World Bank, IMF Policies Leave Poorest Countries Without Hope

by Lucy Komisar

Minutes later, both men appeared on the press conference platform. Alexander Shakow, executive secretary of the Bank-Fund Development Committee, had made the comment to committee chair Tarrin Nimmanahaeminda, Finance Minister of Thailand.

Shakow had been discussing the effort to get donations for the new, expanded HIPC (Heavily Indebted Poor Countries) initiative which aims to relieve 41 countries' unsustainable foreign debts. When the Earth Times reporter, who'd been in the elevator, repeated the remark, Shakow turned beet-red, and World Bank President James Wolfensohn deflected the gaffe by asserting, "You can run a tremendous risk by focusing everything on debt. The issue isn't debt alone. The issue is continuing assistance and most significantly it is domestic policy in these countries."

From there, he launched into praise for the new agreement between the Bank and the Fund to work together to develop joint strategies for financial stability and poverty reduction, insisting that the alliance between governments, the IMF and the Bank to address poverty issues involves "a real breakthrough."

The "breakthrough" comes as a result of widespread condemnation of IMF-led structural adjustment policies that have worsened Third World living standards. Indeed, critical studies say the IMF's ESAF (enhanced structural adjustment facility), which makes concessional loans to poor countries that adopt Fund policies, has in 75 percent of cases enforced policies that increased recipient countries' poverty.

Oxfam dramatized that (and roused the ire of IMF officials) by distributing a pill box of "Bitter Economic Medicine for the Third World -- Hard to Swallow, Tested on People."

In the next 25 years, when the world's population moves from 6 to 8 billion, the numbers in poverty will climb from 1.3 to 1.8 billion and those living on under $2 day -- still poverty in most people's view -- will rise from 3 billion to 4 billion.

Juan Somavia of Chile, head of the International Labor Organization and an observer at the IMF Interim Committee, said at a meeting of women financial leaders, "Till now the people running the international system have believed that having a large number of people in poverty in countries is not a problem. There's been a sea change in the politics of the Bank and the Fund." He said they recognized that insecurity and social tension coming from social polarization was the source of "an incredible amount of instability."

Under the changes agreed to by Fund and Bank governors, ESAF will focus more on poverty reduction and will get a new name, the Poverty Reduction and Growth Facility. A new HIPIC will have lower debt sustainability thresholds aimed at allowing 12 countries to enter the program by the end of the year and more of the remaining countries after that, and giving them debt relief in three years instead of six.

A flurry of politicking and pressuring at the annual meetings got pledges to the HIPC fund of $2.3 billion, including $900 million from the U.S, $1 billion from the European Union, $230 million from the UK, over $100 million from Germany, and $3 billion from the IMF achieved through reevaluation of its gold holdings. But the total cost of the full program would be more than ten times that -- $27.5 billion, and that would cancel only a fraction of the debt of the lowest-income countries which is about $250 billion. Sub-Saharan Africa, for example, transfers $13 billion a year to creditors, four times as much as it spends on healthcare.

Under the new approach, governments will prepare poverty reduction strategy plans with the participation of civil society and approval by the Bank and the Fund. Countries will still have to follow economic policies approved by the IMF, though they now are supposed to contribute to poverty reduction as well as generate growth, with savings going to social programs.

But NGO critics are suspicious about the strategy. The new language says: "Social and sectoral programs aimed at poverty reduction will be taken fully into account in the design of economic policies for promoting faster sustainable growth." That makes critics think poverty reduction is not central, but an add-on.

Oxfam and UNICEF jointly said that instead of the present requirement for compliance with ESAF programs, "Human development goals must figure at the center of macroeconomic reform." It said the track for eligibility should be shortened, with more emphasis on poverty reduction.

Oxfam policy advisor Kevin Watkins condemned the "ESAF plus" approach which he said calls for adding social welfare safety nets to what the IMF considers fundamentally sound macroeconomic policy. He said the IMF put "an overarching emphasis on one aspect of the development process and one aspect of macroeconomic reform.... which says let's have stabilization targets first and ensure that other aspects of government policies are geared towards the stabilization targets." He said, "There is no serious analysis of what IMF targets and conditions mean for poor communities. There's no analysis of potential tradeoffs between perhaps inflation on the one side and children in school and higher rates of potential growth on the other side."

He argued for a more radical and far-reaching approach that starts from poverty reduction strategies and develops ESAF as support for them and pointed to Uganda which has "placed poverty reduction at the center of macroeconomic policy."

Eurodad, the European Network on Debt and Development, said there would not be enough debt relief, that the criteria were arbitrary, and that after completion of the program, countries would still be paying huge amounts. (The Bank says that the first seven countries in the program will have average debt service payable over the next five years that is only 12 percent lower than that paid during the previous five.) Eurodad said debt cancellation should not be tied to the ESAF or the successor Poverty Reduction and Growth Facility, but to how the freed-up money is spent.

The Jubilee 2000 Coalition pointed out, "Even the country that gains the most from this agreement, Zambia, will still use more of its government revenues in paying debt service to the West than it spends on health and education."

Ministers of the Group of 24, representing developing nations, had a contrary view. They were concerned that linkage to anti-poverty programs would be too strong, saying, "The implementation of poverty reduction programs should not delay the delivery of debt relief nor overburden members with conditionality."

Alex Shakow's comment that HIPC II "won't solve the problem" appears right on target.