The World Bank (WB) and the International Monetary Fund (IMF) have agreed to cancel the debts of 18 developing countries that have gone through the Heavily Indebted Poor Countries (HIPC) debt scheme. This came after the proposal of eight of the worlds most industrialised countries was approved last year.

FYI

Total external debt of low-income countries USD 523 billionTotal debt service paid every day by low-income countries USD 100 million
Africas total external debt ~ USD 300 billion For every USD 1 received in grant aid, low-income countries pay USD 2.30 in debt service

Many African countries spend more on debt than either health or education (e.g., Cameroon, Ethiopia, Gambia, Guinea, Madagascar, Malawi, Mauritania, Senegal, Uganda and Zambia all spent more on debt than health in 2002)

Source:
Jubilee Debt Campaign. Facts and statistics on debt/./ Retrieved from <http://www.jubileedebtcampaign.org.uk/?lid=247>.

With debt relief, can developing countries now truly focus more resources on health and education?

To qualify as an HIPC and be eligible for the Multilateral Debt Relief Initiative (MDRI, as the debt cancellation plan is called), the WB/IMF have set the following conditions: large-scale privatisation of utilities (including water or electricity), reduction in public spending (which could mean hiring fewer teachers or doctors), removal of subsidies on basic goods, and trade liberalisation (which could leave local farmers and producers unable to compete with imported products).

The 18 beneficiaries mostly come from Africa and Latin America. These are Benin, Bolivia, Burkina Faso, Ethiopia, Ghana, Guyana, Honduras, Madagascar, Mali, Mauritania, Nicaragua, Niger, Rwanda, Senegal, Tanzania, Uganda, and Zambia. Two more countries--Cambodia and Tajikistan--were not HIPCs but were also included since they met the less than USD 380 per capita income needed to qualify for the deal. The MDRI was to be implemented at the start of 2006, with IMF Managing Director Rodrigo de Ratos assurance that the debt cancellation would be done outright and upfront with no additional conditions.

Ambiguities and loopholesl

However, the IMF appears to be positioning itself to use technicalities to deny, postpone, or condition the debt cancellation that has been promised, noted the 50 Years is Enough Network. Citing ambiguities and the loopholes in the Group of Eight (G8) proposal, the organisation said the IMF is the sole judge, jury, and police force in implementing the debt relief agreement.

The organisation added that if the IMF sees deficiencies in the countries eligible for the plan, it will recommend corrective action before approving debt cancellation. This could mean further delay in the provision of the relief, despite IMFs Mark Allens assurance that they are not trying to hold this relief up.

Debt cancellation works

FYI
Third World debt is external debt incurred by developing countries.

Unpayable debt: external debt where the interest on the debt exceeds the amount that the country produces, thus preventing the debt ever being paid back. It is considered by some as a form of debt bondage on the scale of nations.

Odious debt: incurred by undemocratic countries and misspent (for example, on armaments or repression of the population) or
misappropriated. This kind of debt, e.g., in Nigeria, cannot legitimately be expected to be repaid.

Source: Wikipedia <www.Wikipedia.org> Meanwhile, the organisation Jubilee Debt Campaign believes debt cancellation works. An advocate for the complete debt cancellation of developing countries, Jubilee pointed out that in the past, 54%of the money saved by Benin through debt relief was spent on health, including on rural primary health care and HIV programmes. In Uganda, Malawi, Zambia and Tanzania, debt relief enabled the governments to abolish primary school fees, leading to increase in attendance. It also allowed 2.2 million more people in Uganda to gain access to water.

The IMF/WB and the other lenders must therefore put an end to the destructive and unjust conditions attached to debt cancellation, Jubilee added.

Whats next?

Organisations advocating for debt cancellation see the MDRI as just the first step in a long journey towards complete debt relief. We are still far from a final deal in practice, said Antonio Tricarico of the Italian group Campaign to Reform the World Bank. The devil remains in the details and we will keep watching them.
FYI:Debts incurred by developing countries

Multilateral: debt owed to international financial institutions such as WB, the IMF or regional development banks like the Inter-American
Development Bank or the African Development Bank. Forty-five percent of HIPC debt is multilateral.

Bilateral: debt owed to individual governments like the US, France, and Japan. These governments meet in two groups: the Paris Group (US, Japan and European nations) and the non-Paris Group (Asia and Eastern Europe). Forty-five percent of HIPC debt is bilateral.

Commercial: owed to international commercial banks such as Citibank, this accounts for 10 % of HIPC debt.

Source:
Ambtogi, T.E. Jubilee 2000 and the Campaign for Debt Cancellation. Retrieved from <http://www.twnside.org.sg/title/thomas-cn.htm>.

Jubilee USA Network added that they will continue to put pressure on world leaders to cancel the debts of all impoverished countries in the months and years ahead. National Coordinator Neil Watkins said that even though the agreement is a welcome step, the cancellation amounts to only 20%of the moneyneeded to achieve the United Nations Millennium Development Goals (MDGs). The eight MDGs, which range from halving extreme poverty to halting the spread of HIV/AIDS and providing universal primary education by the target date of 2015, was agreed to by all the worlds countries and all the worlds leading development institutions in 2000.

Oxfam policy advisor Max Lawson also said IMF and WB should also cancel the debts not only of the 20 identified eligible countries, but of the rest of the developing nations as well.

Sources:

Ambrogi, T.E. Jubilee 2000 and the Campaign for Debt Cancellation. Retrieved from <http://www.twnside.org.sg/title/thomas-cn.htm>.

Ambrose, S. (2005 December 9). Analysis on IMFs debt cancellation plan. Retrieved from<http://www.50years.org/cms/updates/story/311>.

Jubilee Debt Campaign. Facts and statistics on debt. Retrieved from <http://www.jubileedebtcampaign.org.uk/?lid=247>.

Mekay, E. (2005, December 21). IMF debt relief welcomed as first step. Retrieved from <http://ipsnews.net/print.asp?idnews=31531>.

Shirin, S. (2005, September 25). World Bank, IMF back debt cancellation. Retrieved from<http://ipsnews.net/print.asp?idnews=30412>.