NYT: A Case for Forgiving World's Biggest Debtors (fwd)

[Robert Weissman <rob@essential.org>]

NYT, 6/17/99

ECONOMIC SCENE

          A Case for Forgiving World's Biggest
          Debtors

          By MICHAEL M. WEINSTEIN

               Tanzania, half of whose population is illiterate, spends a
third of its
               budget on debt payments and spends four times more on debt
than it
               does primary education. Niger, where life expectancy is only 47
          years, spends more on debt payments than it does on health and
education
          combined. 

          Lydia Williams of Oxfam America, a nonprofit organization, presented
          these and other chilling facts to the House Banking Committee on
behalf of
          legislation that would have the United States unilaterally write
off most of
          its loans to some of the world's poorest countries. 

          The bill, sponsored by Reps. James A. Leach, R-Iowa, the committee's
          chairman, and John LaFalce, D-N.Y., would also urge international
          financial institutions to offer the world's poorest countries
more debt relief
          than now provided under a 1996 initiative of the World Bank and
          International Monetary Fund. Additionally, the Leach-LaFalce plan
would
          provide more relief than the proposal that President Clinton will
promote
          when he meets this weekend in Cologne, Germany, with the heads of
state
          from six industrialized powers and Russia. 

          But does the Leach-LaFalce bill, let alone the president's plan,
go far
          enough? No, says Jeffrey Sachs, director of the Harvard Institute for
          International Development. He applauds Leach for pressuring the
          administration to seek more debt relief. But, he says, proposals
that only
          partly wipe out the debt of the worst-off countries are
inadequate. Many
          heavily indebted countries cannot afford to repay their loans,
and, he said,
          "nobody with good sense would want them to." 

          Consider the 700 million people living in the 41 poorest, most
indebted
          countries. They live on an average of about $4 a day; many
survive on less
          than $1 a day. Yet these countries are expected to repay about
$130 billion
          in loans from the IMF, World Bank and Western countries. 

          The fund and the bank began a program in 1996 to solve the problem,
          focusing on about two dozen countries for relief. Under the program,
          countries that undertake economic reforms overseen by the IMF
would --
          after six years -- qualify for enough relief to reduce the ratio
of their
          remaining debt to their export revenues to between 200 and 250
percent.
          Three years later, only three nations have qualified. Many
economists say
          the program leaves crushing levels of debt in place. 

          The Leach-LaFalce plan would focus on more than 40 countries and
          reduce their debt payments to 10 percent of government revenues,
          probably about half the level of the president's proposal. Under the
          Leach-LaFalce plan, the United States would forgive almost all its $6
          billion in loans to those nations and require them to spend the
savings on
          education, health and other social needs. 

          Clinton's plan would cut the debt of those countries by at least
$70 billion
          beyond the current IMF-World Bank program. It sets some of the same
          targets as the Leach-LaFalce bill does, and would also require the
          countries to use debt relief to strengthen health and education
programs.
          The administration does not think it can convince leaders from
the other
          Western powers to do more than it has already proposed. 

          But Sachs argues that much more -- complete debt forgiveness -- is
          desperately needed for perhaps 25 of the 40 countries. And he
provided
          Leach's committee with data to show that forgiveness is affordable. 

          He starts with the IMF. The 40 countries owe it about $8 billion.
He notes
          that the fund owns gold worth, at market prices, more than $30
billion, but
          it carries the gold on its books at only about $5 billion. By
recognizing the
          true value of its gold reserves and selling modest amounts over
time, Sachs
          suggests, the fund could write off loans to poor countries yet
leave its
          balance sheet looking better than under current accounting rules. 

          Sachs also shows that the World Bank could easily afford to write off
          unsubsidized loans. He concedes that the bank would need extra money
          from rich nations to continue issuing as many subsidized loans.
Yet, even if
          it is forced to curtail such lending, the most heavily indebted
countries
          might not be worse off. For many, the combination of less debt
and fewer
          loans would be better than the current situation, in which they
wind up
          repaying the bank with one hand the money they borrow with the
other. 

          Sachs estimates the cost to the United States of writing off
loans would
          also be small. The $6 billion in loans to the worst-off countries
is truly
          worth only about $600 million, he said, the most that the United
States
          could expect to recover. 

          Beyond the numbers hovers the issue of justice. 

          "Any attempt to collect debt payments from these countries," Rep. Tom
          Campbell, R-Calif., said, "starts from the false premise that
they owe the
          money. But why should a fisherman off the coast of Ghana set
aside two
          extra fish to pay for lavish spending by former tyrants?" 

          In many cases, he said, "these loans were not loans at all. They were
          grants for political purposes, like winning the Cold War."