Development: Debt, And Hope, Remain

The World Bank and the International Monetary Fund (IMF) wrapped up weekend meetings here with no major results for developing nations, but the gathering might have moved the issue of poor nations' debt onto rich nations' permanent agenda.

The annual meetings covered many topics. A half-hearted call by some developing nations to have more say and representation in the management of the two Washington-based institutions was politely received, but yielded no action from IMF and bank officials.

The officials also discussed financing of terrorism, the global economy and oil prices. But nothing was as high profile as a proposal to cancel 100 percent of poor countries' debts.

Finance ministers from the Group of Seven (G7) most industrialised nations who control the two financial powerhouses ended their official talks Friday with no unified position on the debt proposal, but the issue received support from important players, including the United States and Britain.

IMF Managing Director Rodrigo de Rato described the IMF/Bank meetings Saturday and Sunday as "fruitful discussions" on the issue, including the need to increase aid alongside debt relief. But no concrete results emerged, he told journalists.

"I hope these discussions will bring about the need for a political consensus that certainly is needed," de Rato said at the closing press conference Sunday.

World Bank President James Wolfensohn attributed the lack of concrete results to an absence of political will on the part of shareholder countries.

"It is a political decision made by the shareholders, and we are trying to give them all the support possible," he said. "I think that the debate is engaged, and I hope it will be resolved before too long."

The lack of progress on debt dismayed many economists and non-governmental organisations (NGOs) that worked to bring the issue to the forefront of the meetings.

The 41 nations the World Bank defines as "Heavily Indebted Poor Countries" (HlPCs) -- 33 of them in Africa -- owe 50-100 billion dollars in multilateral debts, says the Jubilee Movement for debt relief. That means each child in Nicaragua is born owing more than 2,000 dollars, in a country where average yearly income is only 390 dollars.

"We are of course disappointed that the G7 communiqué contained all of two sentences on debt, with only vague pledges to study the issue further," said the 50 Years Is Enough Network, a coalition of over 200 U.S. organisations that work to transform the IMF and the World Bank.

"The IMF/WB meetings, which immediately followed, offered no further news on debt."

Analysts blamed both European officials and the United States for not taking long-awaited action. The Europeans reportedly foiled a proposal from the U.S. Treasury Department to cancel 100 percent of the countries' debt, and to substitute loans to the poorest nations for a system of grants.

German Finance Minister Hans Eichel, for example voiced his country's opposition to that proposal, saying that shareholder countries needed to protect the financial position of the bank and the IMF.

Wolfensohn leaned towards the European position, warning that the U.S. plan could deplete the bank's financial position and available resources unless it included alternative funding for the two institutions, an argument that critics vehemently attacked.

They say Washington could have used its power to veto the European argument if it strongly backed the debt cancellation plan.

"Washington has veto power in both the IMF and World Bank and has used it for 60 years on matters that are of importance to it," wrote Mark Weisbrot, co-director of the Centre for Economic and Policy Research, in an electronic message.

"So the blame must fall upon all of the rich country governments for failing to cancel this debt."

Weisbrot argued that the IMF and bank's justifications for delaying debt forgiveness are typically feeble.

"According to standard economic theory, international lending can benefit the borrowing country by allowing it to invest more and increase productive capacity," he said.

"In this scenario the country has a net benefit even after paying interest and repaying the loans. But many developing countries are stuck in a situation in which their debt service payments exceed new borrowing, with no obvious reversal in sight."

On Tuesday, a group of international civil society groups that monitor the World Bank and IMF and which followed the weekend meetings, issued a joint statement decrying the failure to advance on any of the major issues, especially the debt crisis.

The groups noted that Iraq's debt of 120 billion dollars is getting far more attention than that of poor nations, which incurred debts under military dictatorships similar to those of former Iraqi President Saddam Hussein.

"We note with concern that Iraq's debt is being given special treatment; all decisions on debt cancellation must be taken through an equitable and transparent process," said the statement.

The United States has proposed that rich nations forgive up to 95 percent of the debt of Iraq, a nation that the U.S. military still occupies. France, Germany and Russia, the three countries owed most of Iraq's debt, have indicated that they will only accept 50 percent debt relief.

Signatories to the Iraq statement include ActionAid International UK, AFRODAD, a Zimbabwe-based Pan-African group, Debt and Development from Ireland, Halifax Initiative from Canada, Japan Network on Debt and Poverty, Jubilee USA Network, Oxfam International and France's Plate-forme Dette et Developpement.

But despite the meetings' failure to resolve the debt issue, the high profile interest it received got some positive reviews, with activists suggesting the issue might remain on the agenda for the long-term.

The British government, which floated an idea of 100 percent debt cancellation financed by IMF gold reserves, also appears determined to make development a central theme of the G8 summit it is hosting in June 2005. Activists report that NGOs in Britain are gearing up to make debt a significant focus of that meeting.

"A few weeks ago we viewed this past weekend's meetings as perhaps a unique opportunity to make significant progress toward the goal of 100 percent debt cancellation," said the 50 Years is Enough statement. "We're unhappy with the result, but mollified somewhat by the attention the issue received."

"It seems more possible now that the issue will not go away, and G7 governments will remain under pressure to make substantial progress soon," added the statement.

Some activists say that considering the past record of the rich nations on debt relief, the discussions were a step forward.

"That is huge in many many ways, especially when you consider where it came from and against the charter and the mandates of the bank and the fund (IMF)," said Njoki Njoroge Njehu, director of 50 Years is Enough. "So to come where we are now, where a 100 percent cancellation is on the table, I believe is a huge movement forward."