World Bank, IMF Cancel $40 In Debt From Poorest Nations

by Shirin

(IPS) WASHINGTON -- The World Bank and International Monetary Fund (IMF) have agreed to cancel $40 billion in debts owed by 18 of world's poorest countries to them and to the African Development Bank.

The Group of Eight (G8) most industrialized countries had proposed complete debt cancellation without conditions. The deal was approved by the Bank and IMF during their annual meetings, which concluded Sunday.

The countries whose debt will be erased are Benin, Bolivia, Burkina Faso, Ethiopia, Ghana, Guyana, Honduras, Madagascar, Mali, Mauritania, Mozambique, Nicaragua, Niger, Rwanda, Senegal, Tanzania, Uganda and Zambia.

The countries are among the Heavily Indebted Poor Countries (HIPC), a category established by the Bank and IMF in 1996. HIPC have to meet highly controversial conditions to qualify for debt relief, such as large-scale privatization of utilities like water and other state-owned enterprises, removal of subsidies on basic goods, and trade liberalization.

All 18 countries in question have fulfilled the IMF and World Bank conditions.

HIPC conditions have come under fire from civil society organizations, and even the Bank and IMF have admitted that these conditions have not succeeded in their aim "to reduce to sustainable levels the external debt burdens of the most heavily indebted poor countries" and "freeing up of resources for increased social sector expenditures."

Some activists had been skeptical of the debt deal from the start, saying that the institutions may add extra conditions, making the deal meaningless. They had pressured the institutions to agree to full debt cancellation without conditions and to extend the deal to other poor countries.

Rodrigo de Rato, the IMF's managing director, told IPS there will be no more conditions imposed on the countries and that the debt cancellation will be given "outright" and "upfront."

He was speaking at a joint Bank and IMF Development Committee press conference today. Also in attendance were Paul Wolfowitz, president of the World Bank, and Minister Trevor Manuel, chairman of the Development Committee.

De Rato added that the results of the deal will be reviewed by the International Monetary and Financial Committee (IMFC).

The issue at the heart of the debt cancellation deliberations at the Bank and IMF since the G8 proposed it three months ago has been the financing of the International Development Association (IDA), the World Bank agency that gives about $9 billion a year in concessional loans to poor countries. Doubts have been raised by donor countries about the sustainability of the IDA if the debt is cancelled.

Today, the Development Committee announced that it had "agreed on the need for an interdependent package consisting especially of dollar for dollar compensation for IDA that is truly additional to existing commitments and that maintains the financial integrity and capacity of IDA to assist poor countries in the future."

"We are confident that the package, including financing, the main technical features of the proposal and burden sharing on a voluntary basis will provide these benefits," the committee said.

Seventy percent of the funding for the IDA comes from the G8 countries -- Russia, Britain, France, Germany, the United States, Japan, Italy and Canada. Wolfowitz stressed Sunday that in order for the deal to succeed, the donor countries must fulfill their promises.

The Bank and IMF also emphasized the importance of the eligible countries "maintaining sound economic performance and good governance."

Wolfowitz assured reporters that the details of the deal will be final in the next three weeks.

"We are still far from a final deal in practice, despite the principle of 100 percent cancellation endorsed today," he said. "Once donor countries will concede additional financing to pay for the deal, then in particular in the case of the World Bank, it should be clarified how this will impact aid disbursement to these 18 and to other countries which are not in the initiative."

Antonio Tricarico, coordinator of Campaign to Reform the World Bank (CRBM) in Italy, told IPS, "The devil remains in the details and we will keep watching them."

Neil Watkins, national coordinator of the Jubilee USA Network, an anti-debt group, told IPS, "complete debt cancellation for these countries is a welcome step. However, this cancellation amounts to only 10 percent of the money that is needed to achieve the Millennium Development Goals (MDGs)."

The MDGs include a 50 percent reduction in poverty and hunger; universal primary education; reduction of child mortality by two-thirds; cutbacks in maternal mortality by three-quarters; promotion of gender equality; reversal of the spread of HIV/AIDS, malaria and other diseases; and a North-South global partnership for development.

A summit meeting of 189 world leaders in September 2000 pledged to meet all of these goals by the year 2015. But their implementation has depended primarily on increased development aid by Western donors.

"This means that these 18 countries should only be the beginning," Watkins said. "The World Bank and IMF should extend debt cancellation to all poor countries if they are serious about poverty alleviation.

"Also, civil society must stay vigilant because the details of the deal will be worked out over the upcoming weeks at the IMF and World Bank boards. What we have right now is only a broad agreement; the finer details are what will matter."

Another important issue discussed at the IMF and World Bank meetings was climate change, which the Development Committee statement describes as "one of the greatest threats to the world today."

But critics charge that the World Bank has only exacerbated the problem.

"By being one of the leading global financiers of fossil fuel projects and ignoring the results of its own extractive industries review, the World Bank is one of the most guilty in fueling the world's unsustainable addiction to oil and other CO2-producing industries," Ann Petermann of the Global Justice Ecology Project told IPS.

"This statement does nothing to acknowledge the damage that the World Bank has done or even to take steps to address the issue, one of which would be implementing the recommendations of the extractive industries review."