Accessibility links

Breaking News

World: World Bank And IMF Consider Expanding Debt Relief

Washington, 26 April 1999 (RFE/RL) -- The World Bank and the International Monetary Fund (IMF) are considering ways to expand a program to help extremely poor countries caught in a debt trap. It's called the HIPC Initiative, the initials stand for Highly Indebted Poor Countries.

This program, started three years ago in the face of strong opposition from many opposed to forgiving any debt, was aimed at the poorest of the poor countries whose debt was so staggering compared to both national economies and export earnings that there was no way they could get out of debt.

To date, only 12 countries have been reviewed and 10 have qualified for debt relief packages. Only two countries, Bolivia and Uganda, have so far completed the complex three-year process of getting debt relief.

But the costs of even the present HIPC program have risen substantially, according to Anthony Boote, the IMF official in charge of the initiative:

Boote said: "They (the costs) have risen by about 30 percent when we did the exercise in the middle of last year to round-about $19 billion for all of the countries -- that's without any changes. And in a sense, that's due primarily to global economic developments. What do I mean by that? I mean specifically the dominant effect there is in the decline in commodity prices and it's the impact of that commodity price decline on the exports of HIPC's that is shown up in their needing more assistance calculated in relationship to exports."

Countries which qualify do not get all of their debts forgiven, but get significant reductions over three years IF they implement sound financial and monetary policies, don't borrow commercially, and push ahead on basic economic reforms.

A number of private social-concern groups, such as OXFAM and the Jubilee 2000 Coalition, have strongly criticized the program as too limited, too slow and too restrictive.

The bank and fund recently solicited 600 pages of ideas and proposals from the critics and have released it publicly as part of a dialogue on how the program can be both improved and expanded to more countries.

The World Bank's Manager for the HIPC Initiative, Axel Van Trotsenburg, says the debate has been pretty strong:

Van Trotsenburg said: "Some people say you should give it (debt relief) up front. Others say you should wait longer. And these tensions you see certainly in our boards as well as in all the public discussions."

Bank and fund officials say it is very important to understand that the HIPC Initiative is an extraordinary tool intended only for use after all the traditional debt relief mechanisms, such as the Paris and London Clubs of official and commercial creditors, had been exhausted. The IMF's Tony Boote:

Boote said: "So when you start talking about these countries having about ($)200 billion in debt and all you've done is provide $6-8 billion of relief so far, it misses the point. There has been - these are very difficult numbers - but there have been billions of dollars worth of debt relief provided by representatives of official governments in the Paris club, both through writing off ODA (official development aid) claims and to providing two-thirds reduction on a good portion of the commercial claims."

Not only have critics said the HIPC Initiative as being too little too late, they have also criticized the IMF's ESAF program, (Enhanced Structural Adjustment Facility) of concessional loans for low-income countries as causing more damage to the poor than providing help. But Boote says the fund has studied the impact of this low-cost loan program and found that countries which used the money had two percent higher growth rates than those which did not:

Boote said: "Contrary to myths that seem to be out there, health and education spending rises significantly under ESAF supported programs. We've looked at that. We know that over the last decade, health and education spending in ESAF supported programs has risen on a per capita basis by 5 percent per year."

Eighty nations, including most of the former Soviet countries in Central Asia, use ESAF loans. Only sub-Saharan African countries and some in Latin America and Asia are eligible for HIPC.

While the main job of reducing poverty falls to the World Bank, Boote says the IMF has become much more sensitive in recent years. It used to be, he said, that the fund pushed countries to achieve macroeconomic balance by cutting expenditure and letting the costs fall where they might:

Boote said: "That is not true any more. We go to great efforts in consultation with our colleagues from the bank, to try to put in place social safety nets, to try and make sure the burden of adjustment in countries which have to adjust in a macroeconomic sense, falls not on their poorer inhabitants but on those that can more afford it."

IMF and World Bank officials say they hope for agreement on an improved and expanded HIPC Initiative by the annual meetings in the autumn. World Bank President James Wolfensohn, who was the first to push the idea, told a press conference this week that he wants debt relief offered to a lot more countries but that it can only be done one way -- if there is a way to afford it, a way to pay the costs:

Wolfensohn said: "I think all that is terrific, so long as we can pay for it. I have no problem. But it ought to be done sensibly. It ought to be done responsibly. And I am very much looking forward to seeing the physical, tangible support that we need for the debt forgiveness. So, far from saying it's a failure, I would regard it as one of the best things that's happened in the last four years."