IMF admits HIPC debt relief inadequate

The International Monetary Fund has admitted that Malawi's debt service payments are “onerous”- despite the fact that the country is not eligible for debt relief under the current Heavily Indebted Poor Countries (HIPC) Initiative because its debt service payments are considered too small.

The new IMF report implicitly raises questions not only about HIPC, but also about past lending to dictators.

The IMF report is the Enhanced Structural Adjustment Facility Policy Framework Paper, 1998/99-2000/01 (ESAF PFP), and it was published on the IMF website on 5 January 1999.

Under the HIPC Initiative a debt is defined as “sustainable” if: 1) the total debt is less than two times (200%) the country's annual export earnings, and 2) annual debt service payments (interest plus principal repayments) are less than one-fifth (20%) of annual export earnings.

The IMF reports that for Malawi for the three years 1999-2001, total debt will average 161% of exports, and annual debt service payments will average 16% of annual exports earnings. Although this is officially “sustainable”, the ESAF PFP says that “the servicing of the external debt, which is owed mostly to multilateral creditors, will remain onerous” and ways must be found “of alleviating the onerous external debt servicing problem.” Indeed, at a meeting on 17 December, IMF "directors noted Malawi's high debt burden, and called for innovative solutions.”

Although Malawi is one of the poorest countries in Africa, it has twice the per capita income (GNP) of neighbouring Mozambique. When Mozambique was granted HIPC debt relief in April last year, debt service levels were set higher than those now considered “onerous” for Malawi.

Meanwhile, the ESAF PFP implicitly raises questions about past lending to Malawi. The report notes that “no appreciable progress has been made on the social indicators during the last 30 years.” That was the period of the dictatorship of Hastings Banda, who openly said he fed his opponents to the crocodiles and who cut health and education spending, but whose outspoken pro-Western stance during the Cold War won wide support from the international community.

Virtually all of Malawi's $2 billion debt was borrowed during the Banda era. The World Bank lent Banda's Malawi $1.2 billion, friendly governments lent $250 million, and the IMF lent $100 million -- even though it was always clear that there was “no appreciable progress” on development or social indicators.

Banda was finally ousted in an election in 1994. The new government immediately introduced free primary education, which led to a huge jump in pupil numbers. The IMF admits this “has led to rise in the student-teacher ratio [to 60:1] and a concomitant decline in the quality of education.” Nevertheless, the IMF's ESAF PFP sets out as a condition that Malawi cannot increase education spending or hire more teachers.

Ann Pettifor, Director of the Jubilee 2000 Coalition said: “The IMF's treatment of Malawi yet again demonstrates the creditors' inconsistency and double-standards. The IMF has at least admitted that Malawi's debts are onerous. It now needs to take responsibility for bad lending and cancel Malawi's unpayable debts.”