Kevin Watkins (Oxfam) on debt relief

[Robert Weissman <rob@essential.org>]

Riderless horses and a third world handicap 
Debate 
By Kevin Watkins 
Sunday April 18 1999 
The Observer (UK)

Next week finance ministers from the world's richest countries have an
opportunity to improve the prospects for some of the world's poorest
people. Gathered in Washington for the spring meeting of the IMF and World
Bank, they have the chance to resolve a debt crisis which is destroying
lives across sub-Saharan Africa and other developing regions.

Reform of the heavily indebted poor countries initiative will figure
prominently on the Washington agenda. Now in its third year, the framework
has failed to live up to its early promise, providing far too little debt
relief far too late. Only three countries have benefited so far, and one of
them Uganda is now back in an unsustainable debt position. Most will have
to wait until well after 2000 before seeing any results.

Britain, the US, Germany and France have offered proposals for reform. The
consensus is that debt relief should be provided within three years instead
of six. This is good news for countries such as Honduras, Nicaragua, Niger
and Tanzania, which will not qualify until after 2002 on current terms.

The case for deeper debt relief has also been acknowledged - and not before
time. When Mozambique qualifies for debt reduction this year it will save
only $11m on a total debt service bill of more than $108m. In a country
where one in five children die before the age of five, and where half the
primary school age population are out of school, debt will continue to
absorb more budget resources than health and primary education combined.
Defining such a state of affairs as 'debt sustainability', as the framework
does, is as absurd in economic terms as it is unacceptable in moral terms.

The new policy environment on debt reflects the strength of public protest
and campaigning work. The danger is that political pressure will be
deflected by a creditor public relations offensive.

Northern finance ministers are heading to Washington resembling a group of
riderless horses in the Grand National each desperate to keep up with the
pack but collectively lacking any sense of direction.

In place of real solutions to the debt problem, we are being offered vague
platitudes and a conspicuous absence of co-ordinated thinking. If the
spring meeting is to change this picture, two fundamental problems have to
be addressed. Creditors need to provide more realistic levels of debt
reduction.

Currently, countries emerging from the debt-relief framework can still be
spending up to one quarter of total export earnings on debt servicing, way
beyond their financial capacity.

More critically, existing rules define debt distress solely in terms of
debt-to-export ratios. But it is the budgetary burden of debt which is
destroying health and education services. That is why Oxfam has called for
the introduction of a 'fiscal cap' into the debt relief framework, limiting
to 10 per cent the share of government revenue allocated to debt servicing.

The second reform challenge is that of ending the creditor community's
collective love-in with the IMF. Any country wanting debt relief has to
build up a track record of compliance with an IMF adjustment programme.
None of the reform proposals challenge this arrangement - and some, notably
the US treasury, want to strengthen it.
Continued endorsement of the IMF's role makes a mockery of the public
commitment made by creditors to strengthen the linkages between debt relief
and poverty reduction. Leaving aside its lack of accountability and
transparency, the IMF has consistently prioritised monetary targets over
human development goals, contributing to reduced spending on health and
education, unemployment, and rising household poverty in the process.

The benefits of converting debt liabilities into investments for poverty
reduction are enormous. Sub-Saharan Africa spends around four times as much
on debt as it would cost to provide universal primary education. Using debt
relief to finance education would provide real opportunities for the 40m
African children denied an opportunity to go to primary school, helping to
create a platform for social and economic recovery.

Instead of insisting on compliance with IMF programmes, creditors should
offer pro-poor incentives for countries willing to transfer savings from
debt relief into schools, clinics and water supplies, which can make a real
difference to people's lives. These incentives could take the form of much
earlier and deeper levels of debt reduction for governments willing to make
the necessary commitments, subject to stringent monitoring.

None of which is to suggest that the IMF does not have its uses. It is
sitting on #27bn of gold stocks, at least half of which should be sold with
the proceeds used to meet the additional costs of a more poverty-focused
debt relief initiative.

Kevin Watkins works in the policy unit of Oxfam

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