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Debt relief needs more time and money

Reuters, 6 September 2003

by Anna Willard

WASHINGTON: A programme to cut the debt of the world's poorest countries is off track and needs two more years and extra money to ensure all nations can benefit, a joint World Bank and International Monetary Fund report has found.

Only six of a planned 38 countries have completed the Heavily Indebted Poor Countries (HIPC) initiative since it was introduced in 1996 and some of those countries and many others currently on the programme are likely to miss their debt sustainability targets, the report said.

The stated aim of the programme is to get countries into a state where they can cope with their debt payments without undue economic harm.

"The outlook for many HIPCs has deteriorated with the global economic downturn and the fall in commodity prices," the report said. Many poor countries rely on exports of agricultural goods like coffee and cocoa, so have been hit hard by dropping prices.

The report may be revised before its scheduled presentation for discussion among shareholders at the IMF and World Bank annual meetings set for the end of the month.

The study estimates the cost of the programme has risen to $37,2-billion from $36,4-billion last March, which means there is not enough money in the trust fund to complete the programme. That number also does not factor in the potential cost of additional debt relief for countries that have still not attained a sustainable debt load by the time they finish.

Of the 20 countries on the HIPC programme, about half are expected to fail to meet the debt sustainability goal and some of the six graduates may also need extra help.

Earlier this year creditors agreed to provide an extra $129-million in debt relief for Burkina Faso after the bank and fund admitted that countries are still facing crippling debt payments even after completing the debt reduction programme.

The bank said it is doing its best to make sure debt loads are sustainable.

"We are encouraging our shareholders to continue to view the debt relief initiative under HIPC as a debt sustainability initiative that requires continuing support and, where necessary, re-evaluation if the conditions change," said Damian Milverton, World Bank spokesman.

But critics said the report shows the bank and fund have accepted that HIPC is not working and said they are not doing enough to turn the programme around.

"The paper is admitting that the HIPC initiative is broken, but they are refusing to fix it," said Oliver Buston, policy adviser for the charity, Oxfam.

The bank and fund offered a similar downbeat assessment of debt relief earlier this year and since then several groups have proposed ways to improve the programme.

The proposals include a plan to increase debt relief to meet the UN's millennium development aim of chopping poverty in half by 2015. There is also an idea to ensure countries devote no more than 5% to 10% of government revenues to service their debt loads.

Another idea is to expand the programme to include a broader range of countries like Indonesia, Nigeria, Pakistan and Zimbabwe.

But the paper downplayed these ideas as too costly and questioned whether debt relief is the appropriate vehicle for achieving the UN's millennium development goals.

"These alternatives raise a number of issues. Firstly, there are high costs associated with many of these proposals," the report said. "Secondly, these proposals also raise the question of whether continuing debt relief is the right instrument to deal with future economic shocks and to achieve the millennium development goals."

Jubilee USA Network, a group which lobbies for debt cancellation, said it is disappointed with the report.

"We know that debt cancellation works, so there is not a moment to lose as the Aids crisis wipes out an entire generation in Africa. To hold back now, insisting on the same failed ideology, is nothing short of murder," said Marie Clarke, national co-ordinator of Jubilee USA.