair and Brown have also called for changes to global trade rules to facilitate African economies.

5.What's Bob Geldof got to do with it?

Geldof is on Tony Blair's Commission for Africa, which has recently released a report calling for a "Marshall Plan" for Africa. He is organising a 20th anniversary Live Aid concert, Live 8, to highlight the opportunity presented by the G8 summit to take significant steps towards reducing poverty in Africa.

"What Live Aid did joyously, and enthusiastically, was open up the avenues of possibility," Geldof said. "Live 8 invites you to walk down them. Eight world leaders in one room in Scotland on 8 July can save millions and millions of lives, but they'll only do it if enough people tell them to."

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