Poorest countries pay more under HIPC, World Bank and IMF admit

The World Bank and International Monetary Fund (IMF) secretly admitted that their efforts to relieve the debt of the world's poorest countries actually is having the opposite effect in some countries.

''The U.S. dollar amounts of debt service owed by Burkina Faso and Mali are expected to increase'' under the Heavily Indebted Poor Countries (HIPC) debt initiative, the agencies say in an internal report leaked to reporters.

The initiative, established in 1996, has been widely touted as the first comprehensive effort to reduce the debt burden of the world's poorest countries - albeit only to 'sustainable' levels at which creditors can be assured of borrowers' ability to service their loans.

Now, the Bank and Fund concede, ''the initiative may not be significantly reducing debt service from the current levels paid.'' Their report confirms warnings issued by debt-relief advocates even before the scheme was launched.

The document, discussed by the lending agencies' executive boards late last week, comes in advance of the World Bank-IMF 'spring meetings' here next week and the summit of the 'Group of Seven' (G-7) industrial powers in Cologne, Germany in June.

The latest Bank-Fund assessment discusses ways of improving the programme's financial outlook through such options as the sale of a portion of the IMF's 103-million-ounce gold reserves. The IMF's key policy committee is expected to approve the idea - but not a specific sum - April 27.

However, the multilateral lenders entertain no departure from what critics have long derided as the scheme's central flaw: the IMF's 'Enhanced Structural Adjustment Facility' (ESAF) - centrepiece of the Fund's efforts in low-income countries.

ESAF provides concessional loans so governments can keep up with debt repayments as they implement IMF prescriptions to rein in inflation, cut public spending, and open local markets to international trade, commercial lending and foreign ownership.

The facility also is the key to debt relief because, to qualify, a country first must satisfy the IMF that it has a solid record of implementing structural adjustment programmes (SAPs) for at least six years - typically, the time it takes to complete two rounds of ESAF.

The IMF defends this arrangement on the grounds that its economic prescriptions, however painful in the short run, will enable governments to make better use of their debt relief over the long haul. Critics counter that the agency is holding debt relief hostage to structural adjustment.

The IMF's argument is ''easy talk'' and ''should begin to sound suspicious after 20 years of the same economic prescriptions...to help our economies recover from our debt problems,'' says Kenya's Njoki Njoroge Njehu, director of the anti-IMF 'U.S. Fifty Years Is Enough Network'.

Trade unionists from 45 African countries, in a declaration adopted last week, noted the Bank and IMF have been managing Africa's debt through SAPs since 1980.

''The result has been catastrophic for the people of these countries: drastic reductions in public expenditure aimed at restoring economic health have meant a serious deterioration in living standards,'' they said

Dissatisfaction with HIPC has deepened over the past year, leading supporters to seek improvements and a growing number of critics to urge alternatives. A number of G-7 members, long considered obstacles to any advance, have come around to the view that the effort must provide greater relief - and sooner.

Uganda has helped open their eyes.

The East African nation has been pushed back into unsustainable debt less than a year after becoming the first HIPC graduate. This has been despite more than a decade of SAPs and extraordinary last- minute efforts by the World Bank to ensure reduced debt payments.

The United States, Canada, Britain, Germany and France all have put forward HIPC reform proposals, and most back the sale of some IMF gold to bolster available financing. Fund managers favour selling about five million ounces while Washington, which has yet to pay in its share for HIPC, wants to cash in 10 million ounces.

None of their ideas would challenge ESAF's supremacy, however. U.S. and Canadian proposals actually would reinforce it by letting the IMF use the proceeds to put ESAF on a perpetually self- supporting footing rather than insisting the money be ploughed directly into debt relief.

That idea has been kicked around for the past two years and analysts have noted all along that if it goes forward, the IMF will free itself from having to ask shareholders to make donations to ESAF. Lawmakers in the United States and elsewhere have used ESAF 'replenishment' requests to ask harsh questions of the IMF before releasing the money.

''Continued endorsement of the IMF's role makes a mockery of the public commitment made by creditors to strengthen the linkages between debt relief and poverty reduction,'' says Kevin Watkins of the non-governmental organisation Oxfam.

According to IMF staffers, however, writing in the agency's official newsletter, ''aid without adjustment is wasted and (discourages) countries from engaging in or continuing to pursue difficult adjustment and reforms.''

Some G-7 members now argue that the ESAF 'track record' requirement should be shortened from six years to three. From a Fund perspective, however, this would simply give governments less time to meet economic restructuring goals that are not open for renegotiation.

That position lies at odds with the conclusions, last year, of external evaluators hand-picked by the IMF to review ESAF.

The Fund needs to show more flexibility in negotiating with borrowing countries and must give them a choice between standard structural adjustment and ''alternative paths'', said former Ghanaian finance minister and lead evaluator Kwesi Botchwey.

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