In a far cry from the demands for rapid and major debt relief raised by protesters outside, a meeting of the boards of governors of the World Bank and International Monetary Fund (IMF) pledged that by the end of the year they would double to 20 the number of countries qualifying for debt reduction -- 16 of them African. They agreed, at their annual joint meeting in the Czech capital 19-28 September, to slightly modify the rigourous conditions required for relief under the enhanced Heavily Indebted Poor Countries (HIPC) initiative.
Instead of having to develop elaborate Poverty Reduction Strategy Papers (PRSPs) before actually receiving debt reduction, a country now may start getting relief earlier, Mr. Axel van Trotsenburg, manager of the World Bank's HIPC Implementation Unit, told Africa Recovery. "What we would like to see is that while countries continue to work on their poverty strategy, they show us intermediate steps they are taking, related to poverty reduction," he said. "These may include a viable AIDS plan or an active primary education policy, where we can see results in a relatively short time."
Global demands for an effective
strategy against poverty were raised by protesters at recent IMF and World
Bank meetings in Prague.
Photo: Independent Media Centre
Anti-debt campaigners were not impressed with this modification. "We are very disappointed," said Ms. Lucy Mathews of Jubilee 2000, an international non-governmental coalition campaigning for debt relief. "Yet another opportunity has been missed and we now have to wait for the Bank and IMF spring meetings next year for another opportunity to make the leap forward."
Many of the thousands of demonstrators and members of non-governmental organizations (NGOs) that converged on Prague criticized -- as part of their broader critique of globalization's effects -- the decline in official development assistance to poor countries and urged industrialized nations to increase economic aid.
"There were high expectations," World Bank President James Wolfensohn acknowledged at the end of the meeting. Nevertheless, he added, some progress was made "to advance the implementation of the second round programme of the enhanced HIPC facilities" (see page 5). He noted that recently a number of bilateral creditors have agreed to 100 per cent debt relief for HIPC qualifying countries. Together with relief due to countries on debt owed to multilateral institutions, this would bring relief to "around 67 per cent of their total debt, which is a very significant step forward," he maintained.
Jubilee 2000 has been calling for a 100 per cent reduction, citing a pledge last year by the Group of Seven (G7) industrialized countries -- Canada, France, Germany, Italy, Japan, UK and US -- to eventually forgive all debts owed to them by qualifying HIPC countries. In Prague, the anti-debt coalition expected the G7 finance ministers to follow up by pressing the two Washington institutions to authorize a comparable 100 per cent write-off (currently under HIPC, the Bank will cancel only about 32 per cent and the IMF 37 per cent). Such pressure could have been highly effective, since the G7 countries control 45 per cent and 44 per cent of the votes on the boards of the IMF and World Bank, respectively. In contrast, 41 heavily indebted nations control just 3 per cent of the votes on both boards.
The emphasis in Prague was on streamlining the conditions that qualifying HIPC countries must meet to receive relief. According to Mr. van Trotsenburg, the Bank and IMF are working with governments to prepare "decision-point" documents so that these countries "focus on a couple of key actions, as opposed to an enormous number of conditions" they have been obliged to meet up until now.
Significantly, however, the meeting retained the stipulation that countries must be implementing Bank- and Fund-supported structural adjustment programmes before they can even be considered for qualification for debt relief, although in a communique the two institutions conceded that these should be "interpreted flexibly on a case-by-case basis." Critics have long argued that such programmes lead to higher unemployment, greater insecurity, environmental damage, reduced government services and social spending, and further redistribution of wealth from the poor to the rich.
Anti-debt activists therefore have been critical of HIPC's linkage to structural adjustment, which they say undermines the intended poverty-alleviation effect of debt cancellation. Similarly, Jubilee 2000 objects to the more recent requirement that a qualifying country must prepare a rigourous poverty reduction strategy paper before it can begin receiving relief under the enhanced HIPC, since this still entails implementing adjustment programmes and gives the Bretton Woods institutions enormous influence over a nation's policies. The anti-debt coalition also says it wants another 11 countries added to the current list of eligible HIPCs, including Equatorial Guinea, Morocco, Nigeria and Zimbabwe
Some African countries have appreciated the new emphasis on speeding up HIPC debt relief. Burkina Faso, which this year began receiving some $400 mn in debt reduction under the original HIPC terms, is eligible for another $300 mn under the enhanced HIPC, so would welcome steps to move things along more quickly.
Burkinabè Finance Minister Tertius Zongo appreciates the stress on poverty reduction. "The way debt is being dealt with has brought the [Washington] institutions to deal more with the whole issue of poverty than in the past," he says. "We kept talking about economic stability and macroeconomic indicators, but nobody lives on a diet of inflation rates or bringing down the unemployment rate or establishing a balanced budget. People live on concrete results."
Others worry about the potential pitfalls in the entire, complicated process. "Getting to the decision point does not guarantee that you will reach the completion point," an African finance minister told Africa Recovery. "Many African nations do not have the resources or the money to prepare the elaborate PRSPs required at completion. This is where many will falter."
Like most of his industrialized country colleagues, Canadian Finance Minister Paul Martin did not call for dropping adherence to structural adjustment as a condition for HIPC relief, although he did suggest narrowing the requirements to "a truly limited number of monitorable conditions in the social, structural and macroeconomic areas."
He also went beyond the other G7 representatives by calling on industrialized countries to immediately grant a moratorium on interest payments by HIPC countries. If countries demonstrate a continued commitment to the HIPC process and the principles of good governance, and are not involved in conflicts, they should be able to immediately stop making interest payments. Outright debt cancellation would still wait until completion of the HIPC process.
In reaction to Mr. Martin's announcement, the Canadian Ecumenical Jubilee Initiative, an anti-debt coalition of 30 churches and religious organizations, challenged the Canadian government to set an example for other rich nations by immediately implementing the proposal. Of 17 countries heavily indebted to Canada, all but three conflict-ridden countries -- the Democratic Republic of Congo, Liberia and Sudan -- could potentially benefit from such a step.
"Other creditor countries and international financial institutions must do the same," the church coalition added. "Their intransigence on continued debt service and onerous conditionality is a scandalous abdication of responsibility for a crisis that they have been largely responsible for creating."
Mr. Martin's proposal appears to have caught other creditor country representatives by surprise. The UK reacted cautiously, saying it needed time to study the idea. The US government also gave a lukewarm response. "While I share the desire to have eligible countries qualify for debt relief as rapidly as possible, the desire for speed cannot supersede the need to ensure lasting development results," declared US Treasury Secretary Lawrence Summers.
The US Congress is still debating how much to contribute to the HIPC Trust Fund, but the amount is expected to fall short of the $435 mn requested by the administration. Created to help the Bank and IMF finance their part of the debt relief programme, the Trust Fund so far has received pledges and contributions of about $2.6 bn. IMF Managing Director Horst Köhler warned in Prague that lack of funds may threaten the delivery of relief to qualifying nations.
The demonstrations in Prague, some of which turned violent, were just the latest indication of mounting public opposition to the policies of the two international financial institutions. At their meetings in Washington in April, an estimated 20,000 protesters also turned out.
"If the World Bank and IMF had been open, accountable and focused on the poorest people in the world for the last 50 years, no one would have been in the streets at the Prague meetings," said Mr. Phil Twyford, global advocacy director of Oxfam International. "If they had been part of a coordinated attack on poverty and helped put every child in school by this year as promised, citizen campaigners would stay home and send thank-you letters."
