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Chic Tribune on debt
>>The Chicago Tribune
>>
>>POOREST NATIONS MIRED IN BIG DEBT
>>
>>By Merrill Goozner
>>Washington Bureau
>>March 10, 1999
>>
>> WASHINGTON -- The devastation wrought
>> by Hurricane Mitch in Central America is
>> giving new impetus to a movement to help
>> the world's poorest countries by granting
>> them large-scale debt relief.
>>
>> Advocates contend that debt forgiveness
>> wouldn't be that costly for the industrial
>> countries owed most of the money but would
>> enable fledgling democracies to redirect their
>> sparse budgets to socially and economically
>> productive uses.
>>
>> A coalition of not-for-profit organizations and
>> church groups has organized a worldwide
>> movement called Jubilee 2000 to press for
>> debt relief, not just in Central America but
>> also in sub-Saharan Africa and other parts of
>> the world still burdened with high interest
>> payments on old loans.
>>
>> Debt relief would reduce or eliminate their
>> large interest payments to the World Bank,
>> the International Monetary Fund and the
>> industrialized countries that had extended
>> development loans over the past
>> quarter-century. Most of the money went for
>> failed development projects, and some of it
>> was siphoned off by corrupt regimes, few of
>> which are still in power.
>>
>> The movement has been endorsed by Pope
>> John Paul II and retired Archbishop
>> Desmond Tutu of South Africa. Rep. Jesse
>> Jackson Jr. (D-Ill.) has introduced a bill with
>> 44 co-sponsors that would cancel the U.S.
>> portion of the $230 billion owed by the 31
>> African countries that are ranked among the
>> poorest in the world, with per-capita incomes
>> under $500 a year.
>>
>> Lending governments have balked at blanket
>> debt relief, preferring an IMF-World Bank
>> program that links debt reduction to changed
>> economic policies in what they call Highly
>> Indebted Poor Countries, or HIPCs. Donors,
>> led by the U.S., Japan and Germany and
>> organized in what is called the Paris Club,
>> have offered to stretch out their portion of
>> debt repayments in exchange for meeting
>> these so-called structural adjustment policies.
>>
>> These adjustment policies are similar to
>> conditions set by the IMF in countries
>> receiving bailouts in recent years. The global
>> lender of last resort requires balanced or
>> near-balanced budgets, monetary controls to
>> avoid inflation, and dismantling
>> government-owned monopolies and policies
>> that protect domestic industries.
>>
>> The IMF-World Bank program also requires
>> the countries to stick to the adjustment
>> policies for as long as six years before
>> getting debt relief. The program seeks to
>> bring payments below 20 percent of export
>> earnings. The IMF says 41 countries qualify
>> for its program because their total debt is at
>> least twice their annual export earnings. So
>> far, only two, Uganda and Bolivia, have used
>> the program. Another five are in the process
>> of being qualified.
>>
>> An IMF program brochure confidently states
>> that "the initiative should eliminate debt as an
>> impediment to economic development and
>> growth and enable HIPC governments to
>> concentrate on the difficult policies and
>> reforms for achieving sustainable
>> development."
>>
>> Jubilee 2000 officials scoff at such
>> suggestions. They say there are 52 countries
>> around the world owing a combined $370
>> billion that desperately need immediate debt
>> relief.
>>
>> "It's an Orwellian use of the word
>> `sustainable,' " said David Bryden,
>> coordinator for the Jubilee 2000 campaign in
>> the U.S. "The Philippines (whose debt
>> burden is not high enough to qualify for the
>> program) is paying three times more in debt
>> service than it is on health spending. Children
>> going uneducated or unvaccinated is not
>> sustainable."
>>
>> At the heart of the debate is a philosophical
>> divide over the best way to stimulate
>> development in regions that have largely
>> been bypassed by the economic events of
>> the last two decades. Finance officials of the
>> developed world, which controls the IMF and
>> World Bank, believe that economic policies
>> enforced through stretched-out but still
>> rigorous debt-repayment schedules will
>> create an investment climate in these
>> countries that can attract foreign capital.
>>
>> "There's always the problem with blanket
>> debt relief that it could lead to a new round
>> of errors," said Nancy Birdsall, who is at the
>> Carnegie Endowment for International
>> Peace after serving as a vice president at the
>> Inter-American Development Bank, a major
>> lender in Latin America. "It's easy to get
>> back on a train that takes you nowhere."
>>
>> But the not-for-profit groups from the
>> poorest countries, which generally depend on
>> one or two major crops or commodities for
>> export earnings, argue that they have been
>> on a train to nowhere for quite some time.
>> Per-capita income in most of sub-Saharan
>> Africa and Central America dropped sharply
>> over the last two decades. The recent
>> currency crises in such countries as
>> Indonesia and Thailand have raised new
>> questions about the proper development path.
>>
>> They point out that even reduced payments
>> leave them on a debt treadmill, especially as
>> prices for their exports have been steadily
>> falling in recent years.
>>
>> "We have seen from the ground level the
>> consequences of following IMF policy
>> prescriptions," said Jean Bakole, who
>> recently lobbied Congress to support
>> Jackson's debt-relief bill on behalf of a
>> coalition of 34 African non-profit groups.
>> "These policies tend to undermine local
>> businesses, drive up unemployment, damage
>> the environment, harm consumers,
>> undermine public health and increase
>> poverty."