[saymaListserv] The Testimony on Truth and the Debts of Poor Countries

Janet Minshall jhminshall at comcast.net
Fri Sep 30 12:45:56 JEST 2005

I have seen and heard much innacurate info from 
Friends about The World Bank (WB) and The 
International Monetary Fund (IMF).  This article, 
from the most recent issue of The Economist, 
addresses how the two organizations will make it 
possible for wealthier donor countries to pay the 
debts previously contracted by poor countries. 
Some of these debts were the result of corruption 
and innacurate information provided to the 
lenders, and other debts were the result of 
countries' being actually unable to follow 
through on well-intentioned commitments made. 
Donor countries will , apart from the WB and the 
IMF, continue to provide economic development 
assistance to poor countries primarily in the 
form of grants which do not have to be repaid, 
while the financial assistance provided to 
service the poor countries' debts by the WB and 
the IMF will be discontinued.

I wrote in Friendly Woman , Winter 2001 Issue, 
called "Women,Money, and Economic Power" that 
this would be the outcome.  It really is not 
consistent with Friends' testimony on Truth to 
demonize groups about which one has little actual 
information.   Janet Minshall

The IMF and World Bank meetings
Bad loans made good
Sep 29th 2005
From The Economist print edition
Donors not debtors will repay the World Bank's bad loans

ALL the routes to the headquarters of the World 
Bank and the International Monetary Fund in 
Washington, DC, were blocked on September 24th 
and 25th by dozens of identical dumper trucks, 
the kind normally used to spread salted gravel on 
unpassable winter roads. Inside this heavy 
security cordon, the ministers and officials 
gathered for the Bank's and the Fund's annual 
meetings were busy clearing a path of their own.

Agreement was needed on a proposal to cancel the 
debts owed by the world's poorest countries to 
the Bretton Woods twins and the African 
Development Bank (AfDB). The proposal already had 
the backing of the G8 group of rich nations. Last 
weekend, according to Trevor Manuel, South 
Africa's finance minister and chairman of one of 
the key committees at the meetings, the G8 
agreement "emerged as the G184 agreement", 
supported by the entire membership of the Fund 
and the Bank.

There are now 38 countries that the twins deem 
poor and indebted enough to warrant forgiveness. 
Between them, these countries owe $42.5 billion 
to the World Bank's soft-loan arm, $10 billion to 
the AfDB and $5 billion to the IMF. Eighteen of 
these countries have already jumped through the 
hoops designed to test their commitment to sound 
policies. Their slates may be clean by the end of 
the year.

Their debts, said Gordon Brown, Britain's 
chancellor of the exchequer and chairman of the 
IMF's ministerial committee, are unpayable. In 
fact, these countries are servicing their 
obligations, but only because the multilaterals 
offer them new grants and loans to help them 
repay their old ones. This recycling of funds 
keeps up appearances on the balance sheets of the 
Bank and the Fund, making bad loans look better 
than they really are. But it is also complicated 
and inefficient, consuming the time and energy of 
creditors and debtors alike.

The G8 proposal will end this elaborate charade. 
The Bank, Fund and AfDB will stop collecting 
debts and cut the flow of new money to these 
countries by the same amount. This much is an 
exercise in bookkeeping, not altruism. As Adam 
Lerrick, an economist at Carnegie Mellon 
University wrote recently, "All that debt 
forgiveness really needs is an eraser."

But there is more. Backed by the British, the 
Dutch and the Nordic countries, the World Bank 
has successfully convinced its donors to 
compensate it for writing off loans it could not 
have collected in full. This compensation is 
supposed to come on top of the regular 
contributions donor countries make to the Bank, 
such as the $18 billion already pledged for the 
years 2006 to 2008. Beyond 2008, however, it is 
impossible to know how much donors would have 
coughed up in the absence of debt relief. 
Therefore it is hard to gauge whether the money 
they offer will be in addition to, or instead of, 
money they would otherwise have given. In effect, 
the Bank has swapped the risk that poor countries 
will not repay their loans for the risk that rich 
countries will not redeem their promises.

To allay these fears, the G8 finance ministers 
all signed a letter to Paul Wolfowitz, the World 
Bank's new president, promising to compensate the 
Bank "dollar for dollar". A "baseline" will be 
agreed, which is meant to define the 
counterfactual, showing what donor countries 
would have given had debt relief never happened.

It is not yet clear how this line will be drawn. 
Nonetheless, Mr Wolfowitz was happy to declare 
that "the path to complete debt relief now has 
been cleared." Almost ten years after the 
multilaterals first consented to the partial 
forgiveness of their loans, the snow has finally 

Copyright  The Economist Newspaper Limited 2005. All rights reserved.
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