Debt cancellation for 18 poor countries unlikely to be finalized this weekend

Abid Aslam
One World US
September 23, 2005

Global shareholders in the World Bank and International Monetary Fund (IMF) are unlikely to agree this weekend on a debt deal for 18 of the world’s poorest countries, the lending institutions’ heads said Thursday as wealthy nations bickered over who would pay for the effort.

“We are committed to getting it done and we expect real progress at these meetings,” Paul Wolfowitz, the World Bank president, told reporters.

However, he added: “It’s a challenge to bring that many countries together on a consensus but I think we’re getting there and very much look forward to this weekend as a way to move it.”

Rodrigo de Rato, the IMF managing director, struck a similar note during a Thursday news briefing ahead of the agencies’ Sep. 24-25 annual shareholders’ meetings.

“I think we will be able to reach a final consensus soon,” de Rato said.

“I cannot give you a specific date,” he added. But “we should be able to have this in the next few weeks.”

At issue is an agreement in principle, reached by leaders of the Group of Eight (G8) financial and military powers – Britain, Canada, France, Germany, Italy, Japan, Russia, and the United States – to cancel $40 billion in World Bank and IMF debt claims against 18 heavily indebted poor countries, nearly all of them in Africa.

President George W. Bush, UK Prime Minister Tony Blair, and other G8 leaders sealed the deal at their July summit at Scottish golf resort Gleneagles.

Non-G8 wealthy nations, having had no say in the Gleneagles agreement, subsequently have said the plan would fail to compensate the bank for income lost by canceling the debts.

As the institution earns its operating expenses from the payments made by its borrowers, officials from the Netherlands, Belgium, and other nations have said, a serious drain on revenue would ensue unless wealthy countries chipped in to cover the shortfall or unless the bank partly shuttered the International Development Association (IDA), the window through which it makes grants and soft loans to the poorest countries.

African and other cash-strapped governments not slated to benefit from the debt write-off also have voiced anxiety that wealthy nations might cut financing for IDA. On Thursday, Wolfowitz emphasized that a way needed to be found to preserve the soft loan window.

The U.S. administration had indicated it would come up with some money to help plug an IDA financing gap, Wolfowitz said.

Anti-debt campaigners decried the prospect of a further holdup.

“Leaders told the world the debt deal was done in July yet all they have delivered so far is further delay,” said Bernice Romero, advocacy director at global charity Oxfam International.

“Again and again rich countries procrastinate and delay. They must do the debt deal this weekend.”

Poor countries spend $100 million every day on debt repayments, Romero said. Mali, in Africa, alone spends $1 million every week on debt repayments, she added, and in 2004, Zambia spent $150 million more on servicing debt than it did on educating its children.

Life-saving programs are being held up pending actual cancellation of the 18 countries’ debts, said Neil Watkins, coordinator of the Jubilee USA Network of pressure groups.

The Zambian government, for example, announced in response to the G8 deal that it would use the money saved by debt cancellation to provide AIDS drugs to an additional 100,000 people infected with the killer disease, Watkins said.

The deal now under consideration by the World Bank and IMF’s 184 shareholding governments is a revamped version of proposals that had been in circulation since at least 1996 and that had been set aside in favor of a scaled-down effort for want of support not only from wealthy nations but from middle- and low-income borrowers. India and other countries argued against debt forgiveness on the grounds that it would reward borrowers that could not keep up with repayments and thus encourage “moral hazard.”

Larger and relatively well-off borrowers also have faulted the bank for increasing financing for the poorest countries, saying the agency should, first and foremost, provide cheap capital to fuel infrastructure and other development projects in their countries.

Whatever agreement ultimately emerges, it is unlikely to satisfy campaigners.

Groups in borrowing and lending countries alike have rallied to demand full cancellation of a larger number of countries’ debts and the immediate repudiation of illegitimate, usurious, and “odious debt” – meaning loans that serve the interests of the lender, not those of the borrower.

About one-fifth of all debt claims against developing countries are odious, UK-based Christian Aid said in a recent report.

Categories: Africa, Debt Relief, Odious Debts

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