UNCTAD Support for the Meltzer Commission's call for creditors to write off all debts to HIPCs

The report of the US Congressional Meltzer commission (8^th March 2000), which recommended total cancellation of poor country debt and heavily criticised the IMF's role in development, has provoked widespread debate on the future status and mission of the IMF, World Bank and the regional development banks. Rubens Ricupero, Secretary General of the United Nations Conference on Trade and Development (UNCTAD), welcomed the debate and specifically called on creditors to heed the commission's unanimous demand for complete cancellation of poor country debt to the multilateral institutions.

Ricupero made his comments in the International Herald Tribune on 28^th March. He stated that "many of the recommendations are highly contentious... however on one issue - the large debts of poor countries - the commission voted unanimously on the desirability of writing off all multilateral claims that implement an effective development strategy.... These specific recommendations should not be ignored."

The call by the Meltzer commission for the total write off of the debts of the Heavily Indebted Poor Countries was particularly directed at the multilateral creditors, who currently under the HIPC initiative provide only piecemeal relief. The commission recognised that this failed to respond to the needs of the Heavily Indebted Poor Countries, which are struggling to cope and emerge from severe financial and social crisis.

The statement from the Meltzer Commission was unequivocal: “The IMF, the World Bank and the regional development banks should write off in entirety all claims against highly indebted poor countries (HIPCs) that implement an effective economic and social development strategy in conjunction with the World Bank and the regional development institutions.” It was unanimously supported by the members of the commission.

The call for 100% cancellation received further backing from the US Press. 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.”

The commission also argued that the World Bank and regional development banks were so involved in lending to the major middle income countries that they were neglecting their most important function—providing funding for the poorest countries, which were unable to tap private sources of funding. The commission argued that the bulk of the Bank's lending was to Brazil, Mexico, China and Argentina, with the result that private investment was “crowded out”. In addition the Bank should stop the pretence of lending for poverty relief and instead provide assistance in grants rather than loans.

Both Larry Summers (US Treasury) and James Wolfensohn (president of the World Bank) contested this -arguing that private finance usually did not support the social sector in the middle income countries and much of the world's poorest people lived in middle income countries. In addition Summers said that if the banks restricted themselves exclusively to the use of grants, then the amount of finance available would be drastically reduced.

The Meltzer recommendations for the IMF—that it should restrict its lending to short term loans and get out of long term development lending—were similarly challenged by Summers. He accepts that the IMF should scale back its long-term development lending, but it should stay in the game. In defending the role of the IMF from the full-frontal assault of Meltzer he revealed the true US agenda. His comments made on 24^th March leave little doubt that the IMF is essentially a tool of US foreign policy.

He said:

[The IMF and the World Bank are]... “one of the most effective and cost-effective investments we can make in the forward defence of America's core interests...We believe that taken literally they would straitjacket these institutions to the point where they would no longer be able to advance America's core values. The combination of restrictions that the report proposes would essentially eliminate these institutions' capacity to provide support for countries as diverse as Mexico, Bulgaria and Thailand. This would put at risk American wages, American savings, and American security.”

So far however the full implications of the recommendation have not been addressed by either Summers or Wolfensohn. There is still a long way to go, but the momentum is increasing and poor countries, such as Mozambique, are growing more confident in challenging the Bretton Woods institutions and adding their voices to the call for 100 per cent cancellation by the multilateral institutions.

The Commission's report can be accessed on their website: http://phantom-x.gsia.cmu.edu/IFIAC

See also:

• Right-wing US Congressional Commission, in historic report, tells creditors to write off all debts owed by HIPC countries and slates IMF involvement in developing countries (8 March 2000)