[stop-imf] Debt Deal in Danger

[robert weissman]

washingtonpost.com
Objections Emerge to G-8 Debt Relief Plan
One-Time Cancellation for 18 Nations Seen by Some as Damaging
Institutional Capacity

By Paul Blustein
Washington Post Staff Writer
Tuesday, September 13, 2005; A14

Full debt relief for the world's poorest countries was finally in the
bag. Or so it seemed two months ago when leaders from the Group of Eight
major industrial powers, at their summit in Scotland, approved a plan to
cancel the debts that 18 nations, mostly in Africa, owe to international
lenders such as the World Bank.

But objections to the plan are emerging as it heads toward an official
vote at the annual meetings of the World Bank and International Monetary
Fund later this month. Most notable is an internal World Bank report
that warns the plan could deplete the bank's coffers so severely as to
impair its ability to provide new aid for impoverished nations.

The report, obtained by The Washington Post, uses bureaucratic language
to convey a dire message about the problems that the G-8's plan could
pose for the International Development Association (IDA), the World Bank
agency that lends about $9 billion a year to low-income countries. By
potentially forgiving as much as $42.5 billion in payments owed by many
poor countries over the next several decades, the plan "could reduce
IDA's financial capacity significantly," says the report, which was
discussed at a meeting of the bank's executive board last week.

Critics of the plan, which include the governments of Scandinavian
countries and the Netherlands, are demanding substantial changes in the
plan to guarantee that the World Bank is made whole for its losses.
That, in turn, is arousing angry warnings from the Bush administration
that the whole initiative could come unstuck.

"The deal to provide 100 percent debt cancellation is in jeopardy," said
Tony Fratto, the Treasury Department's chief spokesman, who said he was
"outraged" at the World Bank report. "There are individuals trying to
chip away at it and see that it doesn't happen."

Debt cancellation was one of the key goals of the movement that
mobilized behind the "Live Eight" concerts in early July aimed at
prodding President Bush and other G-8 leaders to spare no expense in
assisting the developing world. The movement had a powerful ally in the
British government, which agreed that debt loads were keeping nations
such as Tanzania, Uganda and Bolivia mired in poverty even after
previous rounds of partial forgiveness. Many activists were pleasantly
surprised when the Bush administration embraced that logic as well.

But the debt-relief bandwagon got hung up on the issue of who would bear
the cost. The bulk of the loans in question were no-interest, 40-year
loans granted by IDA, which gets its money mainly from two sources --
repayments of prior loans and periodic infusions of cash from rich donor
nations. Failing to provide IDA with additional donations to replace the
revenue lost to debt relief would risk diminishing the World Bank's role
on the global stage -- and that, some policymakers and experts
suspected, was the Bush team's true aim.

The G-8 summit communique issued in Scotland reflects a compromise on
the issue that, according to the World Bank's internal report, does not
go far enough in protecting IDA. Although the communique contains firm
commitments to cover the $1 billion that IDA would lose over the next
three years, the report projects that losses would total $8.9 billion in
the first decade, $17.6 billion in the second decade, $14.1 billion in
the third decade, and $1.8 billion in the last decade if all 38
countries potentially eligible received full cancellation of their
debts. (Only 18 countries so far have met the criteria for full relief,
though more are expected to do so.)

The report acknowledges the G-8's pledge that for the period after the
first three years, "donors will commit to cover the full costs for the
duration of the cancelled loans" by making additional contributions to
IDA. But the pledge has no binding force, and there is no "benchmark"
for gauging how much donors would have given before the supplemental
contributions, notes the report, which proposes several options to more
firmly ensure IDA's future financing.

The Treasury's Fratto blasted as "absurd" the fear that Washington would
fail to honor its pledge to provide additional contributions to IDA, and
he ridiculed the report's assumption that debt repayments by poor
countries are a reliable source of income.

"The World Bank's analysis seems to give greater credence to the ability
of a Niger to pay back its unsustainable debt than it does for the G-8
countries to meet their commitments," Fratto said.

Another objection to the G-8 plan voiced by policymakers in recent days,
according to IMF officials, is that it may violate a long-standing IMF
rule assuring "uniformity of treatment" to all member countries. The
plan would fully cancel the debts to the IMF of only nations that
qualify as "heavily indebted poor countries," while leaving untouched
the obligations of nations such as Kenya and Indonesia that are not
heavily indebted enough to be included.

This issue reflects the criticism expressed by some activists during the
G-8 summit that the debt-relief plan ought to benefit a wider range of
countries.

Activists who backed the G-8 plan said that although they sympathize
with the complaints, the plan ought to be approved anyway.

"Our counsel is, don't let the best be the enemy of the good," said Seth
Amgott, a spokesman for DATA, the organization founded by the rock star
Bono. "Let's get this thing done."