We did a lot of work in the lead-up to the April 15/16 meeting of G7 Finance Ministers, and the IMF/WB spring meetings that followed them, in the hope that they would result in real progress toward a deal on multilateral debt cancellation for a large groups of impoverished countries.

They did not. In fact in many respects the meetings represented a step backwards. The Finance Ministers’ communiqué paid only the lamest lip service to the idea of multilateral debt cancellation, repeating the shallow formula of their February meeting, when they said all the G7 countries were in agreement on the need for a significant debt cancellation program.

In the two weeks leading up to the meeting, the following developments became apparent (and were confirmed by the meeting’s result):

1. The U.S. Treasury, which had earlier talked about writing off the multilateral debt of the HIPC countries (about 42) owed to the IMF, has stopped talking about the IMF debt altogether. The “ financing” Treasury was proposing was in large part the re-allocation of the resources in the Poverty Reduction & Growth Facility (PRGF) – the account the IMF uses for its structural adjustment loans. As a Network we have fought against structural adjustment programs (SAPs) as a package and when imposed piecemeal, so this was an attractive proposal because it seemed to address two problems at once (debt and the IMF’s ability to impose SAPs).

The extent of the U.S. capitulation on the PRGF is clear from this statement in the communiqué from the meeting of the International Monetary & Financial Committee (IMFC, the top decision-making body of the IMF): “The Committee looks forward to further work to ensure adequate financing of the PRGF to meet future demands as assessed by the IMF, and other IMF instruments to assist low-income countries, including to help members deal with shocks.”

After the meetings, Treasury staff said that they had accepted that there was no support for their approach from other G7 countries. 50 Years Is Enough Network allies Africa Action and the Jubilee USA Network coordinated a write-in to the White House protesting this marginalization of the IMF debt issue soon after the meetings.

2. The British proposal for “ financing” the cancellation of IMF debt calls for sales of IMF gold. Treasury’s opposition to this avenue actually hardened in the weeks before the meetings. We don’t know how hard the U.K. government (or others) tried to shift the U.S., but it appears to be unmoveable. The reason for that seems entirely to be signals of opposition from Republicans in Congress (Congress has to approve any usage of the gold, since a chunk of it technically “belongs” to the U.S.). Twelve Senators wrote a letter on the issue, apparently at the behest of Newmont Mining, the largest gold miner in the U.S. The case has been put to them that prices of gold would not be affected if the sales were coordinated with European central banks (which would not be hard).

But neither Newmont nor its henchmen at the World Gold Council have publicly backed off. Since a market panic doesn’t require actual facts, they could argue that the price would be affected just by the unwarranted assumption that it would be. But we have made some progress in talking to Newmont and the WGC, and may be able to secure their support, or neutrality, on the issue in the near future (though it’s by no means a sure thing).

We prefer the plan to close the PRGF, though apparently several European governments are adamantly opposed to it. We have little problem with gold sales – it’s a dead resource that should be put to positive use, and may be the only feasible path politically. (We’d rather see the gold used for more productive purposes, and use existing IMF liquidity to satisfy the accountants on the debt cancellation, but applying it to debt cancellation is still a much better use of the gold than its current non-use.)

At any rate, the Europeans are using the U.S. refusal on gold sales to blame the Bush Administration for the failure to reach a deal. They’re not wrong, but that’s not the whole story, since the Bush Administration, in our view had made the best proposal for debt cancellation.

3. There apparently has been progress made toward an agreement on canceling World Bank debt, though the details aren’t yet clear. Presumably it will be “financed” through the use of a number of WB accounts and through additional contributions from some wealthy countries like the U.K. and Canada (and not the U.S.). It is probably this deal that will be announced in Scotland at the G8 summit in July. The U.K. government and others have already started talking about the U.N. Millennium Summit (Sept. 10-14, in NYC) as a possible venue for announcing a more comprehensive debt deal – signaling increasing pessimism that it will all be wrapped up for Blair to wave his arms about in Scotland, as was hoped.

4. The most alarming thing to come out of the April meetings was perhaps the statement in the IMFC communiqué that follows the one quoted in item #1 above: “It [the IMFC] also looks forward to further work on a policy monitoring arrangement to enhance the IMF's signaling role for countries that do not need or want IMF financing.”

There is still some confusion as to what precisely this refers to. But whatever other functions it is meant to fulfill (namely offering “pre-approved” loans to countries experiencing sudden currency crises), it seems clear that this new facility would be a vehicle for continuing to impose IMF conditions on countries even when they aren’t getting money from the IMF. This is actually already done through some monitoring agreements, so the question is why they’d need to establish this new thing. We suspect that it is an effort to formalize the “gatekeeper” role that the IMF plays now by “unwritten agreement” – i.e. if the IMF withdraws support for a country, other creditors/ donors follow suit; and until the IMF resumes lending, no one else does either. That equation would have been disrupted if a large number of countries no longer had any lending programs with the IMF; this facility could be used as an enforcement mechanism. It’s not clear if the prospect of “pre-approved” loans will be enticement enough to get countries into the program; it’s entirely possible that approval from this facility will be a pre-requisite for any other assistance from creditors/donors.

If this comes to pass, it would substantially neutralize one of the main benefits of multilateral debt cancellation, in that countries would still be subject to IMF domination, and in fact maybe even more tightly bound to it. U.S. Treasury Secretary John Snow and Canadian Finance Minister Ralph Goodale had spoken of such a program last October, and it appears they’ve got broad enough support in the G7 (in whose April communiqué similar language appears) and elsewhere – enough to insert the idea into an IMFC communiqué for the first time. While we don’t yet really know the full story, this is potentially very bad news.

5. In other developments, not directly related to the above, but certainly having a bearing on debt, the IMFC attacked Argentina for its recent historic success in settling its default to private bondholders with a $.31 per $1 offer and getting over 70% acceptance. They played the free market game very well and won. Now a rear-guard action is being mounted to change the rules, as the IMFC says, “Argentina will now need to formulate a forward-looking strategy to resolve the remaining arrears outstanding to private creditors consistent with the IMF's lending into arrears policy, and to continue with necessary structural reforms.”

In the immediate aftermath of the deal, the IMF made only muted congratulatory comments. In the weeks after, legislators from Nigeria to the Philippines were talking about adopting the Argentinean strategy for their own debt problems. This statement, calling on Argentina to violate its word and go back to those who rejected the offer and try to get them into the deal, indicates some genuine fear among the mighty that the whole debt system might be in danger. The Argentinean government angrily rejected the demands, but the most recent indications are that a deal with those who did not take the original offer may be a subject of upcoming negotiations between the IMF and Argentina for a new program.