World Bank/IMF debt initiative spells more adjustment, little relief

The recent World Bank/International Monetary Fund initiative on debt is not so much a debt relief package as a means to continue the implementation of harsh economic adjustment measures.

By John Mihevc

MINISTERS gathered at this year's annual World Bank/IMF meetings are patting themselves on the back for agreeing finally on a package to provide debt relief to the poorest countries. After two years of wrangling, the finishing touches are being put on a package that will enable those countries that are deemed to be poorest and most indebted, to receive some measure of debt relief.

However, the debt relief package being heralded by World Bank President James Wolfensohn as 'very good news for the poor', will not even begin to address the enormity of the debt crisis. The initiative is not so much a debt relief package as a means to continue harsh economic adjustment measures.

To be eligible under the proposal, countries must have a proven track record of successfully implementing Structural Adjustment Programmes of fiscal austerity and trade liberalisation for up to six years. Moreover, the IMF's contribution to 'debt relief' under the new initiative is the soon-to-be replenished Enhanced Structural Adjustment Facility (ESAF). The funds that will be provided through ESAF will be used to further support the implementation of structural adjustment programmes, which have been criticised for their harsh social and environmental impacts. In fact, ESAF loans have been available to the most highly indebted countries for years, yet their debt burdens have continued to grow.

While the World Bank has committed at least $2 billion to a debt relief Trust Fund, the IMF continues to shirk responsibility for committing its own resources for debt relief. The IMF has committed none of its own resources to real debt reduction. IMF donor governments, led by Germany, have refused to sell IMF gold stocks for debt relief. Further, the IMF has succeeded in shifting the responsibility for financing its contribution for debt relief from its own coffers back to the donor countries.

Meagre reduction

The proposal to increase the debt relief provided by bilateral creditors (Paris Club) from 67 to 80% in fact only increases the actual amount of debt relief by one or two percentage points for eligible countries. In real terms it will only mean a 16.7% reduction overall of bilateral debt. This is because loans made after the date of the first negotiation of debtor countries with the Paris Club (the so-called cut-off date) will not be eligible for debt reduction. Secondly, debt incurred through development assistance programmes are also not eligible for the reduction. For many of the countries which are considered eligible for the debt reduction, the net effect will be minimal. Nicaragua, for instance, will only get an 8.4% real reduction from the new Paris Club terms.

As thousands of children die every day as a direct result of the debt crisis the debt package will not even begin to kick in until the year 2000 at the earliest for the countries deemed eligible. It has yet to dawn on the financial leaders of the world that every day of postponement means thousands of additional lives lost and untold continued suffering for the world's poorest.

Meaningful debt relief requires a serious commitment by creditor nations and the multilateral institutions to cancel substantial amounts of debts owed by the poorest countries, which have by all accounts become unpayable. Debt relief must be clear and up-front. What the world's poorest do not need is a continuation of the smoke and mirrors performances of the world's financial leaders witnessed at this year's annual meetings.

For the countless groups and individuals around the world who have campaigned and lobbied on this issue for many years, the debt initiative does mark an important stepping stone and has shown how persistent efforts do pay off. An important principle has been established in having forced the World Bank and IMF to admit that the debts owed to can be cancelled. It is a small but significant first step in our continuing efforts to end the needless suffering of millions throughout the world because of the greed and lack of political will of the world's financial leaders.

John Mihevc is the Coordinator of the Economic Justice Programme of the Inter-Church Coalition on Africa. He is the author of 'The Market Tells Them So' published by Third World Network.