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Date: Fri, 14 Apr 1995 12:09:42 -0400
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Subject: Finance: World Bank Board Rejects Paper On Poorests' Debt Burden (fwd)

From: Inter Press Service Harare <>
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Subject: Finance: World Bank Board Rejects Paper On Poorests' Debt Burden

World Bank Board Rejects Paper On Poorests' Debt Burden

By Pratap Chatterjee, Inter Press Service Harare. 14 April, 1995

Washington, Apr 14 (ips) - A proposed World Bank-International Monetary Fund (IMF) statement downplaying debt problems of the world's heavily indebted poorest countries has been sent back to management by the bank's executive board.

The statement, which will be discussed at the upcoming spring meetings of the two Bretton Woods agencies next week, says that these countries should be able to handle their debt problems so long as they receive new assistance on concessional terms and their exports grow at a steady pace.

But several executive directors objected that the conclusions were self-serving and required more study, according to statements obtained by ips. The Dutch executive director, Eveline Herfkens, called the paper ''too simplistic''.

The problems of repaying the 230-billion-dollar debt of the 40 mostly heavily indebted poor countries of the world are currently being examined by staff of the two agencies. The staff is concerned especially with the debt owed to multilateral agencies, of which Bank and the IMF are the most important.

''The document tends to be too defensive and self- satisfactory on the role of the world bank,'' Herfkens told the board.

''Sentences like '... heavily indebted poor countries do not currently face a World Bank debt problem and are not expected to do so in the future,' are too simplistic,'' she said, according to a copy of her statement.

''The problem is more serious than the bank/fund paper admits,'' said Huw Evans, the British executive director, at the same meeting.

One developing country representative was blunter. ''The figures are out of touch with reality,'' he told ips.

The summary paper was prepared under the direction of Jack Boorman and Michael Bruno, senior economists of the fund and bank, respectively, and presented to the bank's board last month. The IMF's board discussed an update on the matter Wednesday.

The paper says that Guinea Bissau and Burundi have multilateral debts whose present value is worth 343.4 and 295.5 percent of their annual exports respectively. Both countries owe just over half of their debt to the multilateral banks.

If bilateral and commercial debt is taken into account, the numbers get much bigger. Guinea Bissau's debt becomes 1105 percent of its exports while the present value of Sudan's 2.5- billion-dollar debt is 3086 percent of its annual exports.

The bank's official position is that debt-export ratios of over 200 percent are unsustainable. Thirty-six of the 40 heavily indebted poorest countries -- most of which are in Africa -- are currently carrying debt burdens in excess of that figure.

Most of these countries already face severe economic problems.

Annual incomes in some, such as Chad and Ethiopia, are as low as 210 dollars and 120 dollars.

Despite these statistics, the bank/fund paper insists that the situation is manageable so long as export growth increases by an average of three percent a year and new concessional loans are handed out.

Activists who have seen the paper have expressed alarm. ''Oxfam America is deeply concerned that the debt burden is draining resources away from critical economic and social development efforts,'' wrote Rob Buchanan, Oxfam's representative in Washington, to Jan Piercy, the U.S. executive director, just before the meeting where the paper was sent back.

At that meeting, Herkens was very sharp in her criticism of the way that general conclusions were reached in the paper. ''It is obvious that a country like Sao Tome and Principe will not achieve a sustainable debt servicing profile within the foreseeable future, even if all new lending would have a 40-year maturity and even if nominal growth would be eight percent annually,'' she pointed out.

This matter will now be taken up during the spring meeting by bank-Imf's development committee, a policy group, consisting of 24 finance ministers from developed and developing countries. Staff are now busily rewriting their analysis for the meeting following the executive directors' criticism.

''The original paper on the matter has been overtaken by events. There will be a piece of paper based on that paper and additional research at the (meeting) later this month,'' says Peter Mountfield, the committee's executive secretary.

''The numbers presented were illustrative of the situation but of course there can be different projections if the assumptions are changed,'' said an official bank spokesperson.

Last year, Britain proposed that the IMF sell a portion of its gold reserves to help pay off these debts. Although the proposal has not been widely accepted by other countries and is opposed by officials at the fund, the British have used this new bank/fund study to push their proposal.

Meanwhile, Republicans who now control the U.S. Congress are threatening to sharply cut, if not eliminate altogether, U.S. contributions to the bank's concessional window, the international development association (IDA). Any substantial cuts would render the conclusions reached by Boorman and Bruno Moot, says Herfkens.

''The issue here is very simple. The bank has no gold. The countries cannot pay back their debt, and there are decreasing aid flows. We have deadlock. The only real solution is for the donors to come up with more money,'' Herfkens told ips. ''The bank wants more concessional aid flows, but this recycling of concessional money will only come at the expense of other developing countries, and we cannot support that,'' she added.

''What the activists are suggesting is debt forgiveness but that's not right either. Then you have to look at who benefits. If you forgive the debt of Zaire, it does not benefit the poor of the country but those who took the loans,'' said Herfkens.