[stop-imf] Ambrose: Analysis of IMF Debt Plan

[robert weissman]

December 9, 2005

IMF Publishes "Modalities" for Debt Cancellation Under G8
Debt Plan
A License to Meddle (Further)?

Soren Ambrose - Solidarity Africa Network in Action / 50
Years Is Enough Network

The IMF yesterday published two documents on its website
-- a factsheet and a "public information notice" --
outlining how it intends to comply with the IMF board's
agreement at its annual meeting in September 2005 to
cancel debt it claims from selected low-income countries.
(See http://www.imf.org/external/np/exr/mdri/eng/index.htm
and
http://www.imf.org/external/np/sec/pn/2005/pn05164.htm)
The agreement was the result of a proposal made by the G8
countries - a proposal that has been analyzed in some
detail in a 50 Years Is Enough / Solidarity Africa report
at http://www.50years.org/cms/updates/story/270.

Predictably, the IMF has managed to take a fairly
straightforward proposal - write off the remaining debt of
countries that have jumped through all the hoops of the
"Heavily Indebted Poor Countries" debt scheme of the
IMF/WB - and turn it into a complex business that requires
textual exegesis.  By transforming the G8 plan into an IMF
program with its own name and, most alarmingly, acronym
(the Multilateral Debt Relief Initiative, MDRI), the IMF
has begun the process of taking "ownership" of a concept,
the usual forerunner to its debasement.

Some of the provisions in yesterday's releases have been
hinted at pretty clearly over the last few months, but
others are fresh.  In some places the two documents fail
to give definitive answers; indeed, the public information
notice appears to be an edited compilation of board
minutes, reporting on different views from board directors
and not always indicating how the discrepancies are to be
resolved.

What follows, then, is a first attempt to make sense of
these documents. This analysis may change as others offer
their perspectives, or as more facts become known.  What
should be kept in mind is that these are only guidelines:
while the IMF operates in a fairly robotic way, there can
always be slippage in practice, especially to maintain the
prerogatives of the Northern countries. It may be that IMF
debt cancellation will still be made available as promised
- at the beginning of 2006, to 18 (actually 20) countries,
and with no new conditions. But these documents open up
loopholes that could introduce delays and attempts to
attach conditions. Any such developments can, should, and
will be opposed by debt campaigners.

The IMF Prepares to Manipulate

The main thing to report is that the IMF says it must
assess whether each qualifying country is eligible for
debt cancellation.  Yes, they've qualified, but no, not
until we say so, again: they could, after all, have gone
off the path of virtue since completing HIPC.  The IMF
appears to be positioning itself to use technicalities to
deny, postpone, or condition the debt cancellation that
has been promised. It takes advantage of some of the
ambiguities in the language of the G8 proposal to arrogate
to itself the right to judge each candidate country's
"macroeconomic performance," poverty reduction programs,
and public expenditure management. If any are found
wanting, debt cancellation can be held up.

The G8 proposal stipulates only that countries which have
completed the HIPC program should be "on track with their
programme of repayment obligations" (i.e., they must keep
paying the debt until the institutions say stop) in order
to get their debts cancelled.

But there are those unfortunate ambiguities in the G8
proposal, most notably: "We ask the World Bank and IMF to
report to us on improvements on transparency on all sides
and on the drive against corruption so as to ensure that
all resources are used for poverty reduction. We believe
that good governance, accountability and transparency are
crucial to releasing the benefits of the debt
cancellation."

While the G8 statement seems, rather out of character, to
acknowledge that problems of transparency, governance,
corruption, and accountability do not lie exclusively with
the "debtor" countries but are inherent in the system run
by the "creditors," the IMF has chosen to see the request
for a report on improvements in the system as a mandate to
judge the exploited countries' dedication to financial
virtue.

At the same time, it is entirely possible that the IMF
will not immediately attempt to make extensive use of the
options it has created for itself.  At times the factsheet
suggests that the IMF will go into the process presuming a
country will qualify; indeed it even says that countries
yet to complete HIPC will qualify for debt cancellation
"automatically" once they do.  (In practice this will just
raise the stakes for the IMF's final review under HIPC.)

And the IMF itself wants us to believe that they're not
trying to delay any cancellation.  The IMF's press review
details a Reuters article:  "To satisfy some donor
concerns about whether the debt relief will be well used,
Mark Allen said the IMF will conduct a 'spot check' to
ensure that recipients' economic performances, budget
systems and poverty reduction strategies are in order,
Reuters reported. Where performances have deteriorated,
Allen said the IMF will propose corrective measures. 'Once
the countries have taken those remedial measures, then the
relief will be given,' he said, adding: 'We would hope
those actions could be done
quickly. We`re not trying to hold this relief up.'"

Alarmingly, the factsheet countenances the imposition of
"conditionalities," though exactly what it means by this
is unclear. While the G8 proposal left little room for new
conditions, the IMF says that if its assessment of
candidate countries finds deficiencies, it will recommend
"corrective action" before approving debt cancellation.
Such actions are most likely what is referred to by
references to "conditionality."

The IMF factsheet maintains that "two basic principles
will guide the assessment of eligible countries: (i)
conditionality for debt relief under the MDRI should be
consistent across members; and (ii) conditionality should
not go beyond that of the HIPC initiative, in line with
what the G-8 initially envisaged. Taken together, these
two principles suggest that [...] an eligible HIPC that
has already reached its completion point would qualify for
MDRI relief if its performance in three key areas has not
substantially deteriorated since completion point. These
are: (i) macroeconomic performance; (ii) implementation of
a poverty reduction strategy; and (iii) public expenditure
management systems."

What is left most vague is what precisely is meant by
these categories, and how they will be measured. It is
probably safe to assume, however, that the IMF will use
standards developed during a country's last IMF program to
judge its "macroeconomic performance" (Is it continuing to
deregulate trade and investment? Is its commitment to
privatization intact?) and the implementation of its
"poverty reduction strategy" (a framework that is now a
requirement for any low-income country to borrow from the
IMF). Indeed, to an unfortunate but telling extent these
two criteria are likely to overlap. The last criterion -
management of public expenditures - will likely assume a
wider scope of "governance" in general (Are government
procurement rules being followed? Have pledges to
eliminate "surplus" employees from government payrolls
been kept? Are there signs of corruption in the awarding
of government contracts?)

The public information notice says that for those
countries that have already completed HIPC, "a minimum
six-month track record of satisfactory macroeconomic
performance and implementation of poverty reduction
policies would be needed to qualify for debt relief." If
the country is still under an IMF program, the most recent
review will be used. If not, the criteria are unstated,
left up to the whim and interpretive capacity of the IMF.
It appears that the IMF is, once again, judge, jury, and
police force.

Who Might be in for Trouble?

Before these releases were issues, there was speculation
that one of the 18 countries slated to benefit immediately
from debt cancellation, Mauritania, would be disqualified
on the grounds that its army-led coup several months ago
calls its governance and accountability into question.
However, if the three standards above are the ones the IMF
uses, and if it does not interpret them too liberally, the
coup alone should not affect Mauritania's eligibility
(though it is possible that the post-coup government will
be determined to have changed course in an unsatisfactory
direction on these criteria). In general, the
"international community" has taken a rather indulgent
approach to the Mauritanian coup, since the government
ejected had itself been installed by a coup 20 years ago,
and had a poor track record on accountability, democracy,
and human rights. The IMF may well follow suit.

Nicaragua has also been mentioned as a country with
potential difficulties, due to not having maintained its
record of payments to the IMF (though concerns on other
criteria are also hinted at). One would have to assume
that a country on the brink of having its full IMF debt
cancelled would find a way to clear any arrears in time to
avoid blocking the deal.

But if the IMF chooses, any of these countries could no
doubt be accused of somehow going "off track" from the
IMF's definition of "sound economic policies."

Timing - and Ambiguity

The IMF says it is working with the World Bank to assess
the eligibility of 20 countries for immediate
cancellation, and that it plans to make recommendations by
the end of December.

The IMF factsheet also says, however, that this step
depends on getting official consent from the 43 countries
- including some countries which should be (but aren't)
getting cancellation themselves, like Bangladesh - which
have donated to an IMF account that will be used as part
of the financing for the MDRI. (Should any refuse, the
public information notice says, the program will not be
halted; instead the country will get a refund of its
donation.)  The IMF says it intends to begin implementing
the cancellation on January 3.  The World Bank will not
begin until June/July, while the third institution in the
deal, the African Development Bank, is supposed to be
following the IMF's timetable, but has not yet published
its plans.

There has been much speculation about whether the debt
cancellation would take effect immediately and in full.
The public information notice tackles this question, but
fails to answer it conclusively. "Many directors" are said
to support making the cancellation "irrevocable and
delivered up front" - an option the document says has the
virtue of "closely align[ing] with the intention of the
initiators of the MDRI [the G8 proposal] and the
expectations of qualifying countries." But "some
directors" are reported to prefer "phased debt relief [...
to] better ensure that freed-up resources are used
productively in pursuit of the MDGs," a process that would
make multiple and arbitrary delays possible. Meanwhile,
"some other directors" support "the use of ongoing
conditionality, linked to the successful implementation of
a Fund-supported program."

The fact that the notice includes an extra sentence about
how the first option would be implemented might suggest
that it will be the approach endorsed, but it is hard to
feel certain. The third option represents the worst-case
scenario - the IMF using debt cancellation to make up and
enforce new conditions - that many campaigners feared, and
more than a few predicted. We do not know yet if this
prospect has been eliminated. For countries that are told
to take "corrective action" at the time of the IMF
assessment, this last version will be the de facto
reality; the open question is whether every country
entering the MDRI will have to prepare for a new onslaught
of demands.

A Bonus

One result of the IMF's highly technical and somewhat
legalistic ways is that two countries which have never
been included in the HIPC lists are eligible for
cancellation of their IMF debts - Tajikistan and Cambodia.
(Hence the jump from 18 countries to 20.) This does not
make them eligible for any World Bank cancellation.  Of
course, they will still have to pass the IMF's new
assessment in order to get that cancellation. The reasons
for these additions are best explained in the public
information notice.

Other Technicalities

The IMF doesn't simply write off debt, of course. No,
countries will have to formally "request grant assistance
from the Fund, acting as trustee of the MDRI Trusts. In
addition, HIPC members will also have to request a
modification of the HIPC assistance delivery schedule to
provide for immediate repayment of their qualifying debt
obligations to the Fund." While such steps - to the extent
they're decipherable -- need not block any countries from
getting cancellation, it suggests that the mechanism being
used, as several sources had maintained, will formally
maintain a structure where countries must ask for
assistance and have it granted them. Unless the IMF acts
decisively to accomplish the cancellation "irrevocably and
delivered up front," it is likely that this process will
have to be repeated every year or every three years for
the entire period during which the debts would have been
in repayment status.

Another question worrying some campaigners was that of the
"cut-off date." This is a device commonly used in debt
cancellation negotiations; the Paris Club of bilateral
creditors, for instance, usually says that only debts
contracted before a certain date (usually the date an
application for rescheduling was first made) can be
cancelled, reduced, or rescheduled.  This has resulted in
situations where countries find the last ten years of debt
accumulation unaffected by a debt deal.

This is one question that is answered definitively by the
IMF releases: the processes outlined apply to "the stock
of their debt to the Fund (including to the Fund as
Trustee) disbursed as of end-2004 that remains outstanding
when the country qualifies for debt relief."

Be Very Worried

As it so often seems to be, the IMF is eager to convey its
availability to countries that qualify for debt
cancellation. In fact, both documents are at pains to make
clear that the MDRI is part of the IMF's commitment to
increased support for low-income countries, a commitment
it says is also evident in its new Policy Support
Initiative (see critique at
http://www.50years.org/cms/ejn/story/275).  The end of the
document assures us that "the Fund is fully committed and
equipped to continue advising and assisting members in the
design of macroeconomic stabilization policies and
structural reforms, in capacity building, and in providing
financing when needed."  This apparent generosity should
be read as a threat: step out of line, and there's always
another structural adjustment program waiting for you.