APPENDIX 2
Memorandum submitted by the World Development
Movement
Debt relief is an issue of fundamental importance
to World Development Movement (WDM) members, and one on which
we have campaigned for 15 years. We welcome the progress that
has been made on debt relief over this period and the IMF's new
poverty reduction orientation. We applaud the Government's commitment
to maintaining momentum to achieve wider, deeper and faster debt
relief. However we note the slow progress, inadequacy of current
initiatives and the continued suffering of the poor in highly
indebted countries.
This submission raises questions about the current
IMF policies and conditionality. It recommends immediate reforms,
while recognising that far more fundamental changes are needed
in the future, because, for example, structural adjustment programmes
have not worked. Urgent action is needed in the short term to
provide immediate support to the efforts of the poorest countries
to release resources for poverty reduction.
WDM has three areas of particularly substantive
concern: IMF conditionality, Poverty Reduction Strategy Papers
(PRSPs) and the extension of the Heavily Indebted Poor Countries
(HIPC) Initiative.
IMF CONDITIONALITY
WDM welcomes the promises made in Prague to
try to ensure that 20 HIPC countries reach decision point by the
end of 2000.
It has been claimed by the UK Government that
more countries have not got further through the HIPC Initiative
because of their lack of demonstrable commitment to poverty reduction,
and that the speed of progress is in the hands of the debtor countries
themselves.
WDM is concerned that the real reason debt relief
is being delayed is due to claimed non-compliance with IMF conditions,
and even the expectation of non-compliance.
Indeed, of the first 10 countries to reach decision
point, seven were delayed as a result of slippage on their IMF
Enhanced Structural Adjustment Facility—Poverty Reduction
and Growth Facility conditions. For example:
— Mali's debt relief agreement was
delayed by six months because it failed to meet all the structural
benchmarks (eg relating to privatisation) that the Government
had agreed for 1999-2000. Some of the slippages were not in the
Government's control (eg a bidding company went bankrupt).
— Bolivia's debt relief was delayed
by at least three months because the IMF was not convinced that
the recently elected Banzer Government would implement the ESAF
programme to the letter.
WDM believes that failure to privatise industries
is not sufficient grounds for delay. The economic conditions currently
laid out in IMF documents are not a good indicator of a country's
commitment to poverty reduction. Debt relief should not be delayed
due to slippage in the implementation of conditions not related
to poverty reduction.
WDM is also concerned that the flexibility on
conditions employed to enable these 20 countries to reach decision
point, by the end of 2000, may not be so generously put into practice
to enable these countries to attain completion point. WDM believes
it would be a great disappointment if receipt of debt relief by
these countries is held up between decision point and completion
point, as their need for relief is urgent.
Questions:
— Will the IMF guarantee that countries
will receive debt relief, despite failing to undertake structural
reforms that are not directly related to poverty reduction?
— What scope is there for introducing
a more flexible "menu" of policy options, including
a greater variety of pro-poor policies, within the Fund's policy
advice?
POVERTY REDUCTION
STRATEGY PAPERS
WDM welcomes the UK Government's role in influencing
the IMF's reorientation towards poverty reduction, as evidenced
in the commitment to nationally prepared Poverty Reduction Strategy
Papers (PRSPs) at the 1999 Annual Meeting.
One of the major benefits claimed for PRSPs
is their ownership by national governments and civil society.
However, WDM is concerned about the central role that the IMF
is playing in PRSPs and questions its legitimacy in this sphere.
PRSPs need to be finally agreed by the IMF, yet it is showing
no signs of flexibility over the content of proposed strategies.
In Prague, the Head of the IMF's Africa Section
implied officials would not be prepared to endorse PRSPs that
did not contain standard IMF economic policies. WDM urges the
IMF to recognise, among other things, that civil society organisations
may become disenchanted with the consultation process if priorities
identified are not taken seriously when PRSPs reach the IMF endorsement
stage.
This has been worryingly demonstrated in the
last year by a substantial increase in demonstrations, strikes
and protests by citizens in developing countries implementing
IMF programmes. Since the Annual Meeting last year over one million
citizens have demonstrated against IMF policies that hurt their
livelihoods, on 50 separate occasions, across 13 different developing
countries from Argentina to Zambia. Ten people died in the protests
and over 300 were injured.
This should send a strong message to both the
UK Government and the Fund that for the people most affected by
IMF conditions little has changed for the better. IMF economic
conditions have undermined the ability of democratic governments
to set their own priorities and policy objectives and are contributing
to adverse effects in often fragile democracies. The IMF should
act to support democratic governments and empower them to act
in the interests of their electorate. National development plans
and budgets prepared in consultation with Parliamentarians and
civil society can play a central role. But the current mechanism
of PRSPs is deeply flawed. The IMF has failed, so far, to convince
WDM and civil society organisations that the reorientation towards
poverty reduction is taken seriously.
The IMF dictates time lines at the national
level. Yet countries should be able to complete Poverty Reduction
Strategy Papers based on the timing of election cycles or domestic
processes, rather than in relation to the dates of IMF missions.
The IMF must also recognise that thorough consultations with civil
society require significant amounts of time. The IMF should seriously
consider suspending debt servicing while these processes are being
undertaken, (on the provision of credible assurances that the
planning will be participatory).
Questions:
— How does the IMF monitor the impact
of its policy recommendations on the poor? If those impacts have
a harmful impact on the poor, what does the IMF do to prevent
and reverse those impacts?
— To what extent is the IMF willing
to step back from its traditional policy recommendations to make
room for differing policies derived from the democratic process
of national governments?
— Will the IMF give serious consideration
to the suspension of debt servicing while countries complete PRSPs?
EXTENSION OF
THE HIPC INITIATIVE
WDM welcomes the Government's commitment to
wider and deeper debt relief. However WDM is disappointed with
the lack of discussion on extending the HIPC Initiative to cover
more countries and offer larger amounts of relief.
WDM believes the formula applied to calculate
levels of debt sustainability (Debt Sustainability Analysis) is
based on the wrong criteria. These criteria lead to countries
with severe debt burdens being excluded from the HIPC Initiative
because their levels of debt repayment are deemed to be sustainable.
For example:
— Bangladesh is excluded from the HIPC
Initiative despite spending almost the same amount on debt servicing
as on health. The Government needs to focus its resources on poverty
reduction, as 56 per cent of under fives are underweight, 57 per
cent of the population lack access to sanitation and 60 per cent
of the population remain illiterate. Yet currently more than one
third of the Government's budget is allocated to debt repayment.
WDM suggests that calculations of debt service
should be based on new criteria, to enable domestic poverty reduction
to be prioritised above and beyond debt repayments. Debt repayments
should be calculated on the availability of economic resources
after meeting requirements for domestic poverty reduction. This
would extend the HIPC Initiative to more countries in need.
WDM proposes a review of the Debt Sustainability
Analysis so that countries in real need receive substantially
higher levels of relief. Countries receiving debt relief should
not have to pay more in debt service than on poverty reduction.
Questions:
— How is the Government using its
influential position to push for wider debt relief, with the inclusion
of more countries within the HIPC Initiative?
— What measures are being taken
to ensure that countries receiving debt relief will not pay more
in debt repayments than is allocated to domestic poverty reduction?
CONCLUSION
In conclusion, WDM welcomes the progress made
on debt relief and reorientation of the IMF to date, but urges
the UK Government to keep up the pressure for change in a number
of areas, in order to assist movement towards international poverty
reduction targets. WDM will continue to campaign on these issues
until there is a real end to the debt crisis.
World Development Movement
October 2000
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