"Debt Relief" Could Start New Cycle Of Borrowing

by Emad Mekay

(IPS) WASHINGTON -- Anti-debt campaigners leaked a document Tuesday showing that the World Bank is considering extending additional loans to countries eligible for a widely-publicized debt cancellation plan by the world's richest nations, a scheme that they say would defeat the purpose of the write-off.

The World Bank says it has made no final recommendations, but that poor nations with limited resources will likely have a continuing need to borrow even after graduating from the debt relief program.

The leaked document details options being put together by World Bank officials for implementation of the debt forgiveness plan by the Group of Eight (G8) most industrialized nations, which will be discussed at a meeting of World Bank executive directors in Washington.

A final proposal will be issued by the World Bank when it meets in September.

The Jubilee Debt Campaign and the World Development Movement (WDM), two non-governmental organizations that disseminated the document to journalists, said in a joint statement that the Bank's analysis shows that it is exploring the conditions under which debt repayments would be re-imposed on those countries.

The document, prepared by Geoff Lamb, the Bank's vice president for concessional finance, says that "most countries receiving 100 percent debt cancellation would be classified as 'green light' and therefore become eligible for new borrowing."

The document refers to a communique by the G8 announcing the debt relief plan and stating that countries receiving debt relief should be "eased into new borrowing." Further, it says that "given lower risk of debt distress (after debt relief), countries could potentially borrow more."

Campaigners warn that this would make the plan fundamentally different from what was initially proposed.

"The original plan did seem to concede the key principle that once countries have completed the onerous task of getting debt relief they would have all their debts cancelled immediately with no chance that repayments could recommence under any circumstances," said Steven Rand, co-chair of the Jubilee Debt Campaign. "This now appears from these documents to be in question."

Activists do not want to see eligible countries falling back into debt, arguing that they should receive grants and get "a clean start."

"What the document seems to contain is the World Bank asking the executive directors how quickly they can get the countries that receive debt relief back into patterns of borrowing and back into debt, which is an extremely worrying path for the Bank to be taking countries down," Dave Timms, spokesperson for the WDM, told IPS. "They talk about how quickly to get them back into a position of the heavily indebted."

The original plan, announced by British Finance Minister Gordon Brown with much fanfare in July, is that the G8 nations will offer 100 percent cancellation of debts owed by at least 18 of the most heavily indebted nations to the International Monetary Fund, the World Bank and the African Development Bank.

But a World Bank spokesperson said that the paper was "an informal and preliminary presentation" of the impact of the debt plan and is not meant to draw a road map for poor countries after the debt relief.

He added that the World Bank remained concerned about the ability of poor nations to raise significant amounts of funds outside the Bank's soft loans arm, the International Development Association (IDA), given their limited resources.

"The object here is not to clear the debts of these countries so the Bank can just resume lending to them," said Damian Sean Milverton. "The point of this is to ensure that developing countries, no matter what position they are in, have access to resources going forward because we know they need as much assistance as possible to improve their economies, create their jobs and make better lives for their people."

"Once a country's gone through the debt relief program, it very well may not get a loan from the Bank again, but it very well may go to other sources and take on debt," he said. "No one is saying these countries shouldn't borrow again. And in fact if the NGOs are saying that, they need to have another think about it."

But debt campaigners say the document shows other loopholes in the deal touted by Brown to protesters who gathered in Scotland last month, where leaders of the G8 were meeting.

Typically, the conditions tied to loans from the Bank and the IMF include privatization of public assets, the lifting of trade barriers and budget cuts that take funding away from social and environmental programs.

Two weeks ago, debt campaigners obtained a document detailing how some European representatives at the IMF were proposing major changes to the G8 debt deal. It showed that the proposals could hold up or even stop the promized debt cancellation and maintain the IMF's grip on poor nations' economies even after they qualify for debt cancellation.

"The G8 are serial promise breakers and for the past 20 years they have used the debts of the poorest countries as a way to impose privatization, free trade and deregulation on developing countries," said WDM's Head of Policy Peter Hardstaff.

"Unless these debts are irreversibly lifted from developing countries, we have no faith that rich countries will not use international institutions to impose damaging free market conditions in the future," he said.