Much has been said about the British government’s stand on debt, and much more will be said about it as the Gleneagles meeting of the G8 approaches. Gordon Brown’s much-vaunted ‘new deal’ for developing countries has been given a top billing, including his proposals for debt reduction.

However, debt reduction refers only to the world’s very poorest countries, which are by no means its biggest debtors. Indeed the Highly Indebted Poor Country (HIPC) formula for debt reduction, now nearly 10 years old, was specifically designed to hive off the poorest debtor countries from the rest, since the developed countries knew that it would cost them much more than they were prepared to pay to tackle the debt overhang of the most indebted: mainly the countries of Latin America.

The international community uses GDP per capita as the measure for deciding which countries should get debt relief and which should not. This is a completely arbitrary measure that reflects the average income in a given country, not the extent or depth of poverty within that country. Latin America may not be the poorest part of the planet on average, but it is the most unequal. It is the size and wealth of its elite that pushes up average earnings, irrespective of the scale of poverty.

For many people, the ‘debt crisis’ is a thing of the past, a painful memory of 20 years ago that, thankfully, has disappeared from the headlines of the world’s financial press. Only occasionally, as in Argentina in 2001, are we forcefully reminded that this is not so. It only takes a slump or a sudden currency devaluation to bring back the pain of the 1980s. Ask any of the 15% of Argentines who are currently unemployed whether the debt crisis has been overcome.

In the case of Peru, as other Latin American countries, the stock of debt moves inexorably upwards year after year. As the article by Romulo Torres in this edition of the Update shows, the latest figure for the total foreign debt is 33 billion dollars, up by nearly a third on the 2000 figure. This is an unsustainable 46% of GDP, and debt service now absorbs 20% of the national budget.

Peru’s ability to continue paying depends crucially on its ability to continue pushing up exports. It has been quite successful here in recent years, helped greatly by the current boom in commodity prices for minerals. But it will only take a sudden downturn in these export earnings to reveal the true nature of the country’s foreign debt problem. Meanwhile, social spending (on things like education and health) is cramped by the need to pay debt-servicing obligations on the nail. Also, the increasing size of the debt to international financial institutions (like the World Bank and the Inter-American Development Bank (IDB) means that they wield ever greater leverage over government policy.

So let’s hear some good news for Latin American indebted countries at the Gleneagles get-together. The poorest countries clearly deserve more help in reducing what they pay out in debt servicing, but so do some of the so-called ‘middle-income’ countries that have high levels of poverty within them. Currently Peru gets nothing in debt relief; and the response of the British government to poverty there is to close down its aid programme. What sort of ‘new deal’ is this for a developing country?

If you are concerned about the burden of debt that many poor countries face, fill in the postcard enclosed, and add to the campaign to ‘Wipe Out Debt’ in 2005. The cards are being collected by the Jubilee Debt Campaign and will be presented at a key moment to the G7 Finance Ministers.