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Date: Tue, 15 Sep 1998 22:52:17 -0400
From: Barbara Larcom <larcom@bcpl.net>
Subject: [Fwd: ACTION ALERT: NO IMF $$$ Without Debt Relief]
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Date: Tue, 15 Sep 1998 11:08:41 -0700 (PDT)
From: Njoki Njoroge Njehu <wb50years@igc.apc.org>
Subject: ACTION ALERT: NO IMF $$$ Without Debt Relief
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September 14, 1998
Action Alert
ISSUE:
Support the McKinney Amendment to Provide Real Debt Relief for Poor
Countries
Congresswoman Cynthia McKinney plans to introduce an amendment to the
Foreign Operations Appropriations bill that would condition new funding for
the International Monetary Fund (IMF) to changes in IMF debt relief policy.
This amendment would provide highly indebted poor countries with genuine
hope of managing their debt burdens and meeting the needs of their people.
The McKinney amendment stipulates that in order for the IMF to receive new
money from the U.S., the IMF must change its policy with respect to debt
service. The amendment calls for a cap on debt service of 10% of a
countrys annual export earnings, and calls on the IMF to refrain from any
agreement or loan which requires a country, including countries
participating in the HIPC debt relief program, to spend more than 10% of
exports on debt service payments. This cap would still be more than double
the level of debt service that was required of Germany after World War II,
but would still cut the debt service of poor countries like Mozambique by
more than half, allowing them to spend money on desperately needed public
services like health care.
ACTION:
Contact your Representative this week and urge him/her to support Rep.
McKinney's amendment to relieve the debt service burden of the poorest
countries. (The Foreign Operations Appropriations bill is expected to be
voted on in the House of Representatives next week.) Specifically, ask
members of Congress to:
Vote for the McKinney Amendment to the Foreign Operations Appropriations
bill that will provide genuine relief from onerous debt service requirements
and free up resources for important spending in social services, human
development, and infrastructure.
Capitol Switchboard: 202-225-3121
Write: The Honorable ___________, U.S. House of Representatives,
Washington, DC 20515
-------
Talking points: the Case for Targeting the IMF on Debt Relief
The IMF is one of the most important institutions in the world in shaping
policies concerning the unpayable external debt of poor countries.
The IMF has tremendous influence over poor countries economic policies,
including debt relief. This is because the IMF (and World Bank) have
preferred creditor status, and must have their debts repaid first.
(Therefore, half of the debt service of poor countries goes to the IMF and
the World Bank.) The IMFs "seal of approval" over countries economic
policies and debt service is also important in catalyzing new aid flows from
other creditors.
The IMF has been using the HIPC initiative as a way of financing its ESAF
program. The IMF should not receive a capital expansion until it recognizes
its role in providing debt relief to poor countries and changes its stance
on debt relief.
The IMFs participation in HIPC has been grudging and stingy. It refuses to
commit substantial resources to debt relief until its Enhanced Structural
Adjustment Facility (ESAF) is fully financed and self-sustaining. The IMF
is essentially holding debt relief hostage to a self-sustaining ESAF, a
program which has been unsuccessful and which goes beyond the IMFs mandate.
To date, the IMF has also been the major blocking agent in individual
countries negotiations for debt relief within HIPC.
Despite having significant reserves which could be used for debt relief, the
IMF has pledged to contribute only SDR 180 million (about $250 million) in
HIPC debt relief. The 20 unsustainable or possibly stressed HIPC countries
owe over $5 billion to the IMF. This amounts to less than 5% debt relief.
The IMF has significant resources and reserves it could use toward debt
relief. For example, the IMF has about $37 billion in gold, a portion of
which could be sold and the proceeds used to finance debt relief. The IMF
could also use the ESAF Reserve Account. The ESAF Reserve account is set up
to cover losses that may arise from defaults or arrears on ESAF loans.
Currently, creditor countries to ESAF demand an unreasonable 100 percent
collateral coverage for their ESAF loans. If the rich creditor countries did
not demand full coverage, but settled for a still generous 25 percent, then
the IMF would have an extra SDR 675 million (over $1 billion) to use for
debt relief. The Special Disbursement Account (SDA) similarly contains
excess reserves from an old loan facility of the IMF.
The IMF bears a responsibility for the debt crisis of developing countries,
and should provide debt relief as a way of recognizing that responsibility.
IMF structural adjustment loans have added more debt to countries without
putting them on a sustainable path to development. Many IMF borrowing
countries have become "IMF addicts", acquiring more IMF loans rather than
exiting from IMF borrowing after a few years. While the IMF was conceived to
provide short term financial assistance to countries, many of the poorest
countries have been borrowing from the IMF since the 1980s. Rather than
creating the conditions for locally led development, countries have
struggled under IMF conditionality, acquiring unsustainable debt burdens and
little economic growth. In fact, a 1997 internal IMF report of its ESAF
program found that ESAF countries per capita income fell further behind the
rest of the developing world.
The IMF responsibility for the debt crisis also includes its loans to
corrupt leaders, often with the knowledge that the money was benefiting
well-connected officials.
The IMF loaned to undemocratic regimes such as Zaires Mobutu Sese Seko and
Kenyas Daniel arap Moi, despite knowledge that these loans were directly
benefiting political elites and were siphoned away from initiatives that
would have helped local people. In the current Indonesia bailout program,
press reports say that the IMF cannot account for how $3 billion of its
loans to Suharto were spent. Now the citizens of these countries are paying
back these loans.
The US Congress is one of the few institutions that the IMF pay attention
to, and therefore can play an important role in pushing for reform in IMF
debt relief practices.
The US is the IMFs largest donor and IMF funding requests are debated by
the US Congress, unlike in most other countries where IMF funding is rubber
stamped by the finance ministry. Since IMF funding requests do not come up
every year, Congress has an important opportunity to debate IMF debt relief
policies that should not be missed.
In 1989, the US Congress called on the IMF to contribute resources to debt
relief. The IMF ignored this directive, and only pledged to contribute to
debt relief in late 1996.
The IMF has historically proved intransigent to reforms unless its funding
is on the line. This $18 billion request in new IMF funding is an especially
powerful opportunity to link an expansion of the IMFs capital base to
meaningful changes by the IMF in the debt relief that it offers to poor
countries.
-----
BACKGROUND:
More than 40 poor countries are struggling under an enormous-- and often
unpayable -- burden of foreign debt. According to the World Bank, the 41
heavily indebted poor countries (33 of which are in Africa) owed $217
billion to foreign creditors in 1996. The bulk of this debt is owed to
wealthy governments and to multilateral lending institutions such as the
World Bank, the IMF, and the African Development Bank. To repay this debt,
governments shift scarce financial resources away from the necessary
investments in human, social, and physical infrastructure including schools,
health services, roads, agriculture, and other areas that lay the foundation
for sustainable development. Huge debt burdens also discourage private
investors, who fear that debt might lead to more taxation or inflation. All
of this serves to prevent these countries from getting on a path of
sustainable, equitable economic growth.
This year, the Clinton Administration has requested $37 million for debt
reduction through the Paris Club (a periodic meeting of creditor nations) as
part of the Highly Indebted Poor Countries (HIPC) Initiative. The HIPC
Initiative addresses all debts that countries owe, that is, not merely to
the US but to a variety of governments, international institutions, and
commercial banks.
However, the HIPC initiative provides too little debt relief to too few
countries. Under HIPC, a country is expected to make annual debt payments
worth 20-25% of the countrys export revenue. This ratio is exorbitant and
will not sufficiently relieve countries that are burdened by high levels of
debt and poverty. This ratio also stands in stark contrast to the treatment
that countries such as Germany received after World War II. In recognition
of the Germanys need to rebuild its economy and country, the German
government was required to service debts worth only 3.5% of exports. It was
concessions such as this that enabled Germany to put its political past
behind and rebuild its war-torn economy. Todays indebted, impoverished
nations merit similar treatment.
The International Monetary Fund has been one of the main obstacles to a more
effective HIPC Initiative. It has provided few resources to the program and
has argued against a shorter waiting period and against more generous terms
of debt relief. This year, the Clinton Administration is asking Congress to
approve a dramatic expansion in the IMFs resources, including a $14.5
billion increase in the IMFs general lending resources. In the past, the
US Congressional debate over IMF funding has been one of the few points of
leverage to push for reform of the IMF, including debt relief policy.
The FY99 Foreign Operations Appropriations legislation, which provides for
U.S. foreign aid spending -- including IMF funding and debt relief -- is
scheduled for a vote next week. When the bill come to the House floor,
Members need to support the McKinney amendment to condition new money for
the IMF on a reduction of debt service requirements to 10%.
===== * = * = * = * = * = * = * ====
Njoki Njoroge Njehu
Public Outreach Coordinator
50 Years Is Enough Network
1247 E Street, SE
Washington, DC 20003 - USA
Email: wb50years@igc.org
Web: www.50years.org
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