IMF still rejects deeper, faster debt relief

 

The International Monetary Fund (IMF) continues to resist proposals to give deeper and faster debt relief to poor countries. Stanley Fischer, first deputy managing director of the IMF, speaking at a press conference on 29 October, stressed that the IMF was still unwilling to improve the Heavily Indebted Poor Countries (HIPC) Initiative, both because the IMF does not have the money, and because he fears poor countries will waste money gained from debt relief.

Fischer said he did not expect “any change in the basic design of the HIPC Initiative. In many ways, what is constraining HIPC is the availability of finance. It's a temptation to think, well, you could just write off debt and that's it. But ... we've [the IMF] got to find some other way of covering that loss of assets.”

On 30 October the IMF was promised an extra $90 billion to help countries fight currency speculators, but this money is not intended for poor countries which need debt relief. In its present form, HIPC is expected to cost $8 bn,

Campaigners complain that HIPC is moving so slowly that few countries will get any debt relief by the year 2000, and that the relief they receive is tiny. But the IMF is unmoved. Fischer said: “My guess is if HIPC is enhanced in any way, it would be to broaden it to include more countries as money becomes available, rather than to intensify or speed up much the assistance to individual countries.”

The issue of “moral hazard” was also raised by Fischer: “While the management of the Fund certainly strongly supports the HIPC Initiative, there's also a concern that it be done in a way that ensures that countries that get relief now do not run bad policies and then come back for a second round of relief on the basis of an increased capacity to borrow in the future.”

THE FULL TEXT OF THE REPLY BY STANLEY FISCHER:

PRESS BRIEFING BY VIDEO CONFERENCE
WITH SOUTHERN AFRICA
OF
STANLEY FISCHER
FIRST DEPUTY MANAGING DIRECTOR
INTERNATIONAL MONETARY FUND

October 29, 1998
9:30 a.m.
IMF Headquarters
Washington, D.C.

MR. FISCHER: I didn't detect in the last meetings that there was any change in the basic design of the HIPC Initiative. In many ways, what is constraining HIPC is the availability of finance. It's a temptation to think, well, you could just write off debt and that's it. But in terms of the balance sheet of the IMF, there are assets and liabilities, and if we write off debt, we've got to find some other way of covering that loss of assets.

The concern that many have in the HIPC Initiative is that, of course, adverse circumstances have affected many of the countries that were indebted. Sometimes governments change. You're dealing with a new government to which you'd like to be more friendly or at least more accommodating. But there's always a concern that if you write off the debt, you can get into the same situation again where countries borrow excessively, and then you need a second round.

So while the management of the Fund certainly strongly supports the HIPC Initiative, there's also a concern that it be done in a way that ensures that countries that get relief now do not run bad policies and then come back for a second round of relief on the basis of an increased capacity to borrow in the future.

The three-year and the six-year periods are there to try to assure everybody that there is a change in the underlying economic policies that helped make the debt situation so severe in the first place. That seems to me a reasonable thing to do. And, as you know, in the case of countries that had a good track record before the HIPC Initiative, the six years period has been shortened.

My guess is if HIPC is enhanced in any way, it would be to broaden it to include more countries as money becomes available, rather than to intensify or speed up much the assistance to individual countries. That's a guess as to the way it will go. But this is an issue that continues on the international radar screen all the time.