Debt cancellation: Deadly delays

Much discussion in the World Bank and IMF about implementation of the G8 multilateral debt relief agreement (see NewsNotes November-December 2005), now called the Multilateral Debt Relief Initiative (MDRI), has taken place since July. Recent documents posted on the IMF web site explaining how the IMF intends to implement the deal evoked strong negative reaction from debt campaigners around the world.

Basically, 100 percent IMF debt cancellation will be granted to all those countries that have completed the HIPC process (currently 18) – plus all those other member countries at or below the income per capita threshold of US$380. This means that Cambodia and Tajikistan will also receive IMF debt cancellation (though not World Bank debt cancellation). In principle, this means that a total of 20 countries are currently eligible for IMF debt cancellation.

However, sources report that IMF staff are recommending that immediate debt cancellation be denied for six of the countries eligible, including Ethiopia, Madagascar, Mauritania, Nicaragua, Rwanda, and Senegal.

In describing its “entry conditionality,” the IMF website said that debt cancellation can be delayed if a country is deemed to have faltered in its “macroeconomic performance,” ceased to implement a poverty reduction strategy, or experienced problems with “public expenditure management” since it completed the HIPC program. The debt cancellation plan adopted in September, however, makes no provision for “entry conditionality,” specifying only that countries should have kept up their debt payments since their graduation from HIPC.

Adopting “entry conditionality” would enable the IMF to maintain control over southern countries’ economies. Full cancellation, on the other hand, would allow governments more political space to reject IMF advice and determine their own economic priorities. This is extremely important given strong evidence of the devastating impact on impoverished people and their communities of many of the macroeconomic policies promoted by the IMF.

A recent Jubilee USA Network report entitled Deadly Delays: How IMF and World Bank Economic Conditions Undermine Debt Cancellation provides illustrative examples.

Economic policy reforms required by the Poverty Reduction Strategy Papers (PRSPs) and other loan instruments include privatization of government-run services and other entities, increased trade liberalization, and budgetary spending restrictions. Deadly Delays notes that such policies have not been shown to increase per capita income growth or reduce poverty over the last twenty-five years in which they have been carried out throughout Africa and Latin America. As a result, donors and international financial institutions (IFIs) are beginning to take a second look at the conditions that are tied to aid and debt relief. The UK, for example, has taken a position that future aid will not be “conditional on specific policy decisions by partner governments” including privatization or trade liberalization.

Two of the countries examined by the Jubilee USA Network, Nicaragua and Zambia, have already implemented the required reforms to reach the HIPC “completion point.” Unless the IMF holds them up, which it is threatening to do -- at least in the case of Nicaragua — they should obtain debt cancellation under the G-8 debt deal in 2006, but their stories offer lessons for other countries. (See full report at www.jubileeusa.org)

The other two, Cameroon and Malawi, have remained at the “decision point” since 2000, and must undertake additional reforms to reach the completion point in the HIPC Initiative. According to Jubilee, they are facing deadly delays because, while countries like Cameroon and Malawi are held up from receiving debt cancellation, people in these countries are dying because of lack of access to health care, to HIV/AIDS drugs, and to clean water. UNICEF estimates that in 2003 alone 240,000 children were orphaned in Cameroon due to their parents dying of HIV/AIDS.

It is critical that resources released by debt cancellation reach those who need it most. As a result, the Jubilee USA Network works closely with partner organizations in indebted countries to assure accountability and transparency. Jubilee USA writes, “While we support accountability and transparency, we do not support the imposition of economic conditions on impoverished countries by the IMF and World Bank as a condition of debt cancellation. We call on the U.S. government, along with the IMF and World Bank, to provide 100 percent cancellation of the debts of all impoverished countries without requiring those countries to implement harmful economic conditions such as privatization of essential services and restrictive social sector spending. Especially for impoverished countries like Cameroon and Malawi, delays to debt cancellation cost lives.”

For additional information see: www.50years.org and www.jubileeusa.org.