Clinton Debt Plan

[Robert Weissman <rob@essential.org>]

	Clinton to Propose Expanding Debt Relief 

                  By Paul Blustein
                  Washington Post Staff Writer
                  Tuesday, March 16, 1999; Page E1 

                  President Clinton will propose today broadly expanding an
international
                  program to relieve the debt burden of the world's poorest
countries,
                  administration officials said yesterday.

                  The proposal, which the president plans to unveil in a
speech to a
                  conference of top African government officials, would
more than triple, to
                  about $100 billion, the amount of debt that could qualify
for forgiveness
                  under the "Highly Indebted Poor Countries" initiative,
known as HIPC.

                  The World Bank conceived the HIPC initiative in 1995 as a
major step
                  toward offering impoverished countries -- mostly in
Africa and Latin
                  America -- a chance to dig out from under the mountain of
debt they owe
                  to foreign governments and international financial
institutions. In many
                  cases, the countries' annual principal and interest
payments exceed the
                  sums they can afford to spend on areas such as health
care and education,
                  making the debt a serious impediment to economic development.

                  Already, about $30 billion in debt could potentially be
forgiven under
                  HIPC. The Clinton proposal would expand the amount by $70
billion,
                  administration officials said, mainly by offering poor
countries more
                  generous relief than before and expanding the number of
eligible countries
                  from 41 to 50.

                  But those figures are purely hypothetical, because the
proposal would
                  continue the current strategy of offering debt relief
only to countries that
                  embrace painful economic reforms, such as the dismantling
of inefficient
                  state-owned industries and termination of subsidies for
food and energy.

                  Clinton's approach would stop well short of several far
more sweeping
                  and unconditional debt-relief plans, such as one promoted
by a group
                  called Jubilee 2000. The group, which includes some major
religious
                  leaders, is calling for a no-strings-attached
cancellation of poor countries'
                  foreign debts at the start of the new millennium.

                  Officials of the United States and other rich governments
have long argued
                  that unconditionally wiping out poor countries' debts
would be foolish,
                  mainly because it would send the signal that the debtors
needn't worry
                  about adopting policies needed to put their economies on
a sound footing.
                  But Clinton's proposal is aimed at responding to
criticism that HIPC has
                  provided relief too slowly and in insufficient amounts,
leaving dozens of
                  countries trapped in poverty because of their
unsustainable debt burdens.
                  Only Uganda and Bolivia have received substantial
benefits under HIPC
                  so far.

                  "This initiative goes significantly beyond the current
program," said a senior
                  administration official, "and we think it strikes a
pretty good balance by
                  finding a way to provide quite meaningful relief sooner,
for a broader
                  range of countries, in ways that we think will reinforce
the prospects for
                  reform and make sure the resources go to support basic
human needs."

                  Others among the Group of Seven industrial countries,
including Germany
                  and Britain, have offered plans to extend the benefits of
HIPC. But
                  Washington's influence within the G-7 and over the
international financial
                  institutions means that Clinton's proposal is likely to
carry the most weight.

                  The proposal includes several elements. Poor countries
that reformed their
                  economies could get 100 percent forgiveness of loans they
had received
                  from rich countries under "concessional" terms -- that
is, with very low
                  interest payments and other soft conditions. They could
get 90 percent
                  forgiveness of other loans. Currently, such bilateral
loans are usually
                  stretched out but not forgiven.

                  The proposal would maintain the current HIPC schedule -- much
                  criticized by debt-relief advocates -- in which countries
would have to
                  wait six years before any of their debts were actually
erased, in order to
                  demonstrate a clear commitment to reform. But the Clinton
plan would
                  offer new and generous terms for stretching out debt
after three years.

                  The U.S. share of the potential loans that would be
forgiven is $3 billion,
                  but the maximum budget cost would be $190 million because
many of the
                  loans have already been essentially written down or
written off as
                  uncollectible. Congress would have to approve any
forgiveness. 

                           © Copyright 1999 The Washington Post Company