7:28 AM Sep 28, 1995


Geneva 27 Sep (Chakravarthi Raghavan) -- The executive directors of the World Bank are this week renewing their discussion of the proposal of the World Bank task force for a Multilateral Debt Facility to provide relief from multilateral debt burden to the 'highly indebted poor countries'.

The Bank's executive directors had a discussion on the proposal last week, when the Bank President James Wolfensohn was absent. It will be resumed this week when he will be there.

The discussions will lead up to the next week's meetings of the IMF and World Bank Interim Committee and Development Committees.

As far as can be made out, the Bank's proposals will not result in any straight forward write down of the debts owed to it, as many NGOs, as well as some critical recent reports have advocated.

Rather, through the new facility, "grants" will be provided to the eligible countries over the 15 year period, which would be used to repay the World Bank for the interest and principal due from them -- making the debt stock less and less every year!

Over the last few years, the Bank and the IMF have been trying to get their funds back -- through further loans from the Bank through the virtually interest-free IDA loans to get back the interest and principal payments on its harder IBRD loans and some bilateral grants to borrowing countries for clearing arrears. The Fund has been similarly operating a special fund for structural fund in Africa. And both have been engaged in other operations for countries to undertake reforms and earn "credits" that would be eased to regain their borrowing status. The Bank's proposal for the MDF was leaked to the media and published on the eve of the appearance in Beijing of the Bank President James Wolfensohn to address the Fourth UN Conference on Women during the recent Bijing UN meeting on women -- where a large number of Northern development NGOs, and women's groups from the South, as an integral part of their platform on 'gender issues' had targeted the policies of the IMF and the World Bank and their Structural Adjustment Programs.

The publication of the leaked proposal took the heat off the Bank at Beijing and it was able bask in the glow of the favourable comments on its move, with Wolfensohn enthusiastically backing it in Beijing, but backtracking at Tokyo where he had gone on his way back.

The Bank's stable-mate in Washington, the International Monetary Fund has been less enthusiastic, with some describing its position as hostile.

The IMF Executive Board is even reported as approving last week a staff paper questioning even the fact of "any multilateral debt problem" -- with the IMF staff reportedly trying to prove that some of the target countries -- including Bolivia, Guyana, Nicaragua, Uganda, Zambia and Cote d'Ivoire -- have no debt problem!

The Bank's executive directors appears to have had a first discussion on the proposal last week -- when Wolfensohn was still away, travelling back from Beijing. They will resume this week.

According to EURODAD, and other NGOs monitoring the issue at Washington and from national capitals, the World Bank Board has asked the task force to prepare a new revised paper to be presented to the Development Committee meeting on 9 October -- with a detailed analysis of the problem, but not any proposal.

At the meeting some of the EDs appear to have wondered how the Bank had made such a U-turn on its analysis of the multilateral debt problem to portray the problem as "huge" and affecting some 24 of the 40 "highly indebted poor countries" studied -- when just a few months ago, Bank officials were qualifying it as "still tiny and controllable".

Some of the reports out of the meeting described the mood of the Board as "positive", with some welcoming statements, but also many critical questions -- from Germany, Japan, Italy and France, but also from the Dutch and Nordics (whose governments in the capitals reacted positively after the leaked proposal was published in the media) as also Africans who asked questions about how the facility would be funded from bilateral resources, whether it would be 'additional' or merely divert money (in shrinking aid budgets) from other aid targets and programs, and what effect it would have on the IDA-11 replenishment.

Switzerland, Canada and UK were portrayed as outspoken supporters, with Switzerland reportedly willing to contribute some SFr. 50 million. The US was reported as supportive, but would have no money to put up!

While a number of NGOs, like Oxfam and Eurodad, have welcomed the Bank's move, even as they are pushing for improvements and fine-tuning, some others like the Washington-based "Fifty Years is Enough" campaign group have raised more critical questions, focusing on the conditionalities and the Bank using it to push further the failed Structural Adjustment Policies.

EURODAD and other Europe-based development NGOs are mobilising their constituents to get the EDs to endorse the proposal in principle -- even while continuing the discussions on how it is all to be financed, but getting some commitment that additional resources from the multilateral funding agencies would be the key to the success of the plan, and need for 'burden-sharing' through additional financial resources from bilateral development funding sources.

The Bank proposals involve setting up a $11 billion Trust Fund -- out of some contributions of the Bank from its reserves and by the IMF which has been under pressures from some quarters to sell some of its gold).

According to some rough analysis by supporters of the move in the NGO community, Bolivia, Guinea-Bissau, Nicaragua and Uganda would be among the first beneficiaries -- with the debt relief costing about $400 million a year over the next five years, thereafter tapering to an annual $100 million till 2010.

The second run of countries who would be drawing on the MDF over the medium term will be those eligible for "Naples terms" at the Paris club over the next 18 months -- Cameroon, Central African Republic, Guyana, Honduras, Madagascar, Mozambique, Sao Thome, Sierra Leone, Tanzania and Zambia.

Over the longer term, countries likely to get Naples terms and benefit from the MDF are expected to be -- Burundi, Cote d'Ivoire, Equatorial Guinea, Niger, Rwanda and Vietnam.

But a large number of HIPCs are not considered to need multilateral debt treatment to resume debt sustainability: Angola (which this week has been pledged at a Brussels meeting one billion of bilateral finance), Benin, Burkina Faso, Chad, Congo, Ethiopia, Ghana, Guinea, Kenya, Laos, Mali, Mauritania, Myanmar, Senegal, Togo and Yemen.

The Bank's paper is also not clear on what would happen to Liberia, Somalia, Sudan and Zaire -- where currently the political conditions preclude any action from the Bank.

For all the indebted countries (excluding those in arrears), IDA debt-servicing is of the order of $350 million a year, but increasing to $800 million by 2005. The IBRD debt servicing is on average $700 million a year over the next three years, but declining thereafter to reach $160 million (reflecting the fact that the Bank has not been providing IBRD loans to these countries over the last few years).

The Bank's proposal about its own contribution (seed money for the MDF) is to come out of what is described as "windfall income" in fiscal year 1995 (ending this September) -- with some $850 million available in the Surplus account after the Net allocations approved by the Board in August. There will also be the future net income on IBRD lending (market related rates) now running at about a billion dollars a year. After reserve allocations, about $500 million available is used to support the loan interest waiver for the poorer countries, the remainder (about $300 million) is transferred to IDA or similar uses. There will also be the future IDA reflows (repayments) - about $500 million a year now, but likely to increase to one to 2.2 billion by years 2000-2005. Some portion of these could be allocated by the Bank as its 'seed-money' for the MDF.

In essence though, all these "profits" come out of the payments and repayments of the other developing country borrowers -- who will be doing the 'burden-sharing'.

But the Bank also expects the IMF being involved in this co-funding, as also bilateral donors providing additionality in contributions to the IDA and bilateral donor funds for debt relief.

Unlike some Europe-based major NGOs, and US groups like the Centre of Concern, Friends of the Earth etc, the Washington-based 'Development GAP', one of the constituents and driving force behind the "Fifty Years Campaign", for example, has said that while initially it had welcomed the Bank's proposal (when it was reported upon in the Financial Times), details it has seen since then had aroused serious concerns about its hidden conditionality.

The MDF, it says, would be dispensed over a 15-year period to repay principal and interest (due to the multilateral development bank), but that to be eligible, the recipient countries would need to continue implementing the Bank's "economic reform programs".

"That means poor countries that had begun to lose the incentive to continue to repay debt and follow adjustment programs because of increasingly negative net transfers (especially with IDA declining) will now be hooked once again into following the disastrous SAPs -- both in terms of their economic and social impact and their debt-generating effects -- regardless of a change in government, real local needs and/or public pressure coming from their citizens," says the GAP.

The Third World Network, in a statement to the UNCTAD Trade and Development Board welcomed the Bank's move as being in the right direction, but said it should be extended to many others needing relief, including some of the middle income countries. The TWN also suggested that the Fund and the Bank, who so ardently push 'market' philosophies to the developing countries should follow market-logic on monies owed to them.

Many of the loans to the indebted countries, particularly in Africa, were on failed programmes and projects that the Bank and the Fund pushed upon them -- such as policy advice to individual countries to expand commodity production to export and repay loans, but without any consideration of the cumulative effect on prices and earnings of countries. The TWN said that all such loans should be written off -- with an independent outside panel acting as a arbitrator between these institutions as lenders and the developing countries as borrowers.