Press release

G8 Debt Deal Under Attack at World Bank, IMF

5 August 2005 by The 50 Years Is Enough Network

G8 Debt Cancellation Agreement Faces Many Challenges from
the IMF and World Bank; Critics Call for Unconditional,
Immediate Cancellation

This June, 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. leaders promised 100% debt cancellation for
18 of the world’s poorest countries. Since then the
agreement, which would provide these countries with
desperately-needed resources for development goals, has
faced reservations, concerns, and outright opposition from
both the World Bank 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, 189 members in 2017), 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.

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.

In addition, a report by World Bank senior officials has
proposed that debt cancellation could be suspended if "a
country’s performance deteriorates," or deviates from
previously-applied World Bank and IMF loan conditions,
according to Reuters. This echoes a memo released last
week from several European Executive Directors at the IMF
calling for significant conditions to be laid on the debt
cancellation deal which would also threaten any benefits
of the cancellation.

"Both of these measures, if implemented, ensure that the
IMF and World Bank will retain significant influence in
the 18 countries promised debt relief," said Ann-Louise
Colgan of Africa Action, "They will impose the same failed
policies that have meant the loss of livelihoods, basic
services, communities, and lives for the people of Africa,
Latin America, and Asia."

Even if 100% of the debt is cancelled without conditions,
impoverished countries may still remain under the thumb of
the institutions. Yesterday, the IMF’s Board of Directors
established the Policy Support Instrument (PSI). The PSI
allows the IMF to continue to influence the policies of
countries that neither “need nor want” IMF financial
assistance; both the debt deal countries and so-called
middle-income countries that are less dependent on IMF
loans. The PSI would also concretize the IMF?s signaling
role to other creditors, extending and expanding their
control over the macroeconomic policy decisions of the
countries of the global South.

The IMF is expected to approve the PSI, a move that could
be as potentially damaging to impoverished countries as
the debt burden itself, and strongly opposed by critics of
the international financial institutions. Programs similar
to the PSI have already been implemented in several
countries including Jamaica and most recently, Nigeria.

"These moves by the IMF must be understood in the context
of debt cancellation," said Sameer Dossani of the 50 Years
Is Enough Network. "Now that the IMF may no longer have
the political leverage Leverage This is the ratio between funds borrowed for investment and the personal funds or equity that backs them up. A company may have borrowed much more than its capitalized value, in which case it is said to be ’highly leveraged’. The more highly a company is leveraged, the higher the risk associated with lending to the company; but higher also are the possible profits that it may realise as compared with its own value. of debt to force governments to
privatize their services and liberalize their trade, it
needs something else. The Policy Support Instrument is
just such a mechanism."

For years, debt cancellation campaigners have advocated
for 100% debt cancellation without harmful conditions.
Advocates have been critical of the June G8 deal, saying
that not enough countries are represented and that though
it is a step forward, it is overly dependent on existing
IMF conditions and the failed 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.
program. Tying
conditions directly to debt cancellation in addition to
the PSI could negate any potential benefits of the G8

Contact: Sameer Dossani
202 463 2265 :: 202 340 0216

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