IMF/WB admit HIPC is a failure

[Robert Weissman <rob@essential.org>]

Copyright 1999, Inter Press Service
FINANCE: Global Debt Relief Effort Failing 

By Abid Aslam 
WASHINGTON, Apr 20 (IPS) - The World Bank and International Monetary Fund
(IMF) secretly admit that their efforts to relieve the debt of the world's
poorest countries actually are having the opposite effect in some cases. 

''The U.S. dollar amounts of debt service owed by Burkina Faso and Mali are
expected to increase'' under the Heavily Indebted Poor Countries (HIPC)
debt initiative, the agencies say in an internal report leaked to reporters. 

The initiative, established in 1996, has been widely touted as the first
comprehensive effort to reduce Third World debt - albeit only to
'sustainable' levels at which creditors can be assured of borrowers'
ability to service their loans. 

Now, the Bank and Fund concede, ''the initiative may not be significantly
reducing debt service from the current levels paid.'' Their report confirms
warnings issued by debt-relief advocates even before the scheme was launched. 

The document, discussed by the lending agencies' executive boards late last
week, comes in advance of the World Bank-IMF 'spring meetings' here next
week and the summit of the 'Group of Seven' (G-7) industrial powers in
Cologne, Germany in June. 

The latest Bank-Fund assessment discusses ways of improving the programme's
financial outlook through such options as the sale of a portion of the
IMF's 103-million-ounce gold reserves. The IMF's key policy committee is
expected to approve the idea - but not a specific sum - April 27. 

However, the multilateral lenders entertain no departure from what critics
have long derided as the scheme's central flaw: the IMF's 'Enhanced
Structural Adjustment Facility' (ESAF) - centrepiece of the Fund's efforts
in low-income countries. 

ESAF provides concessional loans so governments can keep up with debt
repayments as they implement IMF prescriptions to rein in inflation, cut
public spending, and open local markets to international trade, commercial
lending and foreign ownership. 

The facility also is the key to debt relief because, to qualify, a country
first must satisfy the IMF that it has a solid record of implementing
structural adjustment programmes (SAPs) for at least six years - typically,
the time it takes to complete two rounds of ESAF. 

The IMF defends this arrangement on the grounds that its economic
prescriptions, however painful in the short run, will enable governments to
make better use of their debt relief over the long haul. Critics counter
that the agency is holding debt relief hostage to structural adjustment. 

The IMF's argument is ''easy talk'' and ''should begin to sound suspicious
after 20 years of the same economic prescriptions...to help our economies
recover from our debt problems,'' says Kenya's Njoki Njoroge Njehu,
director of the anti-IMF 'U.S. Fifty Years Is Enough Network'. 

Trade unionists from 45 African countries, in a declaration adopted last
week, noted the Bank and IMF have been managing Africa's debt through SAPs
since 1980. 

''The result has been catastrophic for the people of these countries:
drastic reductions in public expenditure aimed at restoring economic health
have meant a serious deterioration in living standards,'' they said 

Dissatisfaction with HIPC has deepened over the past year, leading
supporters to seek improvements and a growing number of critics to urge
alternatives. A number of G-7 members, long considered obstacles to any
advance, have come around to the view that the effort must provide greater
relief - and sooner. 

Uganda has helped open their eyes. 

The East African nation has been pushed back into unsustainable debt less
than a year after becoming the first HIPC graduate. This has been despite
more than a decade of SAPs and extraordinary last- minute efforts by the
World Bank to ensure reduced debt payments. 

The United States, Canada, Britain, Germany and France all have put forward
HIPC reform proposals, and most back the sale of some IMF gold to bolster
available financing. Fund managers favour selling about five million ounces
while Washington, which has yet to pay in its share for HIPC, wants to cash
in 10 million ounces. 

None of their ideas would challenge ESAF's supremacy, however. U.S. and
Canadian proposals actually would reinforce it by letting the IMF use the
proceeds to put ESAF on a perpetually self- supporting footing rather than
insisting the money be ploughed directly into debt relief. 

That idea has been kicked around for the past two years and analysts have
noted all along that if it goes forward, the IMF will free itself from
having to ask shareholders to make donations to ESAF. Lawmakers in the
United States and elsewhere have used ESAF 'replenishment' requests to ask
harsh questions of the IMF before releasing the money. 

''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,'' says Kevin Watkins of the non-governmental
organisation Oxfam. 

According to IMF staffers, however, writing in the agency's official
newsletter, ''aid without adjustment is wasted and (discourages) countries
from engaging in or continuing to pursue difficult adjustment and reforms.'' 

Some G-7 members now argue that the ESAF 'track record' requirement should
be shortened from six years to three. From a Fund perspective, however,
this would simply give governments less time to meet economic restructuring
goals that are not open for renegotiation. 

That position lies at odds with the conclusions, last year, of external
evaluators hand-picked by the IMF to review ESAF. 

The Fund needs to show more flexibility in negotiating with borrowing
countries and must give them a choice between standard structural
adjustment and ''alternative paths'', said former Ghanaian finance minister
and lead evaluator Kwesi Botchwey. (END/IPS/aa/mk/99)