The World Bank and the International Monetary Fund (IMF) are the two
largest sources of foreign currency loans for poverty alleviation in
the
poorest countries of the world. At the same time, the poorest countries
of the world owe more money to these two institutions than they do any
other private or government institutions because most of these loans
were so poorly designed that the borrowing countries have not reaped
enough
income to pay them back. In other cases, government officials and private
contractors have siphoned off the funds into private bank accounts.
This
international debt problem has become such a crisis that many poor countries
pay more money to the World Bank and the IMF each year than they receive
in loans. The World Bank's own figures indicate that the IMF extracted
a net US$1 billion from Africa in 1997 and 1998 more than they loaned
to the continent.
Globally poor countries owed lenders from private banks to the World
Bank almost US$2.5 trillion in 1998, up US$150 billion from the previous
year. But the debt owed to the World Bank and the IMF is the most difficult
to deal with because unlike private lenders and government aid agencies,
the World Bank and IMF refuse to cancel debts because these two institutions
say that their bylaws prohibit them from doing this. Additionally, governments
have special incentive to stay current with their multilateral debts,
since the IMF determines the creditworthiness of countries: i.e., until
the
IMF gives its stamp of approval (which usually requires adherence to
the economic policies it recommends), poor countries generally cannot
get credit
or capital from other sources.
This multilateral debt (money owed to international institutions like
the World Bank and IMF as well as their sister institutions like the
Asian
Development Bank, the African Development Bank and the Inter-American
Development Bank) has skyrocketed in the last few years for the poorest
countries. For low-income countries (defined by the World Bank as those
with per capita Gross National Product below US$785), multilateral debt
increased by some 544% between 1980 and 1997, from US$24 billion to
US$155 billion, and currently constitutes 33% of their total long-term
debt burden (versus about 25% in 1980). For the most severely indebted
of those low-income countries, multilateral debt increased by 459%,
from
US$10.6 billion to US$59 billion, with a corresponding percentage increase
in their long-term debt from 22% to 30%. (Of the 32 countries classified
as severely indebted low-income countries, 25 are in sub-Saharan Africa.
For example, the country of Chad in West Africa saw its debt increase
from
US$330 million in 1987 to US$1 billion ten years later. Chad's debt/GDP
ratio rose from 28 percent in 1987 to 55 percent in 1997.)
In the last few years, the World Bank and the IMF have agreed to help
countries that are suffering heavily from major debt burdens by creating
the Heavily Indebted Poor Countries (HIPC) Initiative of 1996. But to
qualify for HIPC, a country must complete three years under an IMF-designed
Structural Adjustment Program. Even after that hurdle, the country must
fulfill a further three years bound by another SAP before relief on
multilateral
debt is granted. The cruel paradox here is that the SAPs require them
to cut spending on health care, food subsidies, and education.
Since the HIPC Initiative was adopted in 1996, only five countries-Uganda,
Bolivia, Guyana, Mozambique, and Mali-have received or are in a position
to receive any relief this year (2000). And these countries have found
HIPC relief to be worth relatively little. Uganda began to receive debt
relief
worth
US$350 million in April 1998, but as a consequence lost access to other
debt relief mechanisms. With a drop in the international price
of coffee, its chief export, Uganda found itself by April 1999 once again
saddled with an officially "unsustainable" debt burden. An internal
World Bank/IMF report indicates that Mali and Burkina Faso (slated
for HIPC
relief in early 2000) will actually pay more on their debt after graduating
from HIPC.
Who does this debt crisis affect the most? The poor, who depend on the
government for health and education subsidies, are the worst hit. And
the World Bank recently admitted that the world added 200 million poor
people to the rolls of poverty by 1998 over the 1.3 billion classified
as living below the international poverty line in 1993 (people with an
income of less than a dollar a day). Tanzania, half of
whose population is illiterate, spends a third of its budget on
debt payments and spends four times more on debt than it does primary
education. Niger, where life expectancy is only 47 years, spends more
on debt payments than it does on health and education combined. Altogether
sub-Saharan Africa spends four times as much on debt repayment as she
does on healthcare.
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