Rich Nations Pledge to Double Countries Getting Debt Relief
New York Times, September 17, 2000
By JOSEPH KAHN
WASHINGTON, Sept. 16 — In an era of unprecedented prosperity for rich nations, their financial leaders are promising a high-profile campaign to double the number of poor nations granted debt relief by year's end.
The commitment would mean easing the conditions usually imposed on countries that want debt forgiven, international financial officials said.
The pledge, to be announced at the annual meeting of international lending agencies in Prague next week, is intended to defuse one of the most potent arguments of the antiglobalization protesters who have disrupted nearly every recent gathering of finance and trade ministers: In times of previously unknown wealth, many of the poorest nations have become increasingly indebted to the rich.
The drive to relieve more debt by year's end, pushed primarily by ministers from Europe, where debt relief has become a major political issue, indicates how finance ministers and the heads of lending agencies are shifting their priorities.
Just last year, financial officials were still scrambling to prevent a panic that had engulfed many emerging markets from setting off a global recession. This year, they plan to endorse an array of new antipoverty programs, allocating funds to fight AIDS and spread education, as well as wipe away old debts incurred by the poorest nations in Africa and Latin America.
The focus on poverty is possible, in part, because the world has rarely enjoyed better economic health.
The International Monetary Fund, which will release its yearly global economic survey next week, predicts that the world economy will grow by 4.7 percent this year, faster than at any time since at least the late 1980's and, by some measures, since the 1960's, when half the world still had closed economies.
Of all the leading developed and developing countries, only Japan has yet to show robust expansion in a fully globalized age.
Under the plan to speed up debt relief, finance ministers will streamline cumbersome procedures so that 10 nations, all but one in Africa, can begin to use about $17.5 billion that they would have had to set aside for debt payments this year.
Unless world leaders had agreed to ease some conditions, they might have fallen well short of their own pledge — first made at a global summit meeting in Cologne, Germany, in the summer of 1999 — to forgive the debts of at least 20 nations by 2000.
"We agreed that we have to take this to the limit," said James D. Wolfensohn, president of the World Bank. "If we wait to have all the i's dotted and t's crossed, we would not make the goal. This has assumed extraordinary proportions as a political matter, and we just have to get it done."
Mr. Wolfensohn and other officials said global lenders would continue to insist that nations that want their debts forgiven come up with a strategy for using the liberated funds effectively — ideally for education, health and fighting poverty.
Under heavy United States pressure, lending agencies have mandated that debt-relief candidates produce complex antipoverty blueprints that include plans for schools, health programs and rural development. They must also detail roles for the private sector and charity groups, as well as the government.
The requirement was envisioned as a way to ensure that money is not diverted to useless or even corrupt purposes. But the efforts to comply often take many months or even years and cost applicants scarce resources to develop. A few nations have withdrawn or have threatened to withdraw their applications in frustration.
Now, the lending agencies say, they will start granting at least some debt relief when a nation produces a far less rigorous interim strategy, with full relief granted later when the more comprehensive plan is finished.
The World Bank, the International Monetary Fund and other major lending agencies have also agreed to relax requirements that nations prove they know how to use development aid — for example, by performing well in an ongoing, official lending program over several years — before they can receive debt relief. Under the expedited program, that requirement will become more flexible, officials said.
Officials believe that the changes will make it possible to finish work on at least 10 of 14 applications for debt relief in just three months, a much faster pace than the lending agencies have maintained to date.
Ten nations have already received debt relief under the longer, more rigorous procedures in place.
Among those in a new batch considered likely to have some debt forgiven by year's end are Cameroon, Chad, Gambia, Guinea, Guyana, Guinea-Bissau, Malawi, Nicaragua, Rwanda and Zambia.
The World Bank also plans to announce in Prague that it will establish a new, multibillion-dollar fund that will provide low-interest loans to nations to help them put antipoverty strategies into practice, bank officials said.
The idea is that some of the strings attached to debt relief in the past could be fastened instead to new loans, giving the lending agencies a continued oversight role without hindering debt forgiveness.
The renewed commitment to debt relief is a significant victory for a coalition of religious, charity and pressure groups worldwide that helped put debt relief on the world agenda several years ago.
Many have sharply criticized financial leaders for a go-slow approach since then.
About 20,000 demonstrators are expected to turn out in Prague for the annual meeting of the World Bank and the International Monetary Fund, which begins with low- key meetings this week and formally kicks off its session next weekend.
Organizers fear that members of a radical youth underground movement in Europe will converge on Prague and pose a major crowd- control challenge for relatively inexperienced Czech police. As in previous antiglobalization protests in Washington, Seattle and Cologne, Jubilee 2000, an umbrella organization of debt-relief advocates that stages nonviolent protest, also plans to march.
Many of the protesters have argued that globalization tends to benefit multinational interests at the expense of the poor. They see the heavy debts of developing nations as a case in point.
The critics claim that lending agencies provide billions in loans while demanding that nations quickly adopt capitalist ways like trade liberalization, free flow of capital, austere government budgets.
But the experiment often fails, they say, leaving the poor even poorer because, like gamblers on credit, they end up with a hangover of high interest payments.
The lending agencies — and most of the wealthy nations that fill their coffers — do not agree with that analysis.
But, led by a dramatic shift of sentiment in Europe, where the Jubilee 2000 coalition has heavyweight political power, the lending agencies have embraced sweeping debt relief as a way to help poor nations cope with globalization.
Gordon Brown, Britain's chancellor of the exchequer and the current head of the committee of nations that sets broad policy goals for the lending agencies, has been a champion of debt relief, bank and fund officials said. He has insisted that the agencies meet their Cologne goal of 20 nations by 2000, even though that means easing some conditions.
Mr. Brown's emphasis on accelerated debt forgiveness is at odds with the position of Treasury Secretary Lawrence H. Summers. Though Mr.Summers also favors debt relief, he has insisted that poor nations fully develop their strategies for using the money well, even at the cost of denying early relief to some of them.
Domestic politics also plays a role. The Republican-controlled Congress has been far warier of debt relief than parliaments in Europe. Though the Clinton administration is hopeful that Congress will eventually agree to provide $435 million for the United States' share of debt relief this year, early House commitments to debt relief fall short of that mark, and the Senate has allocated only a small fraction of the money requested.
Mr. Summers has said he fears a significant backlash against debt relief in Congress if the relief is doled out willy-nilly, or if a nation that gets debt relief is then found to have used the money for corrupt purposes.
A senior administration official said Friday that the Treasury Department had approved the lending agencies' expedited approach to debt relief. But the official played down the matter as largely "window dressing" designed to placate protesters, not completely overhaul the debt relief process. He said the United States would not allow nations to pass through the debt-relief process unless they commit to approve poverty-reduction strategies.