Poorest countries overlooked at Fund-Bank meetings

While the interests of the developed countries were at the forefront of the agendas of the recent IMF/World Bank meetings, the HIPC debt initiative seems to have reached a standstill. Middle-income countries, on their part, voiced their displeasure over proposals to raise the cost of World Bank loans.

WASHINGTON: The World Bank and the International Monetary Fund (IMF) wrapped up their series of "Spring Meetings" on 17 April after acknowledging the concerns of the world's poorest countries, but leaving them aside in favour of new ways to boost the earnings of lending institutions.

The agendas of the Group of Seven (G-7) industrial powers dominated talks among finance ministers and economic policymakers, chief among these being Japanese government efforts to stimulate the domestic economy and spur trade and growth in crisis-hit East Asia. Concern for Asia, however, was only part of the story.

On 17 April, the US Commerce Department revealed America's monthly trade deficit had widened to an all-time high of $12.1 billion in February because sales to Japan had fallen sharply.

Worries about a political backlash to that news prompted US Treasury Secretary Robert Rubin to urge Tokyo to do more to kick-start its economy.

But Japanese officials reacted bitterly, saying they already had taken significant steps and complaining that the IMF's best-case projection of zero economic growth in Japan this year was off the mark.

Japan's prospects could have significant implications for the rest of Asia, and regions dependent on trade with or investment from Asian countries. As a result, the priorities of most African, and other low-income countries generally were overshadowed in the talks here.

HIPC initiative stalled

These priorities included the "Heavily Indebted Poor Countries" (HIPC) debt initiative, which has stalled despite recent announcements that Uganda, Bolivia and Guyana would begin to see relief this year.

The Group of 24 developing countries issued a communique expressing concern over "delays and difficulties" in finding money for HIPC. Members were troubled by the Paris Club of lending governments, which had held up Mozambique's application for relief for nearly a year in a dispute over their full share of the bill, officials and analysts said.

Ultimately, the World Bank had to find $100 million to cover the Paris Club's shortfall and officials cautioned that similar difficulties await Guinea-Bissau, Madagascar, Nicaragua, Rwanda and Sao Tom‚.

Yet, the policy-making Interim Committee of the IMF and Development Committee of the World Bank glossed over these problems.

The Development Committee, in a communique on 17 April, said it was "pleased with the increasing momentum" of HIPC. Members skirted the Paris Club question and instead "stressed the importance of additional contributions" to help the cash- strapped African Development Bank meet its share.

The Interim Committee focused on the Initiative's usefulness as a tool to push through structural adjustment programmes (SAPs) as a condition for relief. On 16 April, it "encouraged countries that could qualify for assistance under the Initiative to take expeditiously the necessary adjustment measures to qualify for this special assistance."

Interim Committee Chairman, Philippe Maystadt, Belgium's Deputy Prime Minister and Minister of Finance and External Trade, acknowledged recent evaluation findings that SAPs had led the poorest countries to feel a loss of control over their own economic policies. "More input from values groups" was needed to increase government and public 'ownership' of SAPs in borrowing countries, he said.

While low-income countries effectively had been sidelined, proposals which would raise the price of doing business with the World Bank raised the hackles of middle-income shareholders. The Bank - caught between falling demand for its standard loans and a sudden surge in net disbursements to crisis-stricken East Asia - is looking to boost its earnings. Increasing the World Bank's income

The lending agency faced no immediate risk to its triple-A credit rating, the highest ranking conferred by private rating agencies, World Bank President James Wolfensohn said. But it expects to disburse $9 billion more this year than it had projected only four months ago. As a result, net income could fall to below $900 million, from $1.3 billion last year.

Wolfensohn asked members to consider measures to increase the agency's net income. Proposals included raising interest rates or service charges on loans. The latter traditionally have been partly waived.

"If the Bank changes its policy on traditional lending services and seeks to make profits from its borrowers, it will fundamentally depart from its developmental mission and will lose the support and trust of many of its clients," Chinese Finance Minister, Xiang Huaicheng on 17 April warned the Development Committee.

"I understand borrower reluctance to increase charges," Rubin told the Committee. "However, as prime beneficiaries of a financially sound institution, borrowers have a vested interest in strengthening the capacity of the Bank to maintain its financial standing and ability to lend," he said.

That focus on developing countries' obligations permeated the discussion of needed reforms in the 'architecture' - or institutional mechanisms - of global financial systems, which was dominated by proposals to open governments' books to closer IMF scrutiny.

The Interim Committee endorsed a 'Code of Good Practices on Fiscal Transparency', proposed by the Fund and aimed at reducing secrecy in governments' budgetary affairs. It also encouraged the IMF's Executive Board to consider similar codes for financial and monetary policy.

Such measures should strengthen the IMF's surveillance of member economies in the wake of criticisms that it failed to foresee the 1994 Mexican peso meltdown and last year's Asian collapse. Developing countries welcomed the measures but insisted that equal emphasis be placed on "the more effective surveillance of the policies of major industrialised countries affecting key international monetary and financial variables, including capital flows."

That concern will be heightened as the Fund pursues an amendment to its Articles of Agreement that would enable it to push for the liberalization of capital markets, officials said. Rich and poor countries alike insisted that any such drive be tailored to the specific needs of each country and be "well- sequenced" rather than pushed through hastily.

Key to any progress, said the Group of 24, was "the increased representation and participation of developing countries at the decision-making level of international financial institutions to properly reflect developing countries' growing role in the world economy, including through the revision of the bases determining the voting power in these institutions."

The agencies' Executive Boards will take up these issues before they are dealt with again by the policy-making committees and boards of governors in October. (IPS/A. Aslam) (Third World Economics No. 183, 16-30 April 1998)