[stop-imf] Debt relief scheme missing targets- FT and Reuters

Fri, 06 Sep 2002 11:50:28 -0700

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Financial Times:
Debt relief scheme missing targets, says IMF
By Alan Beattie in Washington
Published: September 5 2002 22:07 | Last Updated: September 5 2002 22:07
www.ft.com/world
A flagship international debt relief scheme for the world's poorest
countries is failing to free many countries from debt as it becomes clear
that its forecasts were too optimistic, the IMF and World Bank have
admitted.
In a study for the joint ministerial steering committee linking the two
institutions, which meets at the end of this month, fund and bank staff say
that half of the 20 countries going through the process are likely to exceed
their sustainable debt targets. But the bank's governing board, which met
earlier this week, showed no enthusiasm for making the scheme more generous
despite pressure from non-governmental organisations, bank officials said.
The staff study - a copy of which has been seen by the Financial Times -
asserts: "Earlier projections often contained overly optimistic
macroeconomic assumptions, reflecting. . . inadequate analysis of the likely
sources of growth and the expected impact of planned policies."
Falling commodity prices have pushed several of the highly indebted
countries, which are heavily dependent on agricultural exports, off
track in
hitting debt-to-export targets.
The report considers various proposals from NGOs and a bill currently in the
US Congress to deepen the relief available, but concludes that they
would be
too expensive and an inefficient way of delivering extra money to poor
countries.
Jacob Kolster, a senior bank official, said the bank's governing board,
representing its shareholder countries, had met earlier in the week and
backed this conclusion.
"There was no general sentiment in the bank's board to modify the heavily
indebted poor countries (HIPC) initiative," he said. The IMF's board meets
on Friday to consider the report.
Some rich nations, including Nordic countries and the UK, have proposed
minor modifications to the scheme which would increase slightly the amount
of debt relief on offer. But bank officials say even these have been opposed
by the US and Japan.
The report also warns that litigation against debt-ridden poor countries
from some governments and commercial creditors is jeopardising their
development. Iraq, for example, is suing Uganda for non-payment of sovereign
debt, while the private military company Executive Outcomes, which was
involved in the civil war in Sierra Leone, is suing the government there for
$30m in unpaid fees.
A spokesman for Executive Outcomes defended the litigation, saying that the
government "owe us the money rightfully".
NGOs reacted with anger to the report, saying it proved the scheme was
insufficiently generous. "The knowledge that life-saving debt cancellation
is being held up while creditors tinker with a failed programme is
enough to
bring thousands of people to the streets of Washington," said Mara
Vanderslice, at Jubilee USA Network.

Reuters:

World Bank, IMF-Debt relief needs more time, money

WASHINGTON, Sept 5 (Reuters) - A program to cut the debt of the world's
poorest countries is off track and needs two more years and extra money to
ensure all nations can benefit, a joint World Bank and International
Monetary
Fund report has found.

Only six of a planned 38 countries have completed the heavily indebted poor
countries (HIPC) initiative since it was introduced in 1996 and some of
those
countries and many others currently on the program are likely to miss their
debt sustainability targets, the report said.

The stated aim of the program is to get countries into a state where they
can
cope with their debt payments without undue economic harm.

"The outlook for many HIPCs has deteriorated with the global economic
downturn and the fall in commodity prices," the report, a copy of which was
obtained by Reuters, said. Many poor countries rely on exports of
agricultural goods like coffee and cocoa, so have been hit hard by dropping
prices.

The report may be revised before its scheduled presentation for discussions
among shareholders at the IMF and World Bank annual meetings set for the end
of the month.

The study estimates the cost of the program has risen to $37.2 billion from
$36.4 billion last March, which means there is not enough money in the trust
fund to complete the program. Nor does that number factor in the potential
cost of additional debt relief for countries that have still not
attained a
sustainable debt load by the time they finish.

Of the 20 countries on the HIPC program, about half are expected to fail to
meet the debt sustainability goal and some of the six graduates may also
need
extra help.

Earlier this year, creditors agreed to provide an extra $129 million in debt
relief for Burkina Faso after the bank and fund admitted that countries were
still facing crippling debt payments even after completing the debt
reduction
program.

The bank said it is doing its best to make sure debt loads are sustainable.

"We are encouraging our shareholders to continue to view the debt relief
initiative under HIPC as a debt sustainability initiative that requires
continuing support and where necessary, reevaluation if the conditions
change," said Damian Milverton, World Bank spokesman.

PROGRAM IS BROKEN

But critics said the report showed the bank and fund have accepted that HIPC
is not working but said are not doing enough to turn the program around.

"The paper is admitting that the HIPC initiative is broken but they are
refusing to fix it," said Oliver Buston, policy adviser for the charity
Oxfam.

The bank and fund offered a similar downbeat assessment of debt relief in
the
spring and since then several groups have proposed ways to improve the
program.

The proposals include a plan to increase debt relief to meet the United
Nations' millennium development aim of chopping poverty in half by 2015.
There is also an idea to ensure countries devote no more than 5 to 10
percent
of government revenues to service their debtloads.

Another idea is to expand the program to include a broader range of
countries
like Indonesia, Nigeria, Pakistan and Zimbabwe.

But the paper downplayed these ideas as too costly and questioned whether
debt relief is the appropriate vehicle for achieving the UN's millennium
development goals.

"These alternatives raise a number of issues. First, there are high costs
associated with many of these proposals," the report said. "Second, these
proposals also raise the question of whether continuing debt relief is the
right instrument to deal with future economic shocks and to achieve the
millennium

development goals."

Jubilee USA Network, a group which lobbies for debt cancellation, said it
was
disappointed with the report.

"We know that debt cancellation works, so there is not a moment to lose as
the AIDS crisis wipes out an entire generation in Africa. To hold back now,
insisting on the same failed ideology, is nothing short of murder," said
Marie Clarke, national coordinator of Jubilee USA.

09/05/2002 18:10
RTR