Essential Action
P.O. Box 19405
Washington,
D.C. 20036
Telephone: 202-387-8030
Fax: 202-234-5176
E-mail: action@essential.org
International
Monetary Fund (IMF)/World Bank "debt relief" for
poor and indebted countries is a sham
Many poor countries must devote huge portions of their
national budgets to paying back foreign creditors -- often
for loans that were made to or for dictators, wasteful military
spending or boondoggle projects. The poor countries of sub-Saharan
Africa, for example, owe more than $200 billion in foreign
debt -- three times more than they earn annually in exports.
About 20 percent of sub-Saharan African countries' export
income (not counting South Africa) goes to service foreign
debt.
A huge part of poor country economies must be devoted
to producing goods for export -- with the resultant income
sent back out of the economy and not available for domestic
use, including for such important domestic needs as healthcare,
education and infrastructure.
The
IMF program for helping poor countries that are deeply in debt was,
until recently, called the Enhanced Structural Adjustment Facility
(ESAF). Last year, under fire for a program poorly run, the Fund
changed the name to Poverty Reduction and Growth Facility (PRGF).
This program is operated in conjunction with the World Bank's Heavily
Indebted Poor Country (HIPC) Initiative.
The purpose of PRGF/HIPC is to provide some debt
relief -- that
is, to cancel part of the debts -- for poor countries that
have no hope of paying back their foreign debt and for whom
debt payments are draining their economy.
However, the debt relief afforded by PRGF/HIPC is very
modest, and will leave most poor countries paying nearly
as much as they currently do. Under the plan, many countries
find that while the absolute amount of their debt may decline,
only about 15 countries will see the amounts they actually
pay affected meaningfully.
As Joe Hanlon, a Jubilee 2000 UK analyst, explains,
"Of the $207 billion HIPC country debt, approximately
$100 billion is not being serviced -- mainly with the agreement
of the IMF and World Bank · . This means the Bank and Fund
have already admitted that this money will never be paid.
So the $100 billion now on offer is only equivalent to the
money that it is already accepted will never be paid -- in
effect this much debt can be written off without real cost
since it would never have been paid."
Compounding the problem, the price of receiving debt relief
under the PRGF/HIPC program is implementing a carefully supervised
structural adjustment program for three years -- even though
structural adjustment programs worsen poverty.
The IMF and the World Bank should use their existing
resources to fully cancel the debts owed them by the poorest
countries -- without any structural adjustment conditions
attached. This is something they are perfectly able to do,
as Harvard Professor Jeffrey Sachs and many others have shown.
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