Salt of the Earth: The debate over debt relief continues

Social justice news
May 2001

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The debate over debt relief continues
The World Bank and the International Monetary Fund are clashing with debt relief proponents over a London accounting firm's report. The study argues the agencies could afford to cancel 100 percent of the debt the poorest countries owe them.

Drop the Debt, the British successor to Jubilee 2000, commissioned Chantrey Vellacott DFK to study the possibilities of debt reduction by the World Bank and the IMF. The accounting firm looked specifically at the countries the World Bank and the IMF consider highly indebted and extremely poor. These nations qualify for debt relief under the World Bank and IMF's Highly Indebted Poor Countries (HIPC) initiative. Twenty-two have entered the program so far.

Once they have completed the HIPC initiative, these countries will owe more to the World Bank and the IMF than to their next 17 creditors combined, says Drop the Debt. Chantrey Vellacott proposes a combination of actions that would allow the agencies to free up $3 billion initially and $1 billion a year afterward for debt cancellation over 25 years.

The accounting firm suggests the IMF could set aside money from its general reserves as well as profits from the sale and repurchase of its gold reserves. It also says the World Bank could contribute a third of its net income without hurting its lender status. The IMF and the World Bank could then afford to forgive 100 percent of HIPC debts, Chantrey Vellacott firm argues.

"From today, the old excuse that they cannot afford to do so is comprehensively abolished," said Drop the Debt director Adrian Lovett at the report's release.

But the IMF and the World Bank disagree. At an April 23 press conference in Washington D.C. the deputy director of the IMF Policy and Development Review Department, Masood Ahmed, said the agencies have considered 100 percent debt relief and found it impossible for three reasons.

First, once the countries have completed the HIPC initiative their debts will match the average of poor countries that do not qualify for HIPC. "It's not fair to the poorest countries who are not part of HIPC," he said.

To include all the poor countries in debt reduction the two groups would have to cut lending amounts, because they depend on loan repayments for income. Therefore they would have to pull support from the poorest nations, Ahmed explained. "The poorest countries, all the ones we've talked to, don't think that's the outcome they want," he said.

Finally, Ahmed argued setting aside the large sums of money for debt forgiveness would cripple the IMF and the World Bank and force them to cancel their support for middle- and low-income countries.

In 2000 President Clinton agreed to cancel 100 percent of the debt some of the poorest countries owed to the United States. The other G7 countries—Japan, the United Kingdom, France, Germany, Canada, and Italy—all eventually followed suit.—Anne Graber

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