Contradictions discredit Fund-Bank HIPC schemes

Civil society groups have long assailed the IMF and World Bank’s debt-relief programme for keeping poor countries within the confines of the creditor-controlled global economic system. Now, as the scandalous facts of international debt begin to come to light, the Bank itself has acknowledged the serious shortcomings of the Heavily Indebted Poor Countries initiative, even when measured by its own parsimonious standards.

by Chakravarthi Raghavan

GENEVA: In 1996, at a time when civil society groups focussed on the problem of external indebtedness of the developing countries and the campaign of the Jubilee 2000 coalition was gathering steam, the International Monetary Fund and the World Bank launched a programme called the Heavily Indebted Poor Countries (HIPC) initiative.

At that time, the 50 Years Is Enough Network of NGOs criticized the programme, calling it a “debt management programme” designed less to alleviate burdens on impoverished countries than to prevent them from opting out of the creditor-controlled global economic system altogether. The Fund-Bank initiative sought to achieve this and keep the developing countries under their control by promising just enough relief to entice their finance ministries to commit to several more years of structural adjustment programmes (and, of course, to paying that portion of their debts determined by the institutions to be sustainable).

The HIPC initiative, which has been constantly “reviewed” and “repackag-ed”, sought to ensure that the debt-relief programme would not apply to the Fund and Bank loans to these countries - loans pushed on them via conditionality programmes and to promote policies and projects that came a cropper, but the interest and principal on which nevertheless had to be paid.

If the Fund and the Bank had no immunity as international organizations but were seen for what they are, namely, banking and financial institutions, they would have been liable for faulty and motivated advice that landed their clients in losses, and the two institutions would be open to litigation for damages.

Instead, by using their international intergovernmental positions and with their managements acting as agents of the major industrialized nations (particularly the US as the single largest shareholder), the Fund and the Bank have managed to promote and force the developing countries to adopt inappropriate economic - financial and trade - policies to benefit the corporations and private financial institutions of the North.

And with the coming into being of the World Trade Organization, they have been trying to work in tandem to open up the markets of developing countries for the benefit of the transnational corporations, in the process increasing the debts of the developing world.

Debt debacle

All along, civil society groups have been campaigning to point out the delays the countries under the HIPC initiative face in getting benefits from the programme, the meagre size of the benefits, the conditions attached to them, the constricted list of eligible countries, and the fact that the IMF and World Bank are not forced to take any loss but instead get paid dollar-for-dollar out of donor-supplied trust funds.

When public pressures from civil society organizations in the North mounted, the Group of Seven (G-7) finance ministers and heads of state/government, and the Fund and Bank, continued to announce actions to deal with the debt problems - but without putting up any money of their own.

At the time of the Prague IMF/World Bank meetings in 2000, the UK Chancellor of the Exchequer attempted to persuade the deputies of the G-24 developing countries on the IMF and World Bank boards to agree to pay higher interest rates on their own borrowings from the Fund and Bank to enable the two to use the ‘income’ to finance and write off the debts of the poorest countries - a clear case of “robbing Peter to pay Paul”. The G-24 deputies demurred, and the move went on the backburner.

The NGO coalitions campaigning against the debt and demanding write-offs acknowledge that the relief that countries could get out of the HIPC initiative could make a positive difference, but point out that if these ‘benefits’ were measured against the medium- and long-term harm done by committing to further structural adjustment, in most countries the population would be better off if their governments resisted the temptations of the programme.

The civil society groups believe that when the scandalous facts of international debt are more widely understood by the public of the creditor countries, the governments and institutions which enforce the current system would be forced to step back and make changes in the outrageously discriminatory structure of the global economic system.

Serious shortcomings of HIPC initiative

Groups like 50 Years Is Enough (the campaign launched in 1995 when the Fund and the Bank were undertaking a 50-year celebratory meeting in Spain) believe that the public in the North are beginning to see the facts and the institutions are being forced to reassess.

As 50 Years Is Enough points out, at the recent April meetings of the IMF and World Bank boards, the Bank issued a report which acknowledged the serious shortcomings of the HIPC programme, even as measured by its own standards.

After fulfilling a promise to get at least 20 countries into the programme by the end of 2000, the institutions are now letting the other proverbial shoe drop: they have declared at least nine of them are off-track on their existing IMF programmes and therefore ineligible for the interim relief that was added to the HIPC initiative through intense public pressure in 1999.

The reasons given by the IMF vary from country to country. Some are presented as not privatizing fast enough. Some are said to have governance (i.e., corruption) problems. Some are not meeting budget-deficit targets.

“In the potentially most scandalous instance,” says 50 Years Is Enough, “Malawi has been declared off-track on governance grounds: the proceeds from the IMF-ordered sale of their grain reserves have gone missing.

“However, the real scandal in Malawi is that the IMF ordered that sale, and then prevented the government from replenishing its stocks, sending food prices skyrocketing. Malawi is now facing a very serious famine, with some reports indicating that up to 10,000 people may already have starved to death.”

In addition, the report finds that many of the HIPC countries will not attain “sustainable” debt levels even by the World Bank’s own very constricted standards once they have gone through the programme.  Uganda has now, for the second time, seen its debt reach “unsustainability” because of overly optimistic projections about coffee prices.

In relation to the forthcoming G-7 summit in Canada and the preliminary meeting of the G-7 finance ministers in mid-June, the Canadian Finance Minister Paul Martin has called for an investigation into how the HIPC initiative is working.

According to Jubilee Research, UK, two new reports issued by the World Bank in time for the April IMF/WB meetings show that of the five countries in the HIPC initiative already at Completion Point, at least two do not have sustainable levels of debt according to the HIPC criteria.

Of the 21 countries which are currently between Decision Point and Completion Point under the initiative, at least 8-10 countries will not have sustainable levels of debt at Completion Point, according to the same criteria.

In the same group of countries, nine have had their interim relief from the IMF suspended due to failure to stay “on-track” with IMF-supported Poverty Reduction and Growth Facility (PRGF) programmes. These countries are supposed to receive interim relief on their debt service between Decision Point and Completion Point.

There have even been delays in providing interim debt service relief for some countries which are entitled to this relief and are “on-track” with IMF programmes.

The World Bank reports also show that by its own assessment, 31 out of the 42 countries within the HIPC initiative are being failed by the process - even according to Bank criteria.

Unrealistic projections

Under the HIPC initiative, debt sustainability is measured for most countries by comparing total debt in net present value (NPV) terms to a country’s total exports. When the total stock of debt is more than one-and-a-half times the value of exports, the country is deemed to have an “unsustainable” level of debt. Debt relief is provided by both multilateral and bilateral creditors to bring down the total stock of debt to within “sustainable” levels.

However, civil society groups like Jubilee Research have repeatedly charged that the export projections used by the World Bank and IMF to calculate the amount of debt relief that will be needed have been overly optimistic, and that such optimism has been used by the creditors to limit their own contribution to the initiative.

For example, for the first 24 HIPCs to reach Decision Point, the average growth in exports for 2001 was projected to be 11.6%. This is an extremely high figure and bears little resemblance to the historical trend of the HIPC countries. In fact, since 1965 annual export growth for low-income countries has been less than one-third of this level. It comes as no surprise, therefore, to learn that the actual export growth for these 24 countries during 2001 was less than half the World Bank’s projected level, at 5.1 percent.

As a result of this shortfall, the average ratio of debt to exports in 2001 for the 24 countries considered is now  estimated to have been a staggering 280%, almost twice the levels deemed “sustainable” by the World Bank and the IMF.

Even the four countries which had already passed Completion Point are estimated to have an NPV of debt to export ratio of 156%. In total, 8 to 10 of the 20 countries which were between Decision Point and Completion Point (in May this year) can no longer be expected to have an NPV of debt to exports at Completion Point of less than 150 percent. The countries are: Benin, Burkina Faso, Chad, Ethiopia, The Gambia, Guinea-Bissau, Malawi, Rwanda, Senegal and Zambia.

In its report, the World Bank almost admits that its export projections were overly optimistic, noting that “long-term economic forecasts ... depend critically on the underlying assumptions especially on the future course of government policies as well as external market conditions.”

However, this dramatic failure of the Bank and the IMF to provide accurate projections is explained away on the grounds that the assumptions were “based on policy scenarios and thus predicated upon the successful implementation of a comprehensive set of economic and structural reforms.”

In other words, if the projections fail, the country is itself to blame for not undertaking sufficiently thorough “structural reforms.” This view simply does not meet the reality, say NGO coalitions like the Jubilee Framework.

Firstly, as the World Bank acknowledges, much of the shortfall in exports has been caused by dramatic falls in commodity prices over 2000-01, particularly for coffee and cotton (which fell by 60% and 10% respectively).

“The HIPCs can hardly be held responsible, except to the extent that under their IMF tutelage they have all simultaneously been attempting to increase exports, putting downward pressure on the price. Worse, protectionism in the North has severely worsened the volatility of commodity prices. When prices are protected in the North under agricultural agreements such as the Common Agricultural Policy and similar US agreements, all the change in price in response to natural fluctuations in commodity prices must be borne by the poor countries - countries that are already suffering markets which have been flooded by cheap exports, as a result of excess production in the North caused by agricultural subsidies,” says Jubilee Research in an analysis of the two new World Bank reports.

The plight of developing countries relying on commodity and resource-based exports, and unable to diversify and industrialize because of the constricting WTO trade rules, would worsen as a result of the latest US farm legislation and its mandated counter-cyclical support to US farmers, namely raising the amount of subsidies and support to the US farmers when world prices fall.

When civil society groups diagnose the combination of policies now under the banner of “globalization” - promoted by the IMF and the World Bank at one end in Washington, and the WTO in Geneva at the other - as responsible for a very large part of the plight of the poor in the developing world, they are accused of “globaphobia” and challenged as to whether they want to see these institutions wound up and what their alternatives are.

The only alternative that policymakers in the North, and their allies in the South, seem to be able to provide appears to be more of the same ‘con-games’, like the Fund-Bank HIPC initiatives and “poverty reduction” programmes and the WTO’s “Doha Development Agenda” for liberalizing trade and investment regimes in the South on promises of more market access and dubious projections of benefits.

No wonder civil society groups are beginning to call for the winding-up of the institutions. (SUNS5128)                  

From TWE No. 281 (16-31 May 2002)