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IMF threat on G8 proposal of debt cancellation
by Eric Toussaint , Damien Millet
17 July 2005

On 11 June 2005 the finance ministers of the G8, 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, the African Development Bank (AfDB), and the IMF, 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 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.

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.

Footnotes :

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

[2Assessment based on the market price of gold.

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

[4The 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 Greece 2015: there was an alternative. London: Resistance Books / IIRE / CADTM, 2020 , Debt System (Haymarket books, Chicago, 2019), 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, 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. He was the scientific coordinator of the Greek Truth Commission on Public Debt from April 2015 to November 2015.

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).