World Bank official admits poor countries only gain 40c for every $ of debt relief.

At a seminar in London on the 7th Feb 2001 entitled "Will HIPC matter? The Debt Game and donors' behaviour in Africa"- an official from the World Bank Institute revealed that only 40 cents of every dollar of cancelled debt can be counted as additional resources for the debtor nation. The official, Isac Diwan, Manager, Economic Policy for Poverty Reduction, at the World Bank Institute was speaking at a meeting of the Overseas Development Institute. He admitted that "the HIPC initiative is more helpful to multilateral organisations than it is to poor countries". Mr. Diwan noted that the HIPC initiative is a "watershed because it helps clear up the books (of the multilaterals)….brings back selectivity in lending….and supports economic policies driven by performance and needs".

Mr. Diwan noted that in the past "bad policies received more funds", due to the absence of selectivity in lending. He asked "why do poorer/more indebted nations get higher net transfers?". After two decades of financing "bad" policies, multilateral organisations want to shift to financing "good" policies - increasing the conditionalities on their policies. Citizens of poor countries that never benefited from the trickling down of the "net transfers" in the past now have to deal with stricter economic policies and lower budgets.

Matthew Martin of Debt Relief International noted that "debtor countries are now hurrying to deliver good policies, but relief is pitifully small and very slow. Countries will soon become disillusioned and disappointed."

Mr. Diwan demonstrated that there had been a shift in the composition of debt in debtor nations. Over the period 1977-1982 the proportion of multilateral debt was low; however over 1994-8 the share of multilateral debt increased considerably. He asked whether in the 1990s poor countries had faced "a debt crisis, or just a multilateral debt crisis?".

Link:
http://www.odi.org/
http://www.dri.org.uk/