Simply writing off the debts of some of the world poorest nations won’t do a thing to eradicate poverty, says the Washington D.C.- based World Bank. Helping them establish sustainable development programs will.
In a telephone interview, World Bank spokesman Tony Gaeta said poorer nations do need some measure of debt forgiveness but it must be coupled with the establishment of sound domestic monetary policies.
“The usual complaint we hear is that the process takes too long. It does. But we are dealing with a difficult set of issues involving not only economics, but also what these countries are doing in terms of social and health spending,” he said.
The bank has been frequently criticized for being more a part of the debt problem than its solution. At the Lambeth Conference this year, its president, Jim Wolfensohn, told the world’s Anglican bishops that the problems of poorer nations include, but are not limited to, the servicing of debt.
Supporters of the Jubilee 2000 campaign, including several of the world’s political and religious leaders, argue that countries should be eligible for debt cancellation if the county has high levels of poverty, if debt its servicing costs are high and there are low levels of spending on health and education.
The Canadian government, for example, is owed about $1.2 billion by Southern nations but the Jubilee 2000 group notes that the cost of writing off these debts over a number of years would only be about $700-800 million. (Calculating the value of debt is complicated. However,writing off a debt today costs less than the total value of the debt held for its full term.) But beyond that, getting rid of today’s debt does nothing to ensure there won’t be more debt tomorrow, said Mr. Gaeta.
“There is no question that the World Bank is enormously grateful for Jubilee 2000,” he said. “It has done a tremendous job of getting millions and millions of people to care about a very important world issue, and to think about new ways to address the problems.”
In 1996, the World Bank and the International Monetary Fund established the Heavily Indebted Poor Countries (HIPC) Initiative. The goal of the initiative is to provide poorer countries some debt relief, while helping governments to develop homegrown economic and fiscal policies. This is done with the support of the World Bank and IMF.
Debt relief that also works toward creating an improved economy, is a slow and complicated process, said Mr. Gaeta.
Under the HIPC initiative, a country can qualify for some measure of debt forgiveness when the ratio of revenue from exports to debt costs exceeds 200 per cent. Once a country becomes HIPC eligible, they begin with work closely with the World Bank and the IMF to establish a six-year track record of good economic performance.
“The aim is to establish a reasonable level of debt sustainability,” Mr. Gaeta said. “It is a discriminating process. We want to see money being used to create economic reforms and invest in basic health care, education and sanitation.”
Countries are also expected to adjust military spending and reduce the number of state-owned enterprises. The World Bank and the IMF take a very hands-on approach to the HIPC and decisions on debt relief are usually made in the first three years.
“We are flexible, but no one here is going to say (the process) goes quickly,” said Mr. Gaeta. “It is a balancing act. We have to look at the needs of a number of countries.”
In fact, over coming months, the HIPC initiative will be undergoing careful review, in consultation with a number of stake holders, including the leaders of the countries involved, their creditors, church leaders, and representatives from a number of social action groups.