Global Policy Forum

By Nick Mathiason

Calamities don't come much worse. Two years ago, Malawi sold off 167,000 tonnes of excess grain. Then it was hit by a drought which sparked a ruinous famine. The question is: who made the decision? Malawi's President Muluzi claims the International Monetary Fund said storing the excess grain cost too much. Malawi is one of the world's poorest countries with a GDP of just $615 per head. According to Muluzi, the IMF threatened to refuse to sanction a debt write-off of $1 billion unless the grain was sold. The IMF denies it intervened; a World Food Programme investigation will seek to establish the truth. But the row goes to the heart of the problems with what was once feted as the answer to developing countries' prayers - the debt relief programme.

When Chancellor Gordon Brown announced in December 1999 that Britain was writing off all debts owed to it by the world's poorest countries, it seemed like the best Christmas present they could get. When the rest of the world's richest nations appeared to be following Brown's lead, victory for the Drop the Debt campaign looked assured. Only it was never that simple. What seemed like a radical breakthrough that should have seen $41bn of developing countries' debt written off has been mired in rigid conditions and unrealistic targets. There are 41 poverty-stricken countries that can't sustain debt. Of those, 24 are eligible for full relief from G7 countries, the IMF and the World Bank. But more than two years down the line, just eight have qualified for it.

To qualify for the Heavily Indebted Poor Countries (HIPC) initiative, governments have to convince the world's top financial institutions that they have controlled their economies. The hoops they have to jump through can mean privatising industries, ruthlessly cutting public spending and foisting increased charges on basic services to citizens. Privately, even senior officials in the World Bank now admit that some of the privatisation demands are inappropriate. It believes, however, that inefficient state-run industries that drain poor countries of desperately needed resources should be taken in hand.

The Malawi case is just one of a catalogue of controversial demands by the IMF and World Bank. They include:

· Zambia being told by the IMF to privatise its bank. It initially refused but relented as famine and debt escalated;

·Senegal refused enhanced status until it privatises its state-run peanut business;

·Ghana told to make a vast increase in petrol prices and impose VAT on goods;

·Rwanda forced to rein in social outlay and told it has too high a budget deficit;

· Guyana told to privatise its sugar busi ness and cut its civil service. It refused;

·Honduras told to privatise its bank and electricity businesses and cut wages.

'The HIPC initiative is being ground to a halt by unnecessary conditions designed to protect the interests of creditors rather than to make a real difference to the world's poor,' says Jubilee research economist Romilly Greenhill. 'Desperately poor countries are being denied debt relief because they refuse to cut public spending, sell off the family silver or further squeeze the wages of their civil servants. It is ironic that Rwanda, one of the poorest countries, is being denied debt relief because of her "excessive" budget deficit, while the world's richest country racks up record deficits to provide tax cuts for the wealthy.'

Meanwhile, some of the countries that have qualified are now borrowing more money from the World Bank in dollars, which is causing them increased financial stress. Congo, which is at the preliminary stages of the scheme, has just taken out a $900m loan from the World Bank while already mired in $12bn of debt. Given that Congo is in the midst of a war, many doubt it will convince the world's powers to alleviate its crippling debt repayments.

Attached to enhanced debt relief are projections by the World Bank focusing on the growth of exports. Debt is supposed to be no more than 150 per cent of the value of any country's exports. This is widely regarded as over-optimistic. Poor countries borrow more to fund infrastructure to meet those growth targets and end up in a new cycle of debt as exports inevitably grow at a slower pace.

The HIPC initiative is worth applauding. But until conditions are relaxed and the wider business world accepts that much historic debt should simply be written off, it will never reach its potential.

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