7/09/2001
Debt Relief Strategy Achieving Results Say IMF, But Rich Countries Need to Do More

Last year, the IMF and the World Bank approved debt-reduction packages for 23 poor countries, 19 of which are in Africa. Totalling $34 billion, these packages will halve the debt owed by these countries, according to information recently released by the International Monetary Fund (IMF).

The measures form part of the Heavily-Indebted Poor Countries (HIPC) initiative. With other measures the effect will be to reduce the debts owed by these countries, by about two thirds, on average. The news is welcome as the IMF shapes up for its Annual Meeting to be held in Washington at the end of the month.

The IMF claim that while many of the packages were not finally approved until the end of 2000, the beneficial effects are already apparent. Average debt servicing costs will fall by 30 per cent, the institution say, compared to 1998-99, for the countries benefitting.

Considerable efforts have been made to ensure that these benefits are targeted on the poor. Before the HIPC Initiative, countries classed as highly indebted and poor were on average actually spending more on debt servicing than on health and education combined. Now, in all the 23 countries that have so far qualified, the position has been reversed. All are today spending more on social services than on debt servicing; indeed the average is three times more. And all have shown a marked increase in the share of their budgets devoted to health and education, IMF say.

The institution points out that these gains have not come automatically for it has taken time and effort to ensure that savings from debt servicing would be redirected to help fight poverty. However, some countries still have difficult problems to resolve before they can benefit.

Paying for reconstruction after the wars that ravaged Rwanda and Ethiopia may entail those countries having to borrow heavily even while their old debts are being reduced. Other countries like Liberia, Sudan, and the Democratic Republic of Congo are already so far behind with the payments on their existing debts that they are beyond the scope of the HIPC Initiative's current funding. All these countries are, or have been, affected by extensive civil conflict. Peace needs to be restored and the countries set on the reconstruction path before debt relief and poverty reduction programmes can begin.

But IMF are keen to stress that debt relief is no panacea. Without renewed growth, these countries could once again fall into a debt trap - say the institution. 'We are working with the countries to lay the foundations for sustained growth through good policies. The HIV/AIDS crisis afflicting many poor countries is taking an enormous human toll. As it rips at the fabric of these societies, it makes such growth an even more difficult-though no less needed-undertaking.'

That is one reason why both the IMF and the World Bank have repeatedly called on rich countries to contribute more by meeting the UN target for development assistance of 0.7 percent of GNP. Even more important, they say, would be the removal of trade barriers, which would benefit both rich and poor countries alike.