18 Poor Countries to See Debt Slate Wiped Clean, Saving $10 Million Per Week

[SOO MAAL]

18 Poor Countries to See Debt Slate Wiped Clean, Saving $10 Million Per Week

 

 

Abid Aslam

OneWorld US

Mon., Sep. 26, 2005

 

WASHINGTON, D.C., Sep 26 (OneWorld) - Eighteen of the world's poorest countries stand to have their debts written off from next year under a plan approved over the weekend by shareholders of the World Bank and International Monetary Fund (IMF).

 

The package, which garnered unexpected approval following a last-minute financing deal, is being sent for final consent to the international lending agencies' executive boards, said Paul Wolfowitz, the bank's president.

 

''This is a moment of real opportunity,'' Wolfowitz told a news briefing at the conclusion of the agencies' Sep. 24-25 annual meetings. ''The path to complete debt relief has now been cleared.''

 

Countries that stand to benefit include Benin, Bolivia, Burkina Faso, Ethiopia, Ghana, Guyana, Honduras, Madagascar, Mali, Mauritania, Mozambique, Nicaragua, Niger, Rwanda, Senegal, Tanzania, Uganda, and Zambia.

 

At a cost of roughly $40 billion, the package would cancel claims against these countries held by the World Bank, IMF, and African Development Bank.

 

The 184 governments that hold shares in the World Bank and IMF cleared the package following a last-minute deal under which the Group of Eight (G8) dominant countries agreed to put up money to cover any losses sustained by the bank, which holds the largest claims against the 18 heavily indebted poor countries whose debts are to be cancelled.

 

The G8--made up of Britain, Canada, France, Germany, Italy, Japan, Russia, and the United States--put forward the package in July but faced opposition from non-G8 wealthy nations, which said the plan would fail to compensate the bank for income lost by canceling the debts.

 

As the institution earns its operating expenses from the payments made by its borrowers, officials from the Netherlands, Belgium, and other nations have said, a serious drain on revenue would ensue unless wealthy countries chipped in to cover the shortfall or unless the bank partly shuttered the International Development Association (IDA), the window through which it makes grants and soft loans to the poorest countries.

 

African and other cash-strapped governments not slated to benefit from the debt write-off also voiced anxiety that wealthy nations might cut financing for IDA.

 

The G8 financing deal appeared to allay those concerns and the package further held out hope that a further 20 countries eventually could see their debts written off. Potential beneficiaries from an additional round of cancellations include Burundi, Cameroon, Chad, Democratic Republic of Congo, The Gambia, Guinea, Guinea-Bissau, Malawi, Sao Tome and Principe, Sierra Leone, Central African Republic, Comoros, Republic of Congo, Cote d'Ivoire, Laos, Liberia, Myanmar (also known as Burma), Somalia , Sudan, and Togo.

 

Announcement that the package had been endorsed capped decades of lobbying and wrangling, first to get creditor governments and international financial institutions to admit that there was a Third World debt crisis, then to wring acknowledgement of their role in the crisis, and finally to shake them down for a solution.

 

Nevertheless, pressure groups were cautious in welcoming the news.

 

''The devil will still be in the detail, and we will be watching to make sure that the deal is not watered down once the media spotlight has faded,'' said Romilly Greenhill, policy officer with ActionAid International.

 

''These 18 countries have been paying nearly $10 million of their precious revenues to the World Bank each week, so today's support for the G8 debt deal can only be welcome news but ... the harmful strings attached to debt relief must be cut, and 100 percent debt relief offered to at least 40 more countries.''

 

Greenhill referred to conditions that countries must satisfy in order to qualify for relief. Supporters of the conditions say they are designed to rein in budget deficits and tame inflation but critics say the resulting austerity sees social programs and essential subsidies cut, plunging the poor deeper into deprivation.

 

Anti-debt groups also have sought to strike off the debts of some 60-plus low-income countries.

 

Bernice Romero, campaigns director at charity Oxfam International, said her organization believed that the debts of 62 countries with per capita incomes of less than $500 per year should be cancelled and the resulting savings plowed into reducing poverty.

 

''This is a huge step forward for a small number of countries and must be followed by debt cancellation for all poor countries that need it,'' Romero said, referring to the weekend's agreement.

 

Additionally, groups in borrowing and lending countries alike have rallied to demand full cancellation of a larger number of countries' debts and the immediate repudiation of illegitimate, usurious, and ''odious debt''--meaning loans that serve the interests of the lender, not those of the borrower.

 

About one-fifth of all debt claims against developing countries are odious, UK-based Christian Aid said in a recent report.

 

The deal now before the bank and fund boards is a revamped version of proposals that had been in circulation since at least 1996 and that had been set aside in favor of a scaled-down effort for want of support not only from wealthy nations but from middle- and low-income borrowers. India and other countries argued against debt forgiveness on the grounds that it would reward borrowers that could not keep up with repayments and thus encourage ''moral hazard.''

 

Larger and relatively well-off borrowers also have faulted the bank for increasing financing for the poorest countries, saying the agency should, first and foremost, provide cheap capital to fuel infrastructure and other development projects in their countries.

 

The weekend's G8 financing deal preserves a delicate balance the bank is trying to maintain between the demands of its largest borrowers--a handful of emerging markets--and those of its poorest customers, whose numbers are far greater.

 

Over the past few years, the bank has sought to shore up concessional funding and lending through IDA while at the same time making available for infrastructure projects a larger portion of its market-based loan portfolio.