LA Times: Expand Debt Relief

[Robert Weissman <rob@essential.org>]

Los Angeles Times (editorial)
Friday, June 11, 1999 
                   Debt Relief Must Be Expanded 

                                   The International Monetary Fund, the
World Bank and the seven richest
                                    countries have been working on a way
to ease the crushing debt of the
                                    world's 41 poorest countries. What
they have offered so far is a plan under
                                    which only two of those
countries--Uganda and Bolivia--could qualify.
                             That's not enough. The G-7, whose finance
ministers are meeting this weekend in
                             Frankfurt, Germany, to improve the offer,
should draw up a much more generous plan
                             that would both ease the burden and reward
countries for progress in putting their
                             economic houses in order. 
                                  Much of the debt to international
financial institutions and the developed countries,
                             amounting to about $130 billion, was incurred
in the 1970s, largely to finance
                             ill-conceived projects, prop up corrupt
regimes or bail out commercial lenders. In the
                             subsequent years, debtor countries had to
borrow simply to pay the interest. As their
                             economies deteriorated and the prices of
commodities declined, the burden of their debt
                             increased. Today, most of the 700 million
people of the so-called "highly indebted
                             poor countries" live in grinding poverty,
their economies saddled with revolving
                             credits and unable to attract commercial
lenders. The toll in human terms is staggering,
                             as governments spend more on servicing their
debts than on health or education. 
                                  The existing international debt
reduction programs are designed to cut the poor
                             countries' debt to "sustainable" levels,
provided they stick to IMF-prescribed
                             restructuring targets for six years. 
                                  A U.S. proposal to the G-7 is somewhat
more generous than the IMF initiative, but
                             it too doesn't go far enough. It calls for
forgiveness on most aid-related loans, which
                             account for less than a third of the total,
and sets unrealistically high sustainable target
                             levels for the bulk of the debt. Ten or more
countries still would not be able to meet
                             those thresholds. 
                                  The plan ultimately agreed on by the G-7
governments should benefit all poor
                             countries that pursue prudent economic
policies. Specifically, it should provide for a
                             complete write-off of aid-related loans.
Other debt should be written down to levels
                             that the countries can service without
sacrificing their health, education and sustainable
                             development programs. The plan should be
flexible enough to provide greater relief for
                             countries struck by natural disaster or a
sudden drop in commodity prices. Anything
                             less would only perpetuate their poverty. 

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Reserved