Drop the Debt Ireland: New IMF/World Bank report - Their own present debt mechanism is failing

national | miscellaneous | news report

Friday May 24, 2002 10:20

by Michael Ronan O'Connell - Drop the Debt, SWP

michaeloconnell2001 at yahoo dot com

www.debtireland.org

The IMF and World Bank have finally acknowledged that the Heavily Indebted Poor Country initiative, which promised an end to the debt crisis is failing. Debt is on the agenda at the G8 Heads of State meeting in Kananakis, Cananda, June 26-27th. DDCI and Jubilee Ireland will hold a public event to highlight the meeting, details to follow soon (on website if not here also).

No Surprise: IMF/World Bank report that the present mechanism for dealing with Debt (HIPC) is failing.

The IMF and World Bank have finally acknowledged that the Heavily Indebted Poor Country initiative (HIPC), which promised an end to the debt crisis, is failing. The recently published report blames the downturn in the global economy together with falling commodity prices for the fact that up to 10 countries will continue to have massive and unsustainable debt burdens after they receive debt relief under HIPC.

The failure of HIPC is no surprise to debt campaigners, but blaming the deterioration in commodity prices or the downturn in the global economy is misleading. In fact, even before the fall in commodity prices, 6 countries were due to be left with unsustainable debt burdens after receiving debt relief under HIPC. As debt campaigns have pointed out on numerous occasions, the IMF and World Bank have been using over optimistic projections for both export earnings and for growth levels to calculate the amount of debt relief a country should receive.

In 2001, Patrick Marren of DDCI in a report on Zambia, pointed out that HIPC was unlikely to provide a solution to Zambia's debt crisis partly because of over optimistic assumptions about economic growth levels. The report showed that between 1965 and 1998 GDP per capita in Zambia decreased by an average of 2 % per annum. However, when calculating the amount of debt relief that Zambia should receive, the IMF and the World Bank disregarded this past performance and instead forecast GDP per capita growth rates of up to 5%.

Eurodad point out that when calculating debt relief for Mali, the World Bank predicted that from 2000 to 2005, cotton prices would grow at an annual rate of 10%. However, in other reports, unrelated to debt, the World Bank predicted that cotton prices would grow at only 4.4% per annum. Meanwhile, the Cotton Advisory Committee have predicted growth in cotton prices at only 1.1% per annum.
Now the IMF and World Bank admit that actual economic performance of the 24 countries that qualified for debt relief fell far short of expected performance. For example, the IMF and World Bank forecast that the average growth rate for exports for these countries during 2000/01 would be 9.4% but in reality exports only grew at 5.4% during this period. This begs the question as to whether the IMF and World Bank inflated their projections or forecasts in order to keep down the costs of HIPC by limiting the amount of debt reduction that appeared necessary.

What solutions do the IMF and World Bank propose?

Extra debt reduction: Under the HIPC initiative, extra debt reduction can be granted at completion point if the country's debt indicators have deteriorated significantly due to unforeseeable, external shocks. However, the tone of the IMF/World Bank paper shows an anxiety to restrict the use of this facility. Clearly the aim is to keep costs down.

Diversify exports: Although this has been a key target in structural adjustment programmes since at least the early 1990s, the IMF and World Bank now recognise that many low income countries have not diversified their export base. This, say the IMF and World Bank is to down to failures on the part of low income countries. What the IMF and World Bank fail to ask is whether their programmes, which imposed privatisation and liberalisation on countries actually hindered diversification.

Canada

The Canadian Finance Minister stated at the IMF/World Bank Spring meetings that debt would be the key issue at the G7 Finance Ministers' Meeting in Canada in June. It is also on the agenda of the Heads of State meeting in Kananaskis on June 26-27.

Ireland

Ireland has been saying for over a year that HIPC3 is needed and that they are willing to help pay for it. A new debt policy has been agreed but is being kept under wraps until after the election. We wonder why?

The IMF and Paris Club have suspended debt relief for Gambia, Guinea, Guinea Bissau, Guyana, Malawi and Zambia since the end of 2001 as they are 'off track' on their economic reforms.