[stop-imf] Development News Tuesday, April 11, 2000 (fwd)
Robert Weissman
rob@essential.org
Tue, 11 Apr 2000 14:44:29 -0400 (EDT)
World Bank reports on the call for a Bank bond boycott, and other
interesting items.
Robert Weissman
Essential Information | Internet: rob@essential.org
This summary is prepared by the External Affairs Department of the World Bank.
All material is taken directly from published and copyright wire service stories
and newspaper articles.
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Headlines for Tuesday, April 11, 2000:
- JAPAN UNVEILS ADDITIONAL DEBT BREAK FOR POOREST NATIONS.
- A CALL TO GLOBAL ACTION IN A GLOBAL ECONOMY. WOLFENSOHN.
- GROUPS PLAN BOYCOTT OF WORLD BANK BONDS.
- VOLATILE FLOWS COULD UPSET ASIAN RECOVERY.
- AIDS WILL SLASH SOUTH AFRICA'S ECONOMIC GROWTH.
- Also in this edition: CASH-STRAPPED WORLD BANK WARNS OF LENDING CURBS.
JAPAN UNVEILS ADDITIONAL DEBT BREAK FOR POOREST NATIONS.
Japan yesterday launched a package of additional measures for international debt
reduction, including the forgiveness of all the debt owed to it by the world's
poorest countries, reports Kyodo News. Chief Cabinet Secretary Mikio Aoki said
Tokyo would expand its previous commitment to debt relief made last year to
fulfill its duties as chair of this year's summit of the G8 nations in Okinawa
in July.
Under the new plan, Japan will raise its waiver of non-official development
assistance (ODA) loans to 40 highly indebted poor countries (HIPCs) to 100
percent from the more than 90 percent promised earlier, Aoki said. As Japan had
already vowed to cancel all its outstanding ODA loans to eligible HIPCs, the
latest step will see the nation waive all its ODA and non-ODA loans to the
impoverished states.
Aoki also said Tokyo would contribute an additional $190 million to the debt
relief trust fund of the World Bank and increase its grants-in-aid to HIPCs
further. Tokyo had earlier provided $10 million to the World Bank trust fund.
Also reporting, the Financial Times (p.4) notes that since Japan is the world's
largest aid donor, with loans to 40 HIPCs totaling about $10.5 billion, its
agreeing 100 percent reduction on non-ODA loans was seen by some as critical to
the initiative. However, notes the Guardian (UK, p.23), Jubilee 2000 said the
announcement was still short of the commitments made by other countries because
most of Japan's official development loans are provided through multilateral
organizations not covered by the latest move.
The FT continues that the Japanese government yesterday warned that countries
which ask for 100 percent debt relief would not be able to receive fresh loans
as under current circumstances it would be difficult for Japan to extend new
loans. "It is a choice between new loans or cancellation of debts," the Foreign
Ministry is quoted as saying. "In Japan, the economy is struggling, the fiscal
situation is difficult, and the government has injected public funds into
banks."
The Japanese government is also concerned that countries seeking 100 percent
debt relief are likely to have difficulty attracting foreign investment, which
in turn could adversely affect their future development. "Debt relief alone is
not a panacea...but rather, broad development strategies must be prepared," the
government said.
In other news, Tanzania plans to ask donors to cancel 90 percent of its external
debt at this week's meeting with Paris Club members, Reuters and AFP report,
noting that the country is set to receive over $2 billion under the World Bank
and IMF HIPC debt relief initiative.
A CALL TO GLOBAL ACTION IN A GLOBAL ECONOMY. WOLFENSOHN.
As policy makers from developing and developed countries prepare to gather in
Washington this week at the World Bank and the IMF for their Spring Meetings,
their mission will be to push for greater progress in tackling the most pressing
issues in development today, writes World Bank President James D. Wolfensohn in
an op-ed appearing in El Universal (Venezuela), El Tiempo (Colombia), Sowetan
(South Africa), and Pioneer (India).
Issues to be discussed are reducing poverty and inequality, the continuing human
devastation caused by HIV/AIDS and other communicable diseases, bridging the
digital divide, and making international trade more equitable. As they meet,
demonstrators taking their cue from their "victory" in Seattle, will try to
close down the meetings. We respect the demonstrators' right to protest, but
who wins by shutting down discussion of some of the world's most pressing
problems?, Wolfensohn asks.
We need those discussions, Wolfensohn adds. First, because these events spur
important public debate about the big economic, political and social questions
we face in a frantically changing world. But more importantly, because despite
all the efforts of governments, official institutions and non-governmental
organizations (NGOs), we will never significantly reduce the number of hungry
children in the world unless we build dynamic coalitions of governments, civil
society, and the private sector to construct a global economy that benefits all
people.
And we need these coalitions now more than ever. Despite years of relative
peace and prosperity in industrialized countries, global poverty is getting
worse. 1.2 billion people, nearly one-quarter of the world's population now
live in extreme poverty. Over the next two decades this ratio could grow, as two
billion extra people will be added to the planet, largely in poor countries.
More troubling still is the gap between rich and poor. In Brazil, for example,
the poorest 20 percent of the population earn just 2.5 percent of the country's
income-the richest 20 percent control nearly two-thirds of that wealth,
Wolfensohn adds. This is not just an extreme case. Alarming ratios are seen in
countries as different as Colombia and Niger, South Africa and Russia.
There is no reason that economic development must yield environmental
destruction. In January this year, the World Bank launched the world's first
market-based mechanism to address climate change and promote the transfer of
finance and climate- friendly technology to developing countries. Under the
initiative, funds contributed from governments and private companies will be
invested in cleaner technologies in Eastern Europe and elsewhere in the
developing world, reducing greenhouse gas emissions, which are then transferred
to the fund's contributors in the form of certificates. Poor countries benefit
from access to clean technology and revenue from the sale of their emissions
reductions; contributors are better able to meet their commitments under the
Kyoto Climate Change Protocol; and the environment benefits as countries switch
to efficient technologies. This is just the beginning.
The debate on globalization and its effects on the poor is legitimate and
necessary, Wolfensohn notes. No one has a monopoly on the truth, and if they
did today, it would be obsolete tomorrow. But everyone should have a voice,
most importantly the poor themselves-who too often have been absent. Our
challenge is to move beyond the rhetoric and recognize that we live in a time of
astonishing possibility. Whether it be immunizing all children from preventable
disease or linking every school in Central Asia to the Internet, solutions to
problems which seemed insurmountable just a few years ago are now within reach.
But we need discussion not closed-down meetings, and we need everyone, from
those who filled the streets in Seattle to those coming to Washington to make it
happen.
Meanwhile, the Washington Times (p.1) reports protests against international
financial institutions became unruly Monday as seven demonstrators were arrested
after blocking traffic near the World Bank and others spray-painted graffiti on
a highway. The graffiti reads, "Outlaw Bankers Cancel All Debt Question
Property Rights Destroy Boundaries Write Everywhere Drain Banker's Blood in the
Potomac Freedom Begins Where Debt Ends 50 Years is enough is not enough Joel
Klein is not enough String up CEOs with Banker's Guts."
Police established a security perimeter around the World Bank and IMF
headquarters yesterday, Reuters reports, noting that both organizations are
bracing for a series of rallies by a coalition of protesters decrying what they
see as the ills of the global economy. City police are on heightened alert for
potential protests until the organizations' spring meetings end next Monday.
The story notes that an e-mail sent by World Bank President James Wolfensohn
told Bank staff not to be put off by accusations from protesters who say Bank
and Fund policies are responsible for thousands of deaths each day in the
developing world. "We can and should be proud of the work we do in fighting
poverty," Wolfensohn wrote to his staff. "This is a noble task and a human one.
Our team is as devoted and effective as any in the world."
Further, a Washington Post (p.22) editorial says the protestors' passion is
partly wonderful and partly dangerous.
Generalized attacks on "globalization" fall into the dangerous category. The
past half-century has taught that international flows of trade and investment
are a tremendous spur to economic growth. In the late 1950s South Korea and
Ghana had the same GDP per person. South Korea has since exported its way to
prosperity, while Ghana's attempts to do without trade in the 1960s and 1970s
have condemned its people to continued poverty.
Generalized attacks on the World Bank and IMF for their "structural adjustment"
policies are similarly unhelpful. If development aid is to work, it needs to
come with conditions. Funding for a road should be conditional upon sound
engineering and proof that the road is needed. Equally, funding for a budget
should be conditional upon sound economic policies. If a country mismanages its
exchange rate or causes hyperinflation, it needs structural adjustment.
Otherwise it will never beat poverty.
That said, some protesters make narrower arguments that hit closer to the mark.
Trade is good. International regulatory agreements on things such as
intellectual property promote trade and therefore seem good also. But if
intellectual property can be regulated across borders, what about labor
standards, human rights or the environment? There is no neat answer to this
question. Indeed, the existing intellectual property regime probably goes too
far in protecting first-world pharmaceutical companies at the expense of poor
consumers.
Equally, some kind of structural adjustment may be necessary, but are existing
formulas right? At times the international institutions have expected countries
to cut public spending on health and education, though healthy and educated
people are a key ingredient of economic growth. If the IMF and World Bank could
get more resources to poor countries, structural adjustment would be less
painful. This is why the protests aimed at blocking the bank's access to the
capital markets are crazy, says the Post, but it is also why last Sunday's
demonstration in favor of debt relief for poor countries was right on the mark.
GROUPS PLAN BOYCOTT OF WORLD BANK BONDS.
Hoping to starve the World Bank of the money it lends, activist groups pledged
yesterday to organize a global boycott of its most important fund-raising tools,
World Bank bonds, reports the Washington Post (p.E3).
In the Bank's view, its loans are key weapons in a battle against poverty and
disease, helping ordinary people profit from their countries' resources and
enter the world economy. At the same time, the institution is taking part in a
program to cancel much of the debt owed by desperately poor countries.
Some investors, such as church pension funds, have long bought the bonds because
they feel they're an investment against poverty. "I am more accustomed to people
treating World Bank bonds as socially responsible investments than . . . the
opposite," said Gary Perlin, the bank's chief financial officer.
Perlin predicted little success but said that any the campaign does have
"wouldn't hurt the Bank. It would hurt the countries to whom we are lending,"
because the Bank would have to pass a higher cost of borrowing on to them in the
form of higher interest rates for loans. "For people who are looking for debt
burdens to come down," he said, citing critics' call for cancellation of loans
owed by poor countries, "I can't make logical sense out of that."
Organizers dismiss that objection, saying their long-term goal is to force the
bank to reduce its lending. Wall Street paid little attention yesterday. Rating
agencies Moody's and Standard & Poor's both give the bank's bonds the highest
possible rating, AAA. As a result, the Bank pays low interest rates to
bondholders and can offer discount-rate loans to borrowers.
Meanwhile, anti-World Bank activists yesterday called for an end to its support
for oil, gas and mining projects, reports Agence France-Presse. Groups charged
that World Bank lending policies in developing countries had aggravated poverty,
undermined economic independence, and polluted the environment. The initiatives
came as demonstrators began arriving in Washington ahead of street protests on
April 16 and 17 against the spring meetings of IMF and World Bank policymakers.
Asked about the charges, World Bank mining adviser John Strongman said that in
India and China, where coal accounts for 80 percent of energy resources, the
Bank was actively promoting not only energy diversification into gas but also
cleaner coal use and measures to extract higher quality, less polluting coal. In
Russia, Ukraine, Poland and Romania, where coal output has declined 40 percent
since 1989, Strongman maintained, the World Bank has provided $2 billion in
loans to help mining communities come to grips with unemployment.
"Those $2 billion are associated with a 40 percent reduction in coal
production," he said. "The bulk of that money has been in the form of social
safety net payments and severance payments for miners who are losing their
jobs."
Dow Jones adds that James Bond, director of the World Bank Group's mining
department, said he agreed with the desirability of renewable energy but that
the protesters' attacks were misdirected. "Where I'm disappointed is they
simply don't understand what we do here at the World Bank Group," Bond said.
"Our biggest activity on the mining side is to help countries shut down mines,"
Bond said, citing the example of Poland where Bank loans have helped ease the
transition away from coal mining. "Our vision is a mining sector that is run by
the private sector that is sustainable," he noted. "Every time we can actually
tie a dollar of our lending to something specific we apply safeguards...for the
environment and local peoples."
VOLATILE FLOWS COULD UPSET ASIAN RECOVERY.
Politicians and bureaucrats are bracing themselves for a rowdy time at the
spring meetings of the World Bank and the IMF in Washington this weekend, but
whatever damage the demonstrators may do, officials can console themselves that
emerging economies have shown a marked recovery from the global financial crisis
that began in 1997, writes John Plender of the Financial Times (p.14). The
strength of the bounce-back, especially in east and southeast Asia, has caused
the World Bank to revise upwards its estimate of developing countries' growth in
1999 to 3.3 percent. The Bank's economists now put the growth prospects for the
same group of countries at 4.5 percent this year, rising to 4.8 percent by 2002.
The risk appetite of global investors is returning. Foreign direct investment
(FDI) in emerging economies last year was above its pre-crisis levels,
reflecting both the pursuit of high returns in sectors such as technology and
telecommunications and the opportunity for acquisitions arising from financial
distress. What then could upset this return to decent growth?
Volatile capital flows could do it again, says Plender. In its annual "Global
Development Finance" report, the World Bank argues that over the past 130 years,
surges in capital flows to emerging markets have been a recurring feature of
global economic expansion, and a hard landing is the usual outcome. With less
dependence on volatile debt flows than in the mid-1990s, the recovery in the
emerging economies looks relatively robust in the short run, says Plender, but
that said, the composition of flows is already beginning to shift from FDI to
less stable portfolio capital and debt. So rapid recovery is closing a window
of opportunity for many foreign investors to the detriment of financial sector
development in emerging economies and thus of more stable flows.
AIDS WILL SLASH SOUTH AFRICA'S ECONOMIC GROWTH.
The AIDS crisis will cut South Africa's economic growth, increase inflation and
exacerbate the country's shortage of highly skilled labor, according to
newspapers Tuesday, Associated Press reports.
The Business Day cited a new report from ING Barings, which concluded that the
epidemic will cut South Africa's annual growth rate by 0.3-0.4 percentage points
over the next 15 years. Though the infection rate among highly-skilled labor is
only a third of that among the less skilled, it is still enough to cause a
shortage of highly-skilled people, the Star newspaper said, citing the Barings
report. That shortage is likely to increase inflation.
A paper prepared by the World Bank, to be discussed at its meeting next week in
Washington with the IMF, said "the epidemic poses the foremost challenge to
development in sub-Saharan Africa."
Inaction by governments has played a crucial role in the disease's spread, the
paper said. Once the prevalence of AIDS in a population reaches 8 percent, the
per capita growth is reduced by 0.4 percent a year, the paper said. According to
the Actuarial Society of South Africa, 12 percent of South Africans are infected
with HIV. The society predicts the infection rate will peak at 17 percent in
2006 and AIDS-related deaths will begin to decline about five years later.
Separately, Nadine Gordimer, Nobel Prize for Literature in 1991 and goodwill
ambassador to UNDP, writes in a New York Times op-ed (p. A31) that 69 percent of
the world's victims of HIV and AIDS are in sub-Saharan Africa. This figure is
not easy to take in. AIDS seems to have come upon everyone while we were looking
the other way: it happened to some sex or color other than our own; it was
endemic to some other country.
In South Africa it was quite some time before the realization that the disease
was not the unfortunate problem of our poorer neighboring countries, but was our
own. Now, out of South Africa's 43 million people, about 4 million have been
infected by HIV and a further 1,700 are infected daily. Recently, in a
Johannesburg home caring for orphaned or abandoned babies born with AIDS, there
was a service in memory of 40 who had died there not long before. While South
Africa is the most highly developed country on the African continent, we are
faced with this kind of future for the generations to come.
At the level of international -- global -- responsibility, the total sum needed
annually for AIDS prevention in Africa is on the order of $2.3 billion. Africa
currently receives only $165 million a year in official assistance from the
world community.
Other questions that rest with the world community become relevant: debt relief
for developing countries, for example. The director-general of the WHO said last
year that debt relief should be reviewed in light of the resources that
governments with large debts need to confront HIV.
Also in this edition: CASH-STRAPPED WORLD BANK WARNS OF LENDING CURBS.
CASH-STRAPPED WORLD BANK WARNS OF LENDING CURBS. According to papers to be
discussed next week, reports Reuters, the World Bank, under fire from
demonstrators who say it neglects the poor, may have to ration its lending to
key countries unless its members find more cash. A document for next Monday's
meeting of the decision-making Development Committee said the Bank's capital
structure was sound. But the World Bank wanted member countries to consider a
capital increase, which would allow the Bank to respond to new world economic
problems, and to borrow more on financial markets and lend more to member
countries..
The report admitted it would take "a lead time of several years" to agree a
capital increase for the global lender, which loaned countries billions of
dollars during the world financial crisis of 1997-1999 and which first put in a
tentative request for extra cash last year. "The Bank's financial capacity
remains a cause for concern for reasons that go beyond the global shock
scenario... New lending to many large borrowers which are home to most of the
global poor may be constrained," the report said. "While a number of
shareholders have agreed on the need for enhancing the World Bank's financial
capacity, there is as yet no consensus on the timing for initiating formal
discussions on options that involve contribution of capital resources by
shareholders or borrowers."
The Bank said it would try to get by on existing resources, but stressed there
were limits to what could be done. "We have not formally asked our shareholders
for more money," said Teng Hong Cheah, of the World Bank's finance department.
"But if they want us to do more, at some point in the future we would need more
capital."
The Development Committee meeting is the final event in a week of discussions
and news conferences surrounding the spring meetings of the World Bank and the
IMF, notes the story. Ministers will review a paper looking at ways the Bank
and its member countries can respond to the spread of AIDS.
The news comes as Nancy Birdsall, senior associate at the Carnegie Endowment for
International Peace, writes in the Financial Times (p.15) that the recent report
by the US congressional advisory commission headed by economics professor Allan
Meltzer, which was designed to address the issue [of reforming the World Bank
and the IMF], failed to produce a convincing set of proposals.
The commission recommended that the Bank and the regional development banks
phase out lending to countries with investment grade ratings. Countries such as
Brazil, Mexico, Thailan, and South Africa fall into this category. But the
interest rates they pay are high and volatile, and reliable access to private
credit is by no means assured. When the Russians defaulted on their domestic
debt in 1998, even the most creditworthy countries of Latin America could not
borrow-except of course from the World Bank and the IDB.
When global market turmoil requires these countries to reduce government
spending to rebuild credibility with private lenders, it is the international
banks that provide credits to sustain their education and health programs.
Further, Allan Meltzer and Adam Lerrick write in the Washington Post (p.A23)
that the spirited discussion brought on by the recent report on reforming
development banks (such as the World Bank) has revealed two significant areas of
general agreement. First, the goal of the development banks is the alleviation
of poverty among the poorest members of the global community. Second, the
effectiveness of the banks' programs must be dramatically improved. They look
forward to working with the World Bank on increasing the effectiveness of aid,
they write.
BRIEFLY NOTED...The EU may suspend millions in annual aid to Zimbabwe if
President Robert Mugabe fails to fulfill a promise to hold free and fair
elections across the increasingly violent country in May, reports the FT (p.6),
noting that EU foreign ministers yesterday issued a tough statement putting
pressure on Mugabe both to allow the elections to go ahead and to enforce the
law, including complying with court decisions ordering the removal of illegal
occupiers of hundreds of white-owned farms.
The IMF Tuesday urged Malawi's government to cut spending so the impoverished
country can be considered for relief of its $2.4 million debt, AFP reports. A
statement issued at the end of an IMF assessment mission said a major concern
was Malawi's poor record in controlling public spending and preventing the waste
of scarce resources, the story says.
The first summit between North Korea and South Korea on June 12-14 could lead to
a reduced military threat in northeast Asia and economic gains for the two
countries, reports the Asian Wall Street Journal, noting that South Korean
Finance Minister Lee Hun Jai yesterday said that, among other things, the South
could support the North's entry into the ADB and the World Bank, which could
help North Korea with loans...The World Bank said on Tuesday that it was working
closely with the Indonesian government to revive the country's economy but
cautioned that its people's expectations may be too high, Reuters reports...Also
in Indonesia, the country looks set to win backing at a meeting Wednesday of
donor countries in Paris to reschedule $2.1 billion in debt due in 2000, paving
the say for its commercial lenders to spread out repayments, Dow Jones reports
officials close to the talks said Tuesday.... AFP reports that Australian
businesses were urged on Tuesday to take a leading role in rebuilding East Timor
, in particular through projects that employed East Timorese. Representatives
from various international organizations told a business seminar that creating
employment in public and private sector projects was vital in helping the
impoverished new nation.
Legislators in the Philippines are set to vote this week on a bill that would
privatize the heavily indebted national power company, a reform that the IMF and
other lenders have demanded before disbursing critical new loans, the New York
Times (p.C4) reports.
After suffering its worst ever contraction in 1999, Turkey's economy is starting
to show signs of a recovery with industrial output rising in the first two
months of the year, Reuters reports. Analysts said positive signals from the
industrial sector are likely to be reinforced by encouraging development
elsewhere in the economy in the coming months....The World Bank on Tuesday told
Bosnia's Moslem-Croat federation to resolve glitches which have stalled the
privatization of five state-owned banks burdened by pre-war debt, Reuters
reports.
The Bolivian government agreed yesterday to back off water price increases that
sparked a weeklong spiral of violent protests by thousands of farmers and
workers, fueled by the economic crisis in South America's poorest country, the
Washington Times (p.A14) reports...Even if little-known Stanford-educated
business school director and former World Bank consultant Alejandro Toledo were
to beat Peruvian President Alberto Fujimori in a second round of voting in late
May or early June, the Andean nation would be unlikely to stray from a path of
economic reform set when Fujimori was first elected president in 1990, the Wall
Street Journal (p.A21) reports.
Pakistan's Finance Minister Shaukat Aziz will lead a team to Washington on
Wednesday for talks with the IMF, seeking funds ahead of the country's
forthcoming national budget, AFP reports officials said Tuesday. The talks will
set the course for a possible resumption of IMF funding under its poverty
reduction and growth facility, estimated at $2 to $2.5 billion over a period of
three years, the officials said.
International AIDS Vaccine Initiative (IAVI) President Seth Berkley yesterday
criticized calls for a boycott of an international AIDS conference to be held in
South Africa in July, reports Reuters, noting that IAVI was founded in 1996 to
ensure the development of safe, effective preventive HIV vaccines for use
throughout the world and receives sponsorship from the World Bank, business, and
private donors.
Russia is not expecting to receive any more outstanding payments from its
current standby loan program with the IMF, but is hoping instead to negotiate a
new program, the Financial Times (p.2) reports Russian Foreign Minister Igor
Ivanov said yesterday. Speaking to American investors in Moscow, Ivanov said
the government had agreed last week with Acting IMF Managing Director Stanley
Fischer "to start consultations on the next program."
Reuters reports that US House of Representatives Ways and Means Committee
Chairman Bill Archer (Republican-Texas) yesterday warned President Bill Clinton
that efforts to strike a deal with Democrats on a trade agreement with China
could undermine Republican support for the market-opening pact. The side
legislation, proposed by Representative Sander Levin (Democrat-Michigan), would
set up a watchdog commission to review Chinese policies and could recommend
sanctions against Beijing as long as they were consistent with WTO rules. Under
Levin's proposal, notes the story, Congress also could direct the Clinton
administration to oppose new loans to China from the World Bank and the IMF.