Shadowy figures
The G7, IMF and World Bank - globalisation and debt

Ann Pettifor and John Garrett
Prague, September 2000

• Introduction
• Executive Summary
• Part one
• Part two

“Too many countries are crippled by debt, so we must further our efforts with the G7 and other creditors to reduce the debts of developing countries that invest the savings in basic needs.”
President of USA, Bill Clinton
UN Millennium Summit, New York, 6^th September 2000

“This is not a populist appeal: at the dawn of this Millennium we must release poor and developing countries from the fetters of debt. This breakthrough would equal that of the victory over the Cold War. Its initiators and participants would become the modern heroes. Furthermore there can be no “new financial architecture” unless debts are written off.”
Eduard Shevardnadze, President of Georgia

Introduction

This report goes to press as the International Monetary Fund and World Bank face unprecedented protests and demonstrations at their Annual Meetings in Prague. Both institutions are controlled by G7 finance ministers and their leaders; figures who prefer to remain in the shadows, while allowing their civil servants in Washington to become the focus for protest at the decisions of G7 leaders.

The IMF is not only a major creditor to the poorest nations; but IMF staff act as agents for the most powerful international creditors represented on their Board. These are of course the finance ministers of the G7 nations who represent both public and private international creditors, and who control 45% of the votes on the IMF Board and 44% of the votes on the World Bank (IBRD) Board. In contrast, the 41 most indebted nations control only 3% of the votes on both Boards.

Many of the protesters in Prague will be there to object to the way the leaders of the richest nations use these institutions as a way of effectively governing nations that are highly indebted. By this means they deny economic and political autonomy to millions of people.

Protesters will be objecting to the economic policies that underpin the globalisation project of the G7, policies largely promoted by the Bank and the Fund. These policies have led, protesters assert, to higher levels of unemployment globally, greater insecurity, damage to the environment, the dismantling of welfare states, and a massive re-distribution of wealth from the poor to the rich.

19,000 children die each day, protesters will argue, because money that should be spent on clean water, sanitation and health is instead diverted to much richer creditors, like the IMF and World Bank. ^[1]

At the same time, the IMF and World Bank will be arguing that they do not have the resources needed to cancel debts.

This report calls on the G7 to release their grip on the poorest nations by instructing the World Bank and IMF to write off 100% of the debts owed by the poorest countries - as an "historic act of grace" ^[2] in this, the millennium and Jubilee year. The report analyses a range of arguments, both implicit and explicit, for the refusal to write off debt. We look in detail at the accounts and the resources enjoyed by the World Bank and IMF, and we challenge their pleas of poverty – exposing the underlying facts and figures that reflect their real resources.

Executive Summary

In Part One:

Unlike G7 creditors themselves, the IMF and World Bank have no intention of writing off 100% of the debts owed to them; instead they intend to write off only about one third (32% in the case of the Bank, 37% for the Fund). Inability to cover the costs of total cancellation is often given as the reason. But:

• The IMF could easily write off 100% of the debts owed to the institution by all the HIPC countries, and finance this write-off from its own resources.
• The World Bank has sufficient resources to write off 100% of the debts owed to its market lending arm, the International Bank for Reconstruction and Development (IBRD), and at least two thirds of the debts owed to its soft-loan arm, the International Development Association (IDA). The World Bank has extremely healthy balance sheets, backed by the best credit risks in the world: rich governments.
• However, the G7 and other donor nations would need to inject several billion dollars to finance the total write-off of IDA debt.
• The African Development Bank could realistically afford to draw on up to $1billion of its own resources without impairing its credit rating. It would need extra funds from industrialised countries to the value of $4-$5 billion.
• The Inter-American Development Bank can afford to write off 100% of all HIPC debts from its own resources.
• The Asian Development Bank can afford to write off 100% of all HIPC debts from its own resources.

Over the period 1992-1998 the World Bank (IBRD) and IMF extracted more from the poorest (HIPC) countries, than they offered in new loans and credits.

• A total of $5.8 billion was transferred by HIPC countries to the World Bank over the period 1992-8. $1 billion was transferred to the IMF. For the period 1988 to 1997, the net transfer to the IMF was $2 billion.

• The negative transfer of funds from the poorest people in the world to two of the most powerful and well-resourced banks in the world, was balanced only by taxpayer donations to the poor countries, channelled via the World Bank's soft lending facility, IDA.
• A significant proportion of aid, intended for development, is instead used by the poorest countries to finance debt repayments to the IFIs.
• Part of $10 million in British aid funds to Sierra Leone has recently been used for the repayment of their debts to the IMF and World Bank in Washington.
• After Hurricane Mitch, a total of $175.4 million in aid money directed to the countries devastated was not used for the victims; instead it was used to enable countries like Honduras to pay debt service into the already overflowing coffers of the Bank and Fund.
• Tanzania and Zambia, who will both have to pay more in debt repayments after HIPC, will need to use aid to meet debt repayments. In 1999, 72% of donor support to Zambia was used to pay external creditors.
• In Part Two:
• The liberalisation of capital flows – essential economic underpinnings to “globalisation” – has made it easier for the OECD countries, in particular the US and UK, to mobilise capital to finance the gap caused by their increasing tendency to consume more (imports) than they produce (exports).
• We refute the rhetoric that these policies are directed at achieving economic growth, or the reduction of poverty. According to the IMF itself, rates of growth have slowed during the period these policies have been dominant, and where they have been applied, poverty has increased – massively. Capital mobility and lower inflation have been the only gains.
• In G7 countries the need to promote capital mobility overrides domestic political pressure for debt cancellation. It is this imperative – to use the IMF to promote capital mobility and force open markets – that explains the G7's refusal to instruct the IMF to write off 100% of the debts owed by the poorest countries

Conclusions:

We conclude that if the unpayable debts of the poorest countries are to be written off, then voters and taxpayers in G7 nations must demand that:

• G7 leaders back increased aid for countries that have suffered so grievously from the impact of G7-driven policies, implemented by the IMF and World Bank.
• In Prague G7 finance ministers, who control the IMF and the Bank, authorise 100% write-off of the debts owed to the Bank and Fund.
• OECD Governments provide funds for the write-off of IDA debts at the World Bank, and for the write-off of debts owed to the African Development Fund.
• G7 governments no longer use indebtedness as a means of prolonging foreign rule over highly indebted nations; and refrain from using the IMF and World Bank staff as agents for this outdated form of control.
• Finance ministers should not allow World Bank and IMF officials to hide behind the alleged threat that debt write-off would lead to the bankruptcy of their own organisations, while they preside over, and perpetuate, the bankruptcy of the poorest nations.
• The World Bank and the IMF should produce honest accounts addressing economic reality; and should stop hiding behind the myth that the most indebted nations have the capacity to pay.
• The World Bank and IMF should no longer use disingenuous accounting to procure western taxpayers' contributions to help cover the payment of debts that are effectively uncollectable.
• Taxpayer funds, intended as aid for development in the poorest countries, should no longer be diverted to financing debt repayments to the IMF, or to the World Bank's market lending arm, the International Bank for Reconstruction and Development (IBRD).

Part One

“I'm personally thinking we could - we should - go a step further in debt relief, an even bolder step.”
Horst Köhler, Managing Director IMF, speaking to NGOs
UK Treasury, London, 8^th September 2000

“I call upon the donor countries and the international financial institutions to consider wiping off their books all official debts of the heavily indebted poor countries in return for those countries making demonstrable commitments to poverty reduction.”
Kofi Annan, Secretary General of the UN,
21^st Century Action Plan, April 2000

“...it is a moral issue. How can we sit here on the biggest mountain of wealth we have ever accumulated, that any nation in all of human history has ever accumulated, and not share that wealth?”
US President Bill Clinton
Washington DC, September 14^th 2000

Can Cancel. Won't Cancel

In an extraordinary and unexpected speech to the IMF and World Bank Annual meetings in 1999, President Clinton announced that his government would write off 100% of the debts owed by about 30 of the poorest countries to the US - the wealthiest nation in the world. Only 3 months after the G7 summit in Cologne agreed to cancel $100bn of debts, the most powerful G7 member publicly implied that the G7 had not gone far enough.

Since then President Clinton's commitment has been echoed, in one form or another, by other G7 leaders: Britain, France, Italy, Germany, Canada and Japan. Outside the group of seven, Australia, Belgium, Netherlands, Norway, Spain and Switzerland have all announced their readiness to go beyond HIPC and cancel 100% of (some of) the debts owed to them.

The IMF and World Bank in contrast, have shown no intention of writing off 100% of the debts owed to them by the poorest countries.

Under HIPC, the Bank plans to write off only 32% of the debts owed to both its lending arms (the International Bank for Reconstruction and Development, IBRD, and the International Development Association, IDA); and the IMF proposes to write off only 37% - and it will take many years before these write-offs take effect.

This is surprising, given that the Bank and the Fund's major shareholders - all the countries listed above - have already acknowledged that the debts are uncollectable and committed to 100% debt cancellation. In banking circles the practice of allowing one group of creditors to suffer losses, while another group are repaid their debts, is defined as the “unequal treatment of creditors” - unequal treatment that is considered blatantly unjust.

The IMF and World Bank (known as International Financial Institutions, or the IFIs) are major creditors, owed about $70bn by the poorest people of the world. This debt constitutes 33% of the debts of these highly indebted poor (HIPC) countries.

However while their share of the debt is only a third of the total, the cost of IFI debts to the poor is actually very much higher. This is because poor countries can avoid repaying debts owed to governments (most are already effectively in default to these official creditors) or they can re-schedule them, which might lower the interest on the debt, and put off repayments until later. Not so with the IFIs. They enjoy a unique (and informal) status, bestowed on them by other creditors like the British and US governments, and private bondholders.

They are "preferred creditors", meaning they must be paid (there can be no re-scheduling or defaulting); and they must be paid first. This means that debt repayments to the IFIs take up more of poor countries' scarce resources than debt repayments to other official creditors. So while the share of the IFI's debt is a small proportion of the total, the burden is heavier.

The late Julius `Mwalimu' Nyerere, former president of Tanzania, made this point speaking in Germany in 1999: “In 1997, 46% of Tanzania's Debt was owed to Bilateral (or Paris Club) Creditors; and 37% to Multilateral Financial Institutions, basically the IMF, the World Bank and the African Development Bank; and 10% to the non-Paris Club Creditors. Debt Service payments falling due in 1997 amounted to US $ 275 million -or 35% of total export earnings of Tanzania. Since 1986 what Tanzania has been servicing is mainly its multilateral debt, because failure to do so within 60 days after due dates leads automatically to suspension of future disbursements from Multilateral Financial Institutions and to a boycott from the entire Donor Community. Yet to meet that debt servicing obligation to its multilateral Creditors and a small bit to its Paris Club Creditors Tanzania spends 35% of its public revenue, or the equivalent of 26% of its total export earnings. But this category of Tanzania's debt to the Multilateral Institutions is increasing, and it is estimated to reach over 60% by the year 2000 - which is next year!” ^[3]

The poor finance the rich

The table overleaf shows that while the debts owed to the IFIs are a major burden on poor countries, the institutions themselves are major beneficiaries of lending to the poorest countries.

Jubilee 2000 has identified 22 countries on our (provisional) list of 52 nations in need of debt cancellation, that have had zero or negative per capita income growth over the last 35 years. This means that on average the people of these countries are worse off in real terms than they were 35 years ago. We have looked at the transfers from these countries to the IMF and World Bank. The results are shocking.

Over the period 1992- 1998 the World Bank and IMF extracted more from this group, the poorest (HIPC) countries, than they offered in new loans and credits. Over this period, the IBRD has benefited at the expense of these, the poorest countries in the world, by a staggering $5.8 billion. The IMF has benefited by just over $1 billion. William Easterly of the World Bank Research Department confirms that the net transfer to HIPCs as a whole from the IMF for the longer period 1988-97 is negative, and in the region of $2 billion: in other words the Highly Indebted Poor Countries paid the IMF a net $2 billion over the period.

We summarise: in total the 22 poorest countries in the world transferred $6.8billion to the IMF and IBRD between 1992-98 – according to the latest figures.

One of the biggest transfers is from Ghana. Over the period 1992-1998, Ghana was obliged to transfer (as interest and compound interest) $560million to the IMF, over and above the amount offered in new loans and credits. Ghana can only afford to spend $7 per person on health a year,

The negative transfer of funds from the poorest people in the world to two of the most powerful and well resourced banks in the world, was balanced only by taxpayer donations to the poor countries, via the World Bank's soft lending facility, International Development Association (IDA).

In financial terms the IMF and IBRD have acted as a burden on this list of countries.

While it is true that flows from the IDA (financed directly by taxpayers) outweigh net flows to the IMF and IBRD-they do not do so by much. For the 22 countries in our table the transfer from IDA is $7.8 billion, which means that the total positive transfer is only $1bn. Moreover, this positive transfer occurs only because taxpayers have helped to balance the negative flows to the IMF and World Bank.

It is clear therefore that if the flow of resources out of poor countries is to be stemmed, and if a definitive solution to the debt crisis affecting the poorest countries is to be found, then these IFIs must cancel more of their own debt, and draw substantially more on their own resources to do this.

Million $, unless stated

Source: World Development Indicators, 2000; Global Development Finance, 2000

Taxpayers finance the IMF and World Bank

Recently the UK Secretary of State for Development reported to the British Parliament that part of $10 million in aid funds to Sierra Leone would be used for the repayment of their debts to the IMF and World Bank in Washington. ^[4] This is common practice where countries cannot afford to repay debts yet IFIs require debt repayments. After Hurricane Mitch in Central America, a total of $175.4 million in aid money directed to the countries devastated was not used for the victims; instead it was used to enable countries like Honduras to pay debt service into the already overflowing coffers of the Bank and Fund). ^[5]

Zambia and Tanzania provide stark examples of the inadequacy of the relief provided by the HIPC initiative and how western aid money is used to cover up this fact. Zambia paid $147 million to foreign creditors in 1998, $136 million in 1999. After receiving HIPC relief its payments will climb to $235 million by 2002, then drop to $153 million by 2005, but this is still higher than its actual payments before HIPC.

The reason is mainly to do with increased payments falling due to the IMF. ^[6] Zambia is already dependent on official development aid in order to meet scheduled debt repayments - in 1999, 72% of donor aid to Zambia was used for this purpose ^[7].

Zambia's neighbour Tanzania shares a similar fate. New figures released by the government show that Tanzania paid $162 million in fiscal year 1998, $184 million in 1999 and $153 million in 2000. The IMF/World Bank HIPC Decision Point document for Tanzania states that average annual debt service after enhanced HIPC relief is $167.5 million for the fiscal years 2000 -2009 rising to $258 million for $2010-2018. The Tanzanian government figures include domestic debt payments as well, however. This means that Tanzania, like Zambia, faces increased payments after HIPC. ^[8]

In both cases the shortfall will be met with aid payments from western countries, in what has become an established but totally unsatisfactory use of aid. Furthermore, the Zambian example has already set IFI onto IFI. The World Bank has expressed concern that its own aid - in the form of International Development Association funds - will be used up in paying Zambia's dues to the IMF! ^[9]

Western taxpayers expect aid to be used for development, for building hospitals, providing clean water and sanitary facilities and paying schoolteachers. Developing country taxpayers hope that their taxes will be used to finance development. Why should elected politicians in the G7 nations agree to use taxpayers' funds to finance the IMF and World Bank, when these institutions already have healthy reserves?

The view from 18th Street, Washington

The response from the international financial institutions has been to resist any demands for further write off of multilateral debt. In February 2000 President of the World Bank, Jim Wolfensohn, described the Jubilee 2000 proposals as “whimsical” and that writing off these debts could put pressure on multilateral lending institutions' capital and in the longer term “screw up the market” for debt instruments. The development banks fear a downgrading of their own debt from triple A, which could present them with their own financing difficulties.

Such claims in reality are not credible, and all of these institutions could provide significantly greater debt relief than is currently provided under the enhanced HIPC programme, and from their own resources. Only in the case of the African Development Bank is the scope for significantly increased debt relief from its own resources limited.

The view from Rivington Street, London

The IFIs are owed $70.2 billion by the 41 HIPCs, or 33% of HIPC outstanding debt. The World Bank is the largest creditor and is owed $39.4 billion, followed by the African Development Bank, which is owed $10.4 billion, the IMF, which is owed $8.2 billion, and the Inter-American Development Bank, which is owed $3.8 billion. The Asian Development

Bank is owed $892 million and is the main multilateral creditor in the Asian region. In all there are 27 multilateral institutions which are both creditors to the 41 HIPCs and have agreed to participate in the HIPC initiative.

There are three major reasons why the main IFIs can cancel more of their own debt: overall their management policy is extremely conservative, even judged by the standard of their own conservative charters; they have unique access to substantial funds of the industrialised countries, in the form of "callable capital"; and the debts of the HIPCs are relatively small in comparison with the overall size of these multilateral creditors in all cases except the World Bank's IDA and the African Development Bank.

Each of the main IFIs is considered individually below. In the cases of the multilateral development banks, the majority of HIPC debt is owed to the soft loan arms of these banks: IDA, the African Development Fund, the Fund for Special Operations (FSO) and the Asian Development Fund. However, it is assumed that the write off of this debt could be funded by usable equity from the market lending vehicles of these banking groups (e.g. the World Bank's International Bank for Reconstruction and Development (IBRD) can fund debt cancellation for IDA).

Debts of the 41 HIPCs to the multilateral creditors (IFIs) US$ billions

Source: World Bank

The World Bank Group

The World Bank Group is the largest multilateral creditor of the 41 HIPCs. The vast majority of the debt is owed to IDA, the soft-loan arm of the Group. Only countries that borrow exclusively from IDA are eligible for HIPC relief. IDA is due to provide $5.7 billion in debt relief under the HIPC programme, or a 32% reduction of its claims, whereas the IBRD is due to provide $600 million of relief under the initiative or a 25% reduction.

Can the World Bank provide more relief from its own resources?

The answer is certainly yes. The Bank's triple A rating is very secure due to its uniquely strong capital structure, its preferred creditor status, conservative management policies, and strong support from the industrialised countries, all of which are very good credit risks.

The conservative management policies can be seen in a number of ways. The Group increased its profits to $1.52 billion in 1999, up from $1.24 billion in 1998, following a decision to improve its profitability rate, by raising the spread between its funding costs and the price of loans to borrowers by 0.25% to 0.75%.

The IBRD loan loss provision is $3.56 billion, although it has never declared a loan loss, and therefore never used this. The Bank is permitted by its charter to make loans up to the total value of subscribed capital, reserves and surplus. At the end of 1999 the IBRD had only approached 56% of this limit.

A key measure used by the credit rating agency Moody's to assess the financial health of the IFIs is the “risk asset coverage ratio.” This considers what percentage of the IFIs' risky loans are covered by funds that are a hundred per cent safe and easily accessed in time of need. Risk asset coverage ratio is defined as usable equity and callable capital pledged by Aaa/Aa rated member countries. At the end of fiscal year 1999 the bank's usable equity plus its callable capital pledged by Aaa/Aa rated member countries (i.e. the USA, UK, Germany etc.) equalled 145.1% of its high risk assets (i.e. its outstanding loans to countries considered risky). Credit ratings agencies still considered this a “comfortable capital cushion.”

Although Moody's has not yet released the figure for fiscal year 2000, it has improved from this level due to the Bank adding to its reserves. In addition, with the recovery of economies in Asia, countries such as South Korea are no longer included as a high risk asset.

There is no set limit for this ratio at which the credit ratings agencies would downgrade the debt of the World Bank on the world's capital markets. The Bank has over $28 billion in usable equity. Present value of debt outstanding to the World Bank from HIPCs is a little over $20 billion. If the Bank wanted to write off this in its entirety, its risk assets coverage ratio would fall from 145.1% to 123.0%, still well above what would be considered adequate for triple A status.

What would be of more concern to creditors of the World Bank would be its “usable equity to risk assets” ratio, which was 31.8% at the end of fiscal year 1999. This would fall to 9.7%, still above what a private bank would consider a healthy ratio, and of course private banks do not have access to callable capital in the unique way multilateral development banks do. However, IDA operates on a replenishment system: the loans are at sufficiently low interest to mean that the funds for IDA's lending programme have to be systematically replenished by its member countries, in practice the industrialised countries. As a result, a complete write off of World Bank debt (both IDA and IBRD) would involve the participation of G7 and other industrialised countries, and would therefore leave the risk assets coverage ratios much closer to their current levels.

This said, it is the view of Jubilee 2000 that the World Bank could provide $14 billion in debt relief for HIPCs from its own resources if it so decided. With its unique support from the G-7 and other industrialised countries, the Bank could reduce its usable equity by half and still not have its debt on the capital markets downgraded from triple A. This would enable the Bank to write off from its own resources 100% of the debt owed to IBRD and two thirds of the debt owed to IDA by HIPCs. Donor funding worth an extra $6 billion would ensure the 100% write off of IDA debt as well.

The International Monetary Fund

The IMF has identified the means to provide its share of debt relief under the HIPC initiative. It requires member governments to match their pledges with paid-in contributions, and Board (and therefore US Congress) approval to use the full amount of investment income from the profits it has realised from off-market gold sales. This will provide $2.3 billion of debt relief in present value, a reduction of 37% of the claims the IMF has on HIPCs.

Can the IMF provide more relief from its own resources?

The IMF is currently using resources from the non-reimbursement of fees owed by the Poverty Reduction and Growth Facility to the General Resources Account - i.e. through internal accounting. Secondly, it is using investment income derived from the profits of off-market gold sales of up to 14 million ounces.

The IMF could easily provide deeper debt cancellation from its own resources. The Reserves in the General Department were SDR 2.57 billion at end April 1999, and the Reserve and Subsidy accounts of the ESAF Trust (renamed PRGF) SDR 4.1 billion. Together these reserves account for SDR 6.67 billion or $8.86 billion. In addition, the IMF has re-valued 12.9 million ounces of gold. For each ounce of gold re-valued, the IMF gained approximately $235. The institution has a further 90 million ounces it could re-value, realising a potential $21 billion. These sums dwarf the outstanding HIPC debt to the IMF.

A combination of its reserve accounts and further re-valuation of gold could cover 100% IMF debt cancellation, should the Board agree to do so. ^[10]

The African Development Bank

The African Development Bank Group is owed a total of $10.4 billion by the 41 HIPCs, approximately $3.9 billion to the African Development Bank and $6.4 billion to the African Development Fund, the soft-loan window. The institution is expected to provide debt relief of $2.2 billion in present value, a reduction of 31% in its total claims on HIPCs.

Currently the AfDB has identified only $370 million in potential internal resources and will rely on donor contributions (via the World Bank HIPC Trust Fund) to finance the rest of its commitment. Much of the Euro 670 million pledged by the EU as a contribution to the trust fund, which will fund the AfDB's share of HIPC relief.

Can the AfDB provide more relief from its own resources?

The answer is yes it could, but the industrialised countries would also need to make significant contributions if the AfDB is to substantially reduce HIPC debt. At the end of 1999, the African Development Bank had built up a conservative provisioning policy and provisions amounted to 5.7% of outstanding loans, or $547 million. This complements a conservative lending policy. The Bank is restricted by its charter to limiting loans, guarantees and equity investments to 100% of subscribed capital, reserves and net income. At the end of 1999, outstanding loans were only 40% of this limit. The Bank's capacity to borrow is limited to 100% of callable capital; at the end of 1999, however, the total borrowed was only 35% of callable capital.

The Bank has usable equity of $4.2 billion, and the ratios of usable equity to risk assets and usable equity plus callable capital of Aaa/Aa members to risk assets are 54% and 144% respectively. Both of these are significantly higher than they were in 1994 (32% and 92% respectively) suggesting that the Bank could realistically afford to draw on more of its own resources than the $370 million it has currently identified.

It is the view of Jubilee 2000 that the AfDB can provide $1 billion from its own resources for debt write-off, i.e. $6-700 million more than the AfDB is currently saying it can afford.

$1 billion would not be sufficient, however, for a total write off of the AfDB's debts from HIPCs. $700 million is currently ear-marked to the AfDB from the World Bank HIPC Trust Fund, and donors would need to bolster the finances of the AfDB by four to five billion dollars if 100% cancellations are to be made. Such a policy of debt write-off and donor replenishment would have a very favourable impact on the AfDB's creditworthiness.

The Inter-American Development Bank

The Inter-American Development Bank is owed a total of $3.8 billion by the 41 HIPCs. It is expected to provide debt relief of $1.1 billion in present value, a reduction of 39% in its total claims on HIPCs. The IADB has said that it will provide $800 million of its own resources to this end, and further financing will be provided by the US ($200 million), Canada ($25 million) and other members of the Bank ($350 million).

Can the IADB provide more relief from its own resources?

Like its sister institutions the IADB enjoys strong support from the industrialised countries and operates a very conservative lending policy. Outstanding loans are only 35.9% of the limit set by the Bank's charter. Loan loss provisions were $1167 million at the end of 1999. Only five countries have ever gone into arrears with the IADB, but any arrears to the bank were cleared by 1994. The bank has always generated a profit and net income for last year was $568 million.

The Bank's usable equity at the end of 1999 was $10.3 billion, and its triple A rating is based on the fact that the bank's usable equity plus callable capital pledged by countries rated Aaa/Aa was 168.9% of loans considered by Moody's as non-investment grade-the Bank's sole risk assets. The Bank could draw on a combination of provisions and reserves to realise $3 billion (i.e. a sum greater than the total present value of all HIPC debt to the IADB) and still leave this ratio above 160%. In three years in the 1990s (1991, 1993 and 1994) this ratio was below 160%, with no change in the IADB's Aaa status.

Clearly the $3 billion could be used to write off 100% of its HIPC debt and the Bank would not suffer at all in its ability to borrow in the international capital markets.

The Asian Development Bank

The Asian Development Bank, is owed a total of $892 million by the 41 HIPCs. It is expected to provide debt relief of $103 million in present value, a reduction of 24% in its total claims on HIPCs. The Asian Development Bank is in a healthy financial position and like its sister development banks enjoys strong member support in the form of paid in and callable capital - $3 billion and $48 billion respectively.

Can the ADB provide more relief from its own resources?

With few HIPCs in this region and Asian economies recovering fast from the 1997-98 Asian crisis, the ADB could draw on its usable equity and write off all claims on HIPCs from its own resources. Usable equity was $9.7 billion at the end of 1999 (including loan loss provisions of $73 million), and capital adequacy ratios were very healthy in comparison with its sister institutions. Usable equity as a percentage of risk assets was 52% at the end of 1999, and usable equity plus callable capital of Aaa/Aa members as a percentage of risk assets is 198%.

The Bank could easily write off the total $434 million of claims on HIPCs without losing its triple A rating.

Conclusion

The consensus is now very broad. Debtor governments such as those of Mozambique and Guyana have long joined the international Jubilee 2000 movement in calling for deeper multilateral debt cancellation. The Meltzer Commission, dominated by US Republicans, recommended total cancellation of IMF/WB claims on HIPCs, a recommendation that received widespread agreement from opinion formers in the USA. ^[11] The United Nations Conference on Trade and Development (UNCTAD) ^[12] and the Secretary General of the UN ^[13] have both expressed their support. The General Accounting Office (GAO) of the US Congress concludes that the HIPC initiative in its current form will “not likely provide recipient countries with a lasting exit from their debt problems.” ^[14] The GAO view is that IMF and World Bank assumptions for economic growth for qualifying HIPCs are too optimistic. More reasonable estimates for growth will still leave these countries caught in an unsustainable debt trap.

In Part One, we have shown that the multilateral institutions could write off 100% of the debts owed to them, with only limited contributions from the richest countries of the world. The injection of funds to help the poorest countries recover from effective insolvency are minimal compared to the financial assets of the advanced nations of the OECD – predicted to be approximately $50 trillion. ^[15]

Part Two

“Western lenders lend recklessly in good times and when the loans fail, they are bailed out, stringent and contractory conditions are imposed on the borrowing governments, asset prices collapse and a vast majority of the population is made poorer. Foreign investors then walk into markets prised open for them by the IMF, and pick up assets cheaply. This modern, bloodless colonialism is very neat”

V Anantha-Nagaswaren, Credit Suisse Private Bank, Switzerland

Letter to the Financial Times, 2nd September 1998

“The G8 leaders also pledged ambitiously the halving of absolute poverty by 2015 and a place in school by then for every child on earth. If these targets are to be met, debt relief is vital. So far, progress is pitifully poor.”

Financial Times leader after G8 Okinawa summit, July 2000

Double standards and hidden agendas

At their annual meetings in Prague, 2000, the IMF and World Bank will face unprecedented protests and demonstrations from a wide range of people who perceive globalisation in a negative light, and these will include Jubilee 2000 supporters.

Jubilee 2000 has consistently argued that debt is the "most potent form of slavery". That debtor nations are effectively "chained" to their creditors, and coerced into carrying through economic conditions of these creditors. The major creditors of the poorest nations are in effect, the G7, who have, we argue, used their “Big Brother” status in the IMF and World Bank to subordinate the interests of indebted nations to their own. This is frequently referred to as a form of neo-colonialism. However old-style colonialism required a good deal of practical and costly intervention by rich creditor nations - in the form of finance for economic adjustment, gunboat diplomacy, military intervention, or colonial administrations. Today that role is played, albeit less overtly and with far less financial clout, by the IMF and World Bank.

The G7's reluctance to instruct these institutions to write off 100% debts - or indeed to finance such debt cancellation - can be linked to their continued reliance on the IMF and the Bank to promote economic policies which will open up capital and trade markets in developing nations to the corporations and banks of OECD nations.

Above all, G7 governments with trade and fiscal deficits need to a) obtain capital from elsewhere to finance capital account deficits and b) find markets for their goods, to help balance trade deficits.

In achieving the objectives of open markets for capital and trade, the IMF has actively promoted an economic paradigm of “neo-liberalism” - policies which have driven the pace of globalisation - on behalf of their most powerful shareholders, the leaders of the richest nations. The explicit objectives of this economic orthodoxy, as applied to so-called developing and developed nations, are to:

• Increase economic growth
• Lower inflation
• Increase capital mobility, by deregulating capital flows
• Decrease government spending, i.e. lower fiscal deficits
• Decrease unemployment

Differential income growth between rich and poor is defined by some right-wing supporters of the orthodoxy as a prerequisite for economic growth. However, World Bank and IMF staff seldom set these out as explicit goals. On the contrary, much of the IMF's new rhetoric is about the need for “poverty reduction”.

Below we demonstrate that, according to the IMF, only two of the explicit economic objectives of the “Washington Consensus” have been met: lower inflation and increased capital mobility. Capital mobility is a fundamental cornerstone of globalisation – apparently far more important to the corporations and governments of OECD countries than other fundamentals of economic policy – full employment, inflation and economic growth.

Capital mobility has been achieved at great human cost: millions of lives and livelihoods have been lost; and whole generations have lost the possibility of a viable future. The direct consequence of achieving the goal of capital mobility has been a massive increase in inequality both within and between nations. In promoting capital mobility, the IMF, its leading shareholders and other supporters of the neo-liberal approach, have gone to great lengths to discredit economic policies that can be summarised as “Keynesian”: policies that prevailed in the immediate post-war era. The dominant features of the Keynesian period were in direct contradiction to the “neo-liberal” policies that underpin globalisation. Then governments sought to control flows of capital, and to subordinate the interests of international finance to domestic political priorities, in particular redistributive policies. In contrast, the IMF actively encourages countries to:

• Remove all restraints (controls and other forms of regulation) on the movement of capital, even if those movements cause instability;
• Subordinate domestic policy priorities to the interests of foreign capital and investors;
• Develop a dependence on borrowed foreign capital for development;
• Open up their markets to international trade, by removing tariffs and other barriers that can be defined as “protectionism” - even when such protectionism is practised by their competitors in OECD countries;
• Remove subsidies from local producers and farmers, even though this may hurt local people, and benefit foreigners who may be the beneficiaries of massive subsidies provided by OECD governments, like Japan, the US and the EU;
• Lower inflation;
• Lower government spending, and indeed diminish the role of government in economic affairs;
• Lower taxation;
• Re-structure industries through the privatisation of public assets.

Highly indebted countries (like those damaged by the South East Asian economic crisis) are more than encouraged; they are effectively coerced into adopting these policies by bankers - their international creditors - represented as always by the IMF.

Catastrophic declines in living standards - and steep rises in debt

David Dollar and Aart Kraay of the Development Research Group in the World Bank recently defended the economic policies driving globalisation. They argued that “contrary to popular myths, standard pro-growth macroeconomic policies are good for the poor as they raise mean incomes with no significant adverse effect on the distribution of income.” The Guardian newspaper described this as “the most aggressive assertion” yet of the ultra-orthodox economists. While no-one would deny that economic growth is good for the poor, many would challenge whether the “standard pro-growth macro-economic policies” of the IMF and World Bank have raised mean incomes “with no adverse effect on the distribution of income”.

In the April 2000 World Economic Outlook (WEO), the IMF provides data which dispute the conclusions of these World Bank economists. The WEO contains a striking graph of global per capita real GDP growth (average annual percentage change) from 1900 to the year 2000 (WEO, page 59).

The graph reveals that growth rates over the period during which “monetarist” or “neo-liberal” economics has been dominant (1973 - 2000) are below those of the period of the gold standard (1900 - 1913) and just above those of the most economically destructive period of this century: 1913 - 1950. Growth periods during the period of Keynesian policies, in contrast, tower above other periods, and were more than double those of the 1973 - 2000 period.

The alleged central plank of all IMF economic policy objectives over this period - economic growth – falls well below the levels achieved under the very different “Keynesian” economic policies of the previous period.

Globalisation 1973 - 2000: the record

The failure to achieve eoncomic growth and reduce poverty in the period 1973-2000 is crystal clear:

• Global per capita economic growth over the period of IMF intervention in economies, is well below that of the Keynesian period. ^[16]
• The total number of people living on less than $1 a day in sub-Saharan Africa has risen from 217 million in 1987 (the first year of IMF Structural Adjustment Policies (SAF and ESAF) in Africa) to 291 million in 1998 ^[17]. GDP per capita fell from 7.9% of that of the leading economic nation (the US) to 4.8% between 1973 - 2000. ^[18] For sub-Saharan Africa, GDP per capita grew by 36% between 1960 and 1980, while it has since fallen by 15%.
• In Latin America and the Caribbean the total number of people living on less than $1 a day has risen from 64 million in 1987 to 78 million in 1998. GDP per capita grew by 75% from 1960-1980, whereas from 1980 - 1998 it has only risen by 6%.
• In South Asia the total number of people living on less than $1 a day in 1987 was 474 million and in 1998 had risen to 522 million.
• The vast majority of people living in HIPCs have seen no improvement in their standards of living for three decades. Of the Jubilee 2000 Coalition 52 countries, no less than 20 have seen their per capita income fall over the years 1965-1998.
• Since 1980, the total debt of developing countries has risen from $600 billion to $2.6 trillion.
• As if this were not damning enough, the latest IMF World Economic Outlook graphically illustrates the impact of globalisation policies on government deficits, inflation and unemployment in the G7 countries.
• Since the middle to late 70's there has been a massive deterioration in governments' financial balances, inflation and unemployment. Only in the case of inflation has this deterioration been reversed, and the tight monetary policies of the central banks in the industrialised countries are only partially responsible for the improvement. Real non-energy commodity prices are lower now than at any time over the last one hundred years, providing a solid bulwark against inflationary tendencies in developed economies.
• In other words the outcomes of “economic liberalisation” have fallen far short of the rhetoric of the goals explicitly stated by G7 leaders from Margaret Thatcher and Ronald Reagan onwards, and outlined above.
• Unemployment remains much higher than it was in 1975, both in the G7 nations, but also in the poorest nations. In the OECD countries there are 35 million people unemployed, an average of 7% of the labour force.
• Government debt has increased, not fallen. Between the mid 1970's and the mid 1990's cumulative G7 deficits (aggregate public debts) rose from 36% of their aggregate gross domestic products to 67%.
• Over the same period the total external debt of developing countries has risen sharply from $90 billion in 1970 (or 15% of GDP) to over $2.5 trillion in 1998 (41% of GDP).

There are however two areas in which, as noted above, the economic orthodoxy has achieved its goals, both explicit and implicit. The first, as mentioned earlier, is in the greater freedom and mobility given to capital. This has pleased bankers; but has also helped the leaders of the G7 obtain capital to finance their fiscal and trade deficits, as Louis W. Pauly has noted. ^[19] The second set of outcomes is the reduction of inflation, the result of tight monetary policies in the industrialised countries and plummeting commodity prices.

These policy successes have had a consequence, which has profited the few and harmed the many: the increasingly divergent differentiation between the incomes of rich and poor.

An analysis of long-term trends in world income distribution (between countries) shows that the distance between the richest and poorest country was about 11 to 1 in 1913, 35 to 1 in 1950, 44 to 1 in 1973 and 72 to 1 in 1992. The assets of the 3 richest people in the world are now more than the combined GNP of all least developed countries.

The achievement of these narrow goals has been at the expense of extraordinary human suffering and deprivation - particularly in the poorest countries.

Conclusion

We conclude from this that the liberalisation of capital flows – which underpin the whole globalisation project - may be the real reason for the imposition of the IMF-driven economic policies that characterise “the Washington Consensus”. In G7 countries the need to promote capital mobility overrides, it would seem, domestic political pressure for debt cancellation. We conclude that this is why the G7 will not instruct the IMF and World Bank to write off 100% of the debts owed by the poorest countries. While they continue to make positive noises and promises to do more on debt, the G7 hide in the shadow of the IMF and World Bank, using these institutions to promote their own interests, at the expense of the lives of the poorest people in the world

Footnotes

^[1]UNDP, 1997.

^[2] A phrase used by the lead singer of U2, Bono, when addressing the UN in New York in October, 1999.

^[3] Speech in Hamburg, 27 April 1999

^[4] Hansard, 20^th June 2000

^[5] Debt Relief Initiative for Poor Countries Faces Challenges, United States General Accounting Office, June 2000. Page 90.

^[6] Zambia, HIPC document July 20^th, 2000

^[7] Citibank, 2000.

^[8] Tanzanian government figures supplied to World Bank, August 2000.

^[9] Jubilee 2000 conversations with World Bank, September 2000

^[10] In a conversation with Jubilee 2000 at the Spring Meetings of the IMF and World Bank in April 2000, Acting Managing Director of the IMF, Stanley Fischer, confirmed that the IMF could easily afford the total write off of HIPC debt to the institution.

^[11] The New York Times leader, quoted in the IHT of 10^th March, argued that “one of the biggest and best ideas in the report is a call to cancel the crushing debt burden of the world's poorest countries. If the commission does nothing else but spur the United States and its allies to get behind this plan, it will have accomplished a lot.”

^[12] The secretary general, Rubens Ricupero, wrote in the International Herald Tribune on 28^th March that UNCTAD “wholeheartedly endorse [the Meltzer commission's] recommendation to write off these debts in their entirety”.

^[13] In April 2000 the Secretary General of the United Nations, Kofi Annan, said in his 21^st Century Action Plan: “I call upon the donor countries and the international financial institutions to consider wiping off their books all official debts of the heavily indebted poor countries in return for those countries making demonstrable commitments to poverty reduction.”

^[14] Debt Relief Initiative for Poor Countries Faces Challenges, United States General Accounting Office, June 2000. Page 90.

^[15] McKinsey Global Institute: “The Global Capital Markets, Supply, Demand, Pricing and Allocation”, Washington DC, November, 1994.

^[16] Page 59, Part II World Economic Outlook April, 2000

^[17] World Bank Development Report 2000/20001.

^[18] WEO, page 66

^[19] “Who elected the bankers? Surveillance and control in the world economy” Louis W. Pauly 1997, Cornell University.