[stop-imf] UK papers on debt relief and IMF failing

[Robert Weissman]

The Guardian (London)

September 23, 2002

Absurdly optimistic

>From the start, it was obvious that there were potential problems with the
debt relief formula produced by the International Monetary Fund and the
World Bank, because it depended on strong growth in exports being
sustainable. Absurdly optimistic estimates were pencilled in for export
growth, and these have had to be torn up as the stalling of world trade has
led to a precipitous decline in the price of many commodities. Countries
that thought they had been given an escape route from debt have found
themselves back in trouble.

Uganda, the IMF's star pupil in Africa, has been particularly hard hit. A
paper on debt prepared by the Bank and the IMF for this week's meeting shows
that coffee export revenues from 1998 to 2001 were 36% lower than expected,
largely owing to a 53% decline in coffee prices. Not all HIPC countries have
been hurt because some commodity prices, such as cocoa, have been rising.
But the Bank and Fund know that there is a real problem and accept that some
of the weakest commodity prices - coffee, cotton, copper, cashews among them
- are unlikely to recover soon. Reluctant to launch a third HIPC initiative,
the Washington institutions offer piecemeal "top-ups" to debt relief for
those in most need.

Unsurprisingly, debt campaigners think this is an inadequate response. A
joint submission to the meetings from Oxfam, Christian Aid, Cafod and the
European Network on Debt and Development says: "We are concerned that levels
of debt repayment after HIPC initiative debt relief are too high,
undermining the necessary investment needed to accelerate poverty reduction.
In the absence of radical reform, HIPC will join a long list of failed
poverty reduction initiatives."

Where debt relief is freeing resources for poor countries, there are signs
that it is having an impact, the aid agencies say. Mozambique has introduced
a free immunisation programme for children. User fees for primary education
have been abolished in Uganda, Malawi and Tanzania. Mali, Mozambique and
Senegal are due to increase spending on HIV/Aids prevention. But there
is a
long, long way to go. In Africa, HIV/Aids will leave more than a million
children without teachers. In Mozambique alone, the government estimate that
17% of children will die of Aids by the end of the decade. The World Bank
estimates that combating HIV/Aids will cost low-income countries at least
1-2% of GDP. Yet 13 of the 26 countries receiving debt relief are spending
more on debt than on public health.

So what needs to be done? The answer is a twin-track strategy which would
tackle both sides of the problem: high levels of debt and low commodity
prices. One measure that will be adopted this week is for the Bank and the
Fund to use more cautious assumptions when making forecasts. This has been
urged on them by Gordon Brown, who uses the same approach when it comes to
calculating Britain's public finances. More realistic figures for commodity
prices make it more likely that debt payments will be sustainable.

It would though make more sense to look at debt from the other end of the
telescope. The western countries that run the Fund and the Bank are
committed to the UN's 2015 targets, and should use debt relief as one means
of achieving them. That means debts would be considered unsustainable if it
could be shown that they were incompatible with cutting poverty, universal
primary education and reducing infant mortality by two-thirds. This
would be
resisted by hardline G7 countries as a precursor to a 100% debt write-off
for the HIPC countries. That is what it does mean, and eventually it will
happen.


The Guardian (London)

September 21, 2002

IMF's optimism costs debtors dear

Charlotte Denny

The International Monetary Fund has admitted its growth forecasting for
developing countries has proved hopelessly optimistic, with serious
consequences for some of the poorest nations.

Pressure from Gordon Brown has forced the IMF to take a more realistic view
of how much debt poor countries can afford to repay. "Historically our
projections have been based on things going well," a senior IMF official
said. "We are moving towards introducing more realism."

That marks a victory for the chancellor who has been urging the Fund to
adopt the same cautious approach to forecasting which the Treasury uses to
plan Britain's public finances. Campaigners blame the IMF's assumptions for
the failure to tackle the third world debt crisis. Higher growth forecasts
lower the amount of debt relief western creditors offer countries to restore
them to what the IMF regards as solvency.

A staff paper prepared ahead of next week's annual meetings of the IMF and
World Bank admits that, two years after western leaders agreed a rescue plan
for the worst affected countries, half are still burdened with unsustainable
debts.

The Fund blames an unexpected crash in commodity prices which has thrown out
its projections for their export earnings.