Global Policy Forum

By Jerome Hule

Without outrightly discounting calls for the forgiveness of all the debts of Heavily Indebted Poor Countries (HIPC), World Bank President James Wolfensohn said the most important thing now for HIPC beneficiary countries to make their debts sustainable is to improve governance.

Responding to criticisms that the HIPC debt reduction programme would not get beneficiary countries out of the debt trap, Wolfensohn told a press conference Friday at the ongoing meetings of the Bank and the IMF that the HIPC programme has done very well, having reduced the foreign debts of beneficiary countries by 65 percent and their debt service from seven percent of their Gross Domestic Product (GDP) to two percent. "We have generated another 1.7 billion dollars a year that can be put into social programmes," he said.

From its inception in 1996, the HIPC initiative has helped 22 of 42 eligible countries to have their foreign debts put at 35 billion dollars forgiven. But critics cited a recent study by the Bank and the IMF that says many of the countries that have received debt relief will still find their debts unsustainable, and called for total cancellation of those debts.

Wolfensohn, however, said that the amount of debts forgiven is not the only factor in determining the sustainability of a country's debts but how it governs itself. "The most important component in countries is how they govern themselves, how they run themselves and how you have effective programmes that deal with social issues." In this realization, he said, the Bank is now giving a lot of attention to improving governance in those countries.

On the possibility of forgiving all the debts owed the Bank by the poor countries, Wolfensohn said, doing so would make the Bank bankrupt, except if member states provide the funds for doing so. He pointed out that the Bank has already gone far in forgiving debts owed it under the International Bank for Reconstruction and Development window through which it lends to medium income countries on market terms.

As for debts owed under the Bank's International Development Association arm, Wolfensohn said forgiving the 85 billion dollars outstanding debts will cut into the funds from repayment that the Bank can use to lend. He said that if bilateral creditors decide to forgive the debts owed them by the poor countries, he would be totally in support.

Organizations that have been advocating for the cancellation of the debts of poor countries have come to the current Washington meetings calling on the IMF and the Bank to cancel all the debts owed them by these countries.

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