Global Policy Forum

By Rumman Faruqi

One of the most urgent issues to be discussed at the annual meetings of the World Bank and the International Monetary Fund in Prague this week and next will be debt relief for more than 40 countries around the world. Debt is a trap that ensnares more than 40 per cent of the world's population - those under 20 years old. For their governments, debt servicing means that less expenditure is available for education and health. For example Tanzania's annual debt service payments, at $150 million, far exceed the $87 million spent on health care.

Overall, nine of the 10 countries now eligible for debt write-offs under the Heavily Indebted Poor Countries initiative will continue to pay debt service equivalent to their spending on education and more than one-third what they spend on health. Without education young people are condemned to being bystanders or dependants in the new global economy. Under the terms of the HIPC initiative, the money that was to be used on debt service is to be spent on social welfare programs.

To date only one developing country, Uganda, has reached completion point and is eligible for debt cancellation. The money that would have been spent servicing debt has been used to construct classrooms and to procure textbooks. This success story is, however, only a small frame in the whole picture. One British-based nongovernmental organisation estimates that within 15 years, 75 million primary school-aged children will remain out of school, the majority in heavily indebted poor countries.

For a decade Commonwealth finance ministers have taken the lead in international efforts for securing rapid and sustainable exit from the debt service burden for heavily indebted poor countries. Ten Commonwealth countries come under the HIPC program. At a recent meeting Commonwealth countries welcomed the latest HIPC initiative but expressed disappointment at the slow implementation of the process. It is not as if the cost of such debt relief would be exorbitant. The actual cost of cancelling the combined debts of the 52 poorest countries is estimated at $71 billion - less than was paid out in grants alone to 16 European countries under the postwar Marshall Plan.

This is the right time to implement a new approach to debt relief and write-offs. We in the Commonwealth, who represent one third of humanity, propose a new approach to speed up the process:

Restore focus on the original goal of the initiative - to secure a sustainable exit from the external debt service burden as soon as possible and allow resumption of growth and poverty reduction.

By providing debt relief up front, shift the emphasis of the HIPC program from the decision point, at which some relief is given on debt service payments, to the completion point at which actual debt is written off. This would require reducing or merging the many stages of the program.

Streamline and prioritize conditions, as they delay debt relief. There should be a more realistic view on what HIPC can achieve in the short to medium term with respect to poverty reduction and the promotion of good governance.

A comprehensive poverty reduction strategy needs to be conceived, as a medium-term strategy within which debt relief is an important component.

Ensure speedy delivery of debt relief by allowing interim deferral of up to 90 per cent external debt service during qualifying periods.

The writer is the head of the economic affairs division in the Commonwealth Secretariat in London and a former adviser to the World Bank.

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