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Aid Groups Urge World Bank and IMF to Eliminate Debt in Poor Countries

  • Daniel Schearf

The World Bank and International Monetary Fund have been working to cut debt in some of the world's poorest nations. Debt relief advocates applauded the cancellation of debts owed by 29 countries, but they say the effort needs to go further. Advocates want the Bank and Fund to wipe out all debts owed by poor nations unconditionally and they plan to bring up the issue when the two institutions hold their annual meeting in Singapore starting September 19.

In 1996, the World Bank and International Monetary Fund began the heavily indebted poor countries initiative. The program seeks to coordinate debt relief and reform efforts by international financial institutions to permanently ease the debt burden for the world's poorest countries.

That effort was stepped up last year when the World Bank and IMF introduced plans to wipe clean all debts owed to them by some of the poorest countries. Countries receiving the largest amounts of debt relief include Zambia, Tanzania, Ghana, and Cameroon.

The Bank and Fund have approved debt relief for 29 countries, 25 of which are in Africa. Nineteen countries have already had a total debt of $37 billion forgiven.

Debt relief advocates have welcomed the effort, but say they need to cover more poor countries if they are to reach the United Nations' Millennium Development Goals to halve poverty by 2015.

Debi Kar is a representative of the Jubilee USA Network in Washington, a network of more than 70 organizations that are working to cancel all debts owed by impoverished countries. She says the conditions of economic and social reform the IMF and World Bank attach to debt relief are excessive and have failed to establish sustainable poverty relief.

To receive total debt relief from the IMF, countries must have an unsustainable debt burden, a track record of economic reform and sound policies, be current on their obligations to the IMF, and implement a poverty reduction strategy.

"We see that these are the same kinds of flawed policies that have not been shown to increase per capita income growth or reduce poverty in the developing world over the last 25 years," said Kar.

Within the World Bank, its Independent Evaluation Group in April said debt relief efforts alone were not sufficient to affect debt sustainability.

The report said poor countries' new borrowings were offsetting any improvements in their ability to repay debts and said debt management had deteriorated in all low-income countries.

Private lenders have been accused of taking advantage of debt relief to issue new loans to poor nations without the conditions imposed by multilateral institutions.

The World Bank and IMF work to coordinate agreements with private lenders and discourage poor countries from returning to debt.

However, the international financial institutions have to walk a fine line between encouraging fiscal responsibility and imposing on a country's sovereignty.

John Williamson, a senior fellow at the Institute of International Economics in Washington, says the World Bank and IMF cannot force poor nations to stop borrowing.

"I don't really see that they can stop countries from borrowing again," he said. "They can advise against it and they surely should be advising the lenders as well as the borrowers not to go down this path. But if they choose to do so, then that is their sovereign right. They have the right to do it, and I don't think we'd want to give international institutions the right to veto that."

The World Bank's Independent Evaluation Group says poor nations need more debt management help. It also says the World Bank must monitor how new loans are spent to make sure they are used to diversify and stabilize export production.

Debt relief advocates say some countries have to pay back many old loans, which were made to corrupt governments that siphoned off the money, but did not help the public.

Kar says people should not have to pay for loans made without regard to the legitimacy or accountability of the governments receiving them.

"They need to do an audit of past lending at the World Bank to these various impoverished countries and recognize that a lot of these loans were illegitimate, they were given to dictatorial regimes for purposes that were never actually carried out, like roads that were never built, infrastructure projects that remain un-constructed. And so the World Bank needs to own up to this and start the process of auditing and possibly canceling these debts that were illegitimate," said Kar.

Debt relief advocates say they would like to see all debts owed to the IMF and World Bank by poor nations wiped clean without imposing any conditions.

Aid organizations say they plan to raise the issue of debt relief at the annual World Bank-IMF meeting this month in Singapore.

In addition, finance ministers from Commonwealth countries have called on rich nations to speed up debt relief efforts. The secretary-general of the 53-nation group of former British colonies, Don McKinnon, says the Group of Eight industrialized nations had not yet delivered on a pledge last year to quickly relieve debt and double aid to the poorest countries.

The Commonwealth countries were key to starting a campaign in 1987 that eventually led wealthy countries to cancel $120 billion of debt owed by 30 countries. McKinnon says he will make sure the issue is discussed at the annual IMF-World Bank meetings.

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