IMF threat on G8 proposal of debt cancellation

17 July 2005 by Eric Toussaint , Damien Millet

On 11 June 2005 the finance ministers of the G8 G8 Group composed of the most powerful countries of the planet: Canada, France, Germany, Italy, Japan, the UK and the USA, with Russia a full member since June 2002. Their heads of state meet annually, usually in June or July. , i.e. the eight most industrialised countries in the world, |1|announced, in a flurry of publicity, an allegedly historic agreement: the cancellation of the debt 18 poor countries owe to the WB World Bank
The World Bank was founded as part of the new international monetary system set up at Bretton Woods in 1944. Its capital is provided by member states’ contributions and loans on the international money markets. It financed public and private projects in Third World and East European countries.

It consists of several closely associated institutions, among which :

1. The International Bank for Reconstruction and Development (IBRD, 180 members in 1997), which provides loans in productive sectors such as farming or energy ;

2. The International Development Association (IDA, 159 members in 1997), which provides less advanced countries with long-term loans (35-40 years) at very low interest (1%) ;

3. The International Finance Corporation (IFC), which provides both loan and equity finance for business ventures in developing countries.

As Third World Debt gets worse, the World Bank (along with the IMF) tends to adopt a macro-economic perspective. For instance, it enforces adjustment policies that are intended to balance heavily indebted countries’ payments. The World Bank advises those countries that have to undergo the IMF’s therapy on such matters as how to reduce budget deficits, round up savings, enduce foreign investors to settle within their borders, or free prices and exchange rates.
, the African Development Bank (AfDB), and the IMF IMF
International Monetary Fund
Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.
, i.e. some USD 40 billion. 20 other countries might in due time also benefit from a similar generosity, taking the total amount to USD 55 billion.

It may seem strange that G8 leaders, who are so keen on “good governance” and “transparency” in others, should thus decide to cancel debts held by the WB, the AfDB and the IMF without consulting these three institutions. And indeed several industrialised countries that do not belong to the G8 soon reacted and questioned the decision.

First the Belgian representative at the IMF, Willy Kiekens, stated on 22 June: “As long as the Board has not acted upon the G8 proposal of debt cancellation for HIPC Heavily Indebted Poor Countries
In 1996 the IMF and the World Bank launched an initiative aimed at reducing the debt burden for some 41 heavily indebted poor countries (HIPC), whose total debts amount to about 10% of the Third World Debt. The list includes 33 countries in Sub-Saharan Africa.

The idea at the back of the initiative is as follows: a country on the HIPC list can start an SAP programme of twice three years. At the end of the first stage (first three years) IMF experts assess the ’sustainability’ of the country’s debt (from medium term projections of the country’s balance of payments and of the net present value (NPV) of debt to exports ratio.
If the country’s debt is considered “unsustainable”, it is eligible for a second stage of reforms at the end of which its debt is made ’sustainable’ (that it it is given the financial means necessary to pay back the amounts due). Three years after the beginning of the initiative, only four countries had been deemed eligible for a very slight debt relief (Uganda, Bolivia, Burkina Faso, and Mozambique). Confronted with such poor results and with the Jubilee 2000 campaign (which brought in a petition with over 17 million signatures to the G7 meeting in Cologne in June 1999), the G7 (group of 7 most industrialised countries) and international financial institutions launched an enhanced initiative: “sustainability” criteria have been revised (for instance the value of the debt must only amount to 150% of export revenues instead of 200-250% as was the case before), the second stage in the reforms is not fixed any more: an assiduous pupil can anticipate and be granted debt relief earlier, and thirdly some interim relief can be granted after the first three years of reform.

Simultaneously the IMF and the World Bank change their vocabulary : their loans, which so far had been called, “enhanced structural adjustment facilities” (ESAF), are now called “Growth and Poverty Reduction Facilities” (GPRF) while “Structural Adjustment Policies” are now called “Poverty Reduction Strategy Paper”. This paper is drafted by the country requesting assistance with the help of the IMF and the World Bank and the participation of representatives from the civil society.
This enhanced initiative has been largely publicised: the international media announced a 90%, even a 100% cancellation after the Euro-African summit in Cairo (April 2000). Yet on closer examination the HIPC initiative turns out to be yet another delusive manoeuvre which suggests but in no way implements a cancellation of the debt.

List of the 42 Heavily Indebted Poor Countries: Angola, Benin, Bolivia, Burkina Faso, Burundi, Cameroon, Central African Republic, Chad, Comoro Islands, Congo, Ivory Coast, Democratic Republic of Congo, Ethiopia, Gambia, Ghana, Guinea, Guinea-Bissau, Guyana, Honduras, Kenya, Laos, Liberia, Madagascar, Malawi, Mali, Mauritania, Mozambique, Myanmar, Nicaragua, Niger, Rwanda, Sao Tome and Principe, Senegal, Sierra Leone, Somalia, Sudan, Tanzania, Togo, Uganda, Vietnam, Zambia.
countries, Fund operations should continue according to present rules and policies. And obviously, countries should continue to service their debt to the fund, in full and on time.
” He then suggested a device that would make it possible to avoid irrevocable cancellation of the amount owed by these 18 countries to the IMF. He suggests that the IMF still insist on these countries servicing the debt they owe to the Fund. But if they successfully implement the kind of economic policies which have been sanctioned by IMF experts, then the Fund would provide what he calls”grants" i.e. the fund would return the amount it had just received as debt service Debt service The sum of the interests and the amortization of the capital borrowed. .

One week later Belgium was backed by three other rich countries: Switzerland, Norway and the Netherlands. Their representatives delivered a memorandum to this effect. The four countries thus wish to change the terms for the debt cancellation announced by the G8 ministers. Indeed they ask for strong conditionality to be imposed on any cancellation since they affirm that “conditionality is a key feature for the effective use of resources that are freed up by debt relief.” However, the selected 18 countries have already reached completion point in the HIPC (Highly Indebted Poor Countries) initiative, which enforces long years of neoliberal economic reforms such as increases in school fees, health-care costs and VAT, removal of subsidies for basic products - all measures which affect the poor in particular - together with privatisations, trade liberalisation, and the creation of unfair competition between local producers and transnational corporations. The creditors’ hold on those countries’ economies is extremely strong and the only thing the G8 ministers have proposed is merely some debt relief while intending to reinforce conditionality on new loans. For Willy Kiekens and his Dutch, Norwegian and Swiss colleagues, this was already too much.

Let us recall at this point how thoroughly undemocratic the proceedings at the IMF are. They can be described as a tyranny of the rich countries. Contrary to the UN General Assembly, where each country has one vote (with the notable exception of the Security Council, where five countries have veto power), the IMF like the World Bank gives countries a voting power which is proportional to its assumed political and economic influence. The United States thus hold over 17 % of the total voting power, followed by Japan and Germany (about 6 % each), France and the UK (about 5 % each). By way of comparison, we can note that China only holds 2.94 % of voting power and the group led by Equatorial Guinea, which includes 24 French- and Portuguese-speaking countries in Black Africa, only holds 1.41 %.

This of course means that the protest voiced by Belgium, Switzerland, Norway and the Netherlands is not at all doomed to failure. The weight of these four countries on the IMF Board is far from negligible: each of them stands for a group of about ten countries. Together they hold 16.32 % of the voting power. This is enough to bring the IMF to a stalemate. Indeed important decisions on the IMF future require 85 % of the voting power. Usually this means that the USA with its 17% prevents any development it does not approve of. This time round “small” countries are about to use it. What a pity that they should do so to oppose a measure concerning debt cancellation, however inadequate and insufficient it may be. Why didn’t they bother to unite in order to oppose the provocative nomination of Paul Wolfowitz as head of the World Bank in March 2005, for instance?

We claim that the IMF and the WB can support a complete cancellation of the debts poor countries owe them. The IMF gold reserve |2| and the WB’s reserve are over USD 75 billion. In the account books of the IFIs, the debts owed by the 18 HIPCs amount to 40 billion, but their actual market value is around 3.2 billion if we take example from the US and apply a 92 % marketability discount to all HIPCs as they do |3|. Instead of taking dozens of years to write off their debts, as is currently the case, these two institutions could easily cancel them this year if they applied the same 92 % discount and considered the cancellation as an accountancy adjustment. They could even cancel the debts owed to them by all low-income countries |4| (for example Haiti and Bangladesh among many others which have not been classed HIPC). They must of course simultaneously stop the enforcement of neoliberal policies. Only the populations in the countries involved and their representatives have a right to determine what is done with the money freed up by debt relief. This is what is demanded by the international campaigns for the cancellation of the debt and by social movements. It would be a first step towards a more general cancellation of the debt in developing countries.

Damien Millet is a professor of mathematics, President of The Committee for the Cancellation of Third World Debt (CADTM)-France. Eric Toussaint is a historian and political scientist, President of CADTM-Belgium. He is the author of Your Money or Your Life. The Tyranny of Global Finance, Haymarket, Chicago, 2005. Damien Millet and Eric Toussaint are co-authors of The Debt Scam, Vak, Mumbai, 2003 and Who Owes Who?, Zed Books, London, 2004.


|1| Canada, France, Germany, Italy, Japan, United Kingdom and United States, with Russia added on.

|2| Assessment based on the market price of gold.

|3| Source: UNCTAD, Economic Development in Africa. Debt sustainability, Oasis or Mirage?, 2004.

|4| The debt owed by these sixty odd countries to the IMF and the WB amounts to merely USD 113 billion, i.e. USD 9 billion after a 92 % discount.


Eric Toussaint

is a historian and political scientist who completed his Ph.D. at the universities of Paris VIII and Liège, is the spokesperson of the CADTM International, and sits on the Scientific Council of ATTAC France. He is the author of Bankocracy (2015); The Life and Crimes of an Exemplary Man (2014); Glance in the Rear View Mirror. Neoliberal Ideology From its Origins to the Present, Haymarket books, Chicago, 2012 (see here), etc. See his bibliography: He co-authored World debt figures 2015 with Pierre Gottiniaux, Daniel Munevar and Antonio Sanabria (2015); and with Damien Millet Debt, the IMF, and the World Bank: Sixty Questions, Sixty Answers, Monthly Review Books, New York, 2010. Since the 4th April 2015 he is the scientific coordinator of the Greek Truth Commission on Public Debt.

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Damien Millet

professeur de mathématiques en classes préparatoires scientifiques à Orléans, porte-parole du CADTM France (Comité pour l’Annulation de la Dette du Tiers Monde), auteur de L’Afrique sans dette (CADTM-Syllepse, 2005), co-auteur avec Frédéric Chauvreau des bandes dessinées Dette odieuse (CADTM-Syllepse, 2006) et Le système Dette (CADTM-Syllepse, 2009), co-auteur avec Eric Toussaint du livre Les tsunamis de la dette (CADTM-Syllepse, 2005), co-auteur avec François Mauger de La Jamaïque dans l’étau du FMI (L’esprit frappeur, 2004).

Other articles in English by Damien Millet (45)

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