9:28 PM Apr 24, 1996

WORLD BANK AND ITS SISTER INTERNATIONAL MONETARY FUND (IMF) HAVE ENDED HERE

 

The three key African issues -- debt, new money, and structural adjustment policies -- were either not discussed or remain unresolved at the end of the three-day session, which began on April 20.

The adjustment policies, which an increasing number of economic experts and non-governmental organisations (NGOs) have questioned in the absence of any sustained success, were not discussed, IMF Interim Committee chairman, Philippe Maystadt of Belgium, admitted.

But the failure of the meetings was clearest on the issue of reducing the multilateral debt of poor countries, most of which are in Africa. The United States, Canada, Britain and other rich countries had claimed that there would be a concrete initiative this April. And poor countries had come to expect a solution.

But the meetings concluded with only hopes and requests by rich and poor members that there would be a concrete plan by October, when the World Bank and the IMF hold their annual meetings.

The Interim Committee and the Development Committee -- the policy- making bodies of the IMF and the Bank, respectively -- issued face-saving communiques, describing the joint debt proposal as an "appropriate framework". But both rich and poor countries said they found the proposal lacking.

The final communique, issued Tuesday by the Development Committee, says that ministers had "requested that the Bank and Fund -- in close consultation with concerned bilateral creditors/donors/debtors, the Paris Club, and other multilateral institutions -- move swiftly to produce a programme of action."

The ministers, however, endorsed what the communique described as "six principles to guide further action."

For one, "the objective should target overall debt sustainability on a case-by-case basis", the communique says.

Action is "envisaged only when the debtor has shown through a track record ability to put to good use whatever exceptional support is provided". And "new measures will build, as much as possible, on existing mechanisms."

The other principles require that "additional action" be coordinated among creditors, "with broad equitable participation"; actions by multilateral creditors "will preserve their financial integrity and preferred status; and "new external finance for the countries concerned will be on appropriately concessional terms."

The lack of a concrete debt initiative was a defeat for World Bank President James Wolfensohn, who Saturday told journalists that he was confident the meetings would produce a firm deadline for adoption.

It was a triumph for the IMF, at whose insistence, according to NGOs and some Bank officials, the most damaging stud was inserted in the proposal: the insistence that modalities for multilateral debt relief be preceded by three actions by the rich countries.

These include the requirement that the Paris Club of creditor nations raise its ceiling on bilateral debt reduction from 67 percent to 90 percent.

Another calls on rich countries to contribute substantially to a trust fund of eight to 11 billion dollars, from which the multilateral debt reduction would be financed.

The third requirement -- exclusive to the Fund -- is that rich countries must approve and partly finance a plan to maintain its enhanced structural adjustment facility (ESAF) between 1999 and 2004 when it claims the facility would become self-sustaining.

Rich countries have rejected virtually all three conditions.

"We expect the IMF and World Bank, in cooperation with the regional banks to offer more specific proposals which the G-7 believes should involve the fullest use of their own resources to finance debt reduction," the Group of Seven most industrialised countries' (G-7) ministers say in their communique issued Sunday.

"Further action by the Paris Club (should) not be a prerequisite for multilateral action," added their chairman, U.S. Treasury Secretary Robert Rubin.

Of the four points in the IMF's ESAF plan aimed at raising some seven billion dollars for bridge financing, none seemed near agreement among its dominant shareholders as the meeting ended.

Germany, in particular, is opposed to Camdessus' proposal to sell five percent of the Fund's gold reserves to raise some 1.5 billion dollars. Canada and Britain support this. The United States only said it would "consider carefully" the proposal.

Even more contentious are the three other points in the proposal: direct borrowing from such members as Japan, France, Italy, and the United States; direct bilateral donations of about 1.5 billion dollars; and a position that creditors to ESAF market funds do not take back their loans when due.

"At a time of serious budget constraints in many countries, including my own, this responsibility will inevitably have to fall primarily to the IMF, in particular through more efficient use of resources available to the IMF," said Rubin of the ESAF plan. He cautioned "against a plan the viability of which depends on sizable bilateral contributions."

Beyond rejecting the financial responsibility the debt proposal thrust on them, the rich countries also shared the concerns expressed by developing countries under the Group of 24 (G-24) about the technical soundness of the proposal.

Britain, Canada and the United States, in particular, faulted the estimated time frame for debt reduction, a period the G-24 placed at nine to 10 years.

"We would urge the institutions ... to assure that the time frame for multilateral action is both reasonable and flexible, and that mechanisms are developed for co-ordination among the multilateral institutions and with the Paris Club," said Rubin.

"While a track record of commitment to reform must be established, I firmly believe that multilateral assistance needs to be provided as early as possible if we are to break these countries out of their unsustainable debt trajectories," agreed his Canadian counterpart Paul Martin.

The G-24 Sunday rejected the proposal, describing the periods for establishing a track record as "excessively long and rigid."

Future funding of the International Development Association (IDA), the concessionary arm of the World Bank, is also up in the air. The final communique says ministers agreed that "the prospects for IDA funding be a key issue for discussion by the committee in a year's time."