FINANCE: The Grinches Play Santa Claus

By Jim Lobe Reprint | | Print |

Jim Lobe

WASHINGTON, Dec 22 2000 (IPS) - Two of the world’s most notorious Grinchesthe World Bank and the International Monetary Fund (IMF)donned Santa Claus suits here Friday by heralding their delivery on a public commitment to provide debt relief to 20 of the world’s poorest countries by the end of the year.

After a flurry of last-minute approvals for debt-relief packages for half a dozen nations, Bank president James Wolfensohn and IMF Managing Director Horst Koehler announced that they had actually exceeded their target by launching debt-reduction programmes for a total of 22 countries, that should reduce their combined debt service by some 34 billion dollars.

At the same time, they warned that debt reduction under the Heavily Indebted Poor Countries (HIPC) Initiative by itself will not be enough to lift these countries out of poverty and called for private creditors to also do their part and for industrialised nations to increase aid levels and open their markets to poor-country exports.

“The international community must play its full part to improve the lot of poor countries, for there cannot be a good future for the rich nations if the poor nations do not share prosperity,” they said. “We need to make sure that the HIPC Initiative is supported by all creditors, including official bilateral and commercial creditors that have yet to provide the required debt relief.

“More broadly, we call upon industrial countries to raise their official development assistance towards internationally agreed levels. And we urge them to open their markets to the exports of the poor countries giving them a better chance to succeed on their own.”

Non-governmental organisations (NGOs), which long have been critical of the pace and scope of the HIPC initiative, said that they were unimpressed by Friday’s announcement.

“If they were truly serious about cancelling debt,” said Tim Atwater, Northeast Regional Co-ordinator for Jubilee 2000, a leading debt campaigner, “they would start by cancelling outright their own debt instead of sending out self-promoting Christmas Eve press releases.”

“It’s sad but not surprising that the IMF and World Bank are claiming both more success and much more credit for themselves than is warranted,” he added. “In reality, both institutions have been at best uncertain allies in the battle to cancel the crushing debt of the global South.”

The IMF and the Bank first launched the HIPC initiative in 1996 as an effort to reduce the debt burden on the world’s poorest countries to levels considered sustainable by the two agencies. Responding to criticism by Jubilee 2000, Oxfam, and other NGOs that these efforts were too little, too protracted, and too narrow, the two agencies modified the terms in October 1999.

The so-called “enhanced” HIPC aimed at reducing the net present value (NPV) of debt of qualified countries to what they considered a more manageable level: a maximum of 150 percent of the value of their annual exports and 250 percent of their government revenue.

Under the enhanced programme, eligible countries would qualify for debt relief in two stages. In the first stage, they would be required to demonstrate their compliance with IMF- and World Bank-approved structural adjustment programmes (SAPs) over a three-year period to reach what is called the “decision point”.

Only then would an eligible country begin receiving interim debt relief in exchange for designing and implementing a comprehensive poverty- reduction strategy aimed in part at using the funds that would have been spent on debt relief on social, health, and educational services for the poor. Once that stage is completed, the two Bretton Woods agencies would provide the remainder of the relief to which they were committed, while bilateral creditors in the Paris Club would adopt similar measures.

Koehler and Wolfensohn claimed in their statement that once full assistance is received under the enhanced HIPC programme, “countries will see their foreign debt reduced by almost half on average”. If the Paris Club donors also fulfil their commitments, total debt relief would, on average, be about two-thirds, according to the two men.

As the days dwindled to Christmas, the Bank and the IMF rushed through a number of countries which have reached or are very close to reaching their decision point. In just the last two days, for example, they announced that Sao Tome and Principe, Madagascar, Malawi, and Nicaragua had all qualified for relief.

Altogether, about three dozen poor countries, if they complete the first stage of the process, are supposed to qualify for the enhanced HIPC programme, although many critics want the criteria for eligibility eased so that more countries, including, for example, Nigeria, can receive relief.

Of the 22 countries which have reached or are close to reaching the decision point, 18 are in sub-Saharan Africa. In addition to Sao Tome, Madagascar and Malawi, they include Benin, Burkina Faso, Cameroon, The Gambia, Guinea, Guinea-Bissau, Mali, Mauritania, Mozambique, Niger, Rwanda, Senegal, Tanzania, Uganda, and Zambia.

The remaining countries include Guyana and two other Latin American countries besides Nicaragua – Honduras and Bolivia.

The largest single debt-relief package committed under HIPC was Nicaragua’s whose debt-service obligations should decline by a total of about 4.5 billion dollars, or the equivalent of 72 percent of its total outstanding debt if it completes the programme successfully.

Uganda is the only country so far which has reached the completion point in the programme and thus received full benefits under HIPC. Four or five countries should reach their completion points by mid-2001 so long as they remain in compliance with IMF and Bank programmes and adhere to their own poverty reductions strategies which are supposed to have been developed in collaboration with local NGOs and civil society. These include Mozambique, Bolivia, Honduras, and Tanzania.

In their statement, Wolfensohn and Koehler stressed that HIPC offered a “strong foundation” for the world’s poorest countries to deal with their “difficult circumstances”, including the AIDS pandemic and continued barriers to their exports in the global trade system.

But NGO critics charged that both agencies were not being nearly as helpful as they could be. “Even when they have provided needed resources, the costs have been far higher than necessary,” said Jubilee’s Atwater.

“What they give with one hand in debt reduction, they often take away with the other, by insisting on micro-managing Southern economies, imposing user fees on essential services such as health care and education, and requiring sell-offs of state-owned enterprises at fire-sale prices.”

Njoki Njehu, director of Fifty Years is Enough, an anti-Bretton Woods coalition, agreed. “The IMF and World Bank have more than enough resources to comfortably cancel all the debts owed them by the world’s most impoverished and indebted countries,” she said, adding that debt reduction under HIPC is “more of an accounting manoeuvre than an act of generosity, and more of a favour to creditors who no longer have ‘non- performing loans’ than to debtors who couldn’t pay anyway”.

Jubilee and debt campaigners, said Njehu, a Kenyan who just returned from a conference of anti-debt campaigners in Dakar, Senegal, “are demanding that their own countries repudiate these debts, many of them incurred by dictators and used for corrupt and irresponsible purposes, and many of them already paid back many times over”.