Re: Cancelling 3rd world debt

[Louis Proyect <lnp3@xxxxxxxxxxxxx>]

The Houston Chronicle, October 10, 1999, Sunday 2 STAR EDITION

Poor nation debt relief likely to be ineffective, some experts caution ;
More control over how savings spent sought

ANDREW BROMAN, Houston Chronicle Washington Bureau

WASHINGTON - The White House and the Republican-controlled Congress have
embraced total debt relief for poor nations, but experts caution the policy
is potentially wasteful and likely to be ineffective.

"The danger here is that you wipe out the debt . . . and in 15 years you
have another debt crisis," said David Dollar, a researcher for the World
Bank.

President Clinton proposed two weeks ago that the United States write-off
the debts of 36 countries. The gesture came after the International
Monetary Fund and World Bank announced forgiveness of $ 27 billion owed by
the world's poorest countries.

On Capitol Hill, at least three different bills, all advocating to some
degree to wipe the slate of the most indebted countries, are vying for
attention.

But experts such as Dollar say that if nations fail to use the debt relief
to spend an equivalent amount of money on worthwhile causes, billions may
go to waste. In turn, that failure could foster doubts about IMF and World
Bank business in developing economies.

While the United States and other industrialized countries have signed on
to the IMF and World Bank debt relief, the countries want to make sure the
world's two biggest lenders keep track of how money saved from the program
is spent.

Accusations that IMF and World Bank money was illegally funneled to the
Bank of New York by Russian businessmen has led to a higher level of
scrutiny of the two institutions.

No evidence has surfaced that IMF or World Bank funds were diverted,
although investigators have not ruled it out. Investigators charged three
people last week with illegally transferring about $ 7 billion to the bank
in the last three years.

Clinton said the IMF and World Bank have developed safeguards to ensure
that governments will not throw away money saved through debt relief. Part
of the plan is to "make sure that savings are spent where they should be,
on education and fighting AIDS," he said.

But Dollar said attempts by lending institutions to monitor where nations
spend the money is a "futile" exercise. Because the money freed through
debt forgiveness is not tied to any particular program, a country can spend
it as it pleases, Dollar said.

World Bank and International Monetary Fund officials acknowledge debt
forgiveness is not a magic bullet, but argue it is a step toward saving
nations mired in poverty.

Axel F.B. van Trotsenburg, manager of the IMF and World Bank debt reduction
program, said he is confident the plan will work, so long as governments
focus in the right places. He believes the IMF and World Bank have put
safeguards in place to make debt reduction a success.

He cited Uganda, a country that already is in the program, as a good
example. He said the Uganda government has invested substantially in
monitoring poverty programs, similar to audits performed by the United
States' General Accounting Office. To date, van Trotsenburg said, Uganda
has put $ 650 million in debt relief toward new schools and an overall
better education system.

To qualify for the IMF and World Bank debt reduction program, a country
must first build a three-year track record, demonstrating that it can
properly manage foreign aid.

Van Trotsenburg said this ensures only nations that are dedicated to reform
can receive debt forgiveness.

But countries that IMF and World Bank cite as good candidates for debt
relief already are showing signs of mismanagement.

Four months after the World Bank and IMF agreed to $ 345 million in debt
relief for the Ivory Coast in March, four officials in the country's health
ministry were fired for the embezzlement of $ 30 million in European Union
funds, which were supposed to go to health-care programs.

A promising candidate for debt forgiveness, the Western African nation has
put all kinds of aid in jeopardy. For now, the debt reduction package has
been suspended.

"This will complicate things dramatically," van Trotsenburg acknowledged.

It is not easy to tell how nations, such as Ivory Coast, spend foreign
money, Dollar said. Dollar concluded in his 1998 study, called "Assessing
Aid: What Works, What Doesn't and Why," that conditions attached to aid
hardly mean nations will abide by the rules.

While much has been written about the difference between debt relief and
aid, there is no real difference between the two, Dollar said, because the
bottom line remains the same - both are forms of assistance. In fact, some
experts argue that money made available from debt relief is even more
difficult to monitor because, unlike grants, allocated and administered by
donors themselves, the countries have complete control over expenditures in
the case of debt forgiveness.

A fundamental problem with debt forgiveness is that "there is a tendency
that some of these governments want to protect salaries or divert money to
the military," said Tom Merrick, senior population adviser for the World
Bank.

The Financial Times reported last week that Zimbabwe misled the IMF over
millions of dollars that were spent on military intervention in the Congo
war. Zimbabwe told the IMF that it spent $ 3 million a month on the
military, the report says, but an internal memorandum refers to
expenditures of $ 166 million between January and June.

Diversion of funds is common among African countries, said Michigan State
political science Professor Nicolas van de Walle. Debt relief programs are
misguided for the most part, said van de Walle, author of Improving Aid, a
1996 study on Africa.

"I often found it puzzling that there is so much attention to debt relief,
when something like AIDS and health care need more attention," said van de
Walle, who has served as a consultant for the World Bank.

Proponents say debt relief will allow countries to address problems, such
as AIDS.

Van de Walle said his research has shown otherwise.

For all but a handful of nations, he said, debt relief will likely fail,
regardless of monitoring.

Conditions on how governments should spend foreign aid often do not work,
he said. "The donors can say all they want about conditionality, but the
record of conditionality in Africa is very dismal," he said. "I worry when
I see what countries are on this list: Cameroon, Kenya, Ivory Coast."

Many countries in Africa make Russia look better managed, said Frank Vogl,
vice chairman of Transparency International, a corruption watchdog group.

During the Cold War, lenders did not care what countries did with loans or
aid, so long as it did not fall into communist hands, Dollar said. Today
lenders better understand that more money is not necessarily better, he said.

Despite the uphill battle to get the poorest nations to spend money more
wisely, the movement to save them from debt has gained momentum.

It is "happening against a back drop where the (United States) has seen the
most incredible boom in world history," said Harvard economics Professor
Jeffrey Sachs. "There is some scrambling going on to figure out how to
bridge the gap between us and them."

Jubilee 2000 and other nongovernment organizations have led the movement
for debt reduction. Debt reduction advocates say that many of nations led
down such destructive paths during the Cold War are now ready to reverse
their course, with some help from lenders.

"The way lenders approach these countries now is very different to how
things were years ago," said Adrian Lovett, deputy director of the
Washington D.C branch of Jubilee 2000. "I think lenders have finally
figured out that if money is going into these countries, and the lenders
know what is going on, they share some of the responsibility to make sure
that money is spent right. Before (lenders) never cared, so long as they
kept the government in its favor."

On Capitol Hill, keeping the United States involved in the reform process
of poor countries has become a priority for some lawmakers. Reps. Maxine
Waters, D-Cal. and Jim Leach, R-Iowa, both proposed separate bills to
write-off $ 5.7 billion owed to the United States and to establish "human
development funds" that would be set aside for only education, health and
environment-related expenditures.

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Reserved.




Louis Proyect

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