Emad Mekay

WASHINGTON, Dec 29 2001 (IPS) — Demand for debt relief is likely to intensify in the coming year as the world economy languishes in the doldrums and poor countries suffer the effects of ever- plunging commodity prices.

The global economy will grow by only 2.4 percent next year, according to the International Monetary Fund (IMF) – slower than its previous forecast of 3.5 percent. Commodity prices, on which most developing countries depend for income, likely will continue to tumble, some by as much as 70 percent.

This is especially bad news for countries with the world’s lowest national incomes, greatest dependence on commodity exports, and heaviest burdens of debt and raises the stakes for the Heavily Indebted Poor Country (HIPC) Initiative, a debt-relief effort run by the IMF and the World Bank.

Some three-dozen HIPCs are expected to qualify for assistance under the initiative, the great majority of which are sub-Saharan African countries. Debt relief packages are now in place for 24 countries.

The scheme is the first to cover not only bilateral and commercial debt but also multilateral claims against HIPCs. Critics have complained that beneficiaries to date have received too little relief, too late, and with too many strings attached.

Even in the unlikely eventuality that commodity prices fall no further, only three countries – Uganda, Mozambique and Benin – stand any chance of reducing their debts to sustainable levels in the near future, according to Jubilee Plus, a London-based debt- relief advocacy group.

Such groups have noted that the HIPC programme is designed only to reduce poor countries’ debts to levels at which creditors deem these “sustainable” – meaning sums that the debtors can regularly repay. Activists also have charged that the formula used to set the sustainability threshold fails to acknowledge the perils of heavy export reliance, especially where those exports are primary commodities.

“The debt-relief programme, HIPC, is insufficient,” said Rick Rowden, a researcher with Results, a Washington-based advocacy group. “Even the (World) Bank has admitted that as commodity prices have continued to fall on world markets, the amount of debt relief on offer is not sufficient to maintain this fictitious notion of a debt-sustainability threshold of 150 percent of debt- to-exports ratio.”

By the Bank’s standards, countries with debt-to-exports ratios below 150 percent earn enough in export revenues to service their debts.

In the coming year, Rowden predicted, the IMF and World Bank “will have to choose one of two options: either lower the threshold or give greater debt relief.”

IMF spokesperson David Hawley noted that the HIPC initiative had been retooled to respond to debtors’ needs and take into account exceptional circumstances not of the government’s making – fluctuations in world commodity prices, for example.

According to a December report by the non-governmental European Network on Debt and Development (Eurodad), commodity prices will be a key factor in determining the course of HIPC over the next year – and recent trends are not encouraging.

“The prices of virtually all the commodities produced by HIPCs are at 10-15-year lows,” the organisation said in a recent report. This has induced, on average, a loss of 15 percent of annual export earnings between 1998 and 2000 for some commodity-dependent HIPCs.

About 16 of the 24 countries that have so far qualified for the HIPC programme are still paying more on their annual debt payments than they are on either education or health care, according to Results. The deepening AIDS crisis, other emerging health problems, the continued global economic slowdown, and the downward spiral of commodity prices are exacerbating this situation, according to Eurodad.

According to some critics, there are more sinister reasons for the continuing distress experienced by countries that are supposed to be benefiting from the HIPC initiative.

The U.S.-based group 50 Years Is Enough has noted that the HIPC initiative is only open to heavily indebted poor countries with a proven record of implementing structural adjustment programmes. This, the group argues, means that the debt-relief effort is “a public-relations tool designed more to coerce countries into following IMF strictures than to provide any meaningful escape from debt.”

The group said that debt relief was delayed for Burkina Faso, for example, pending IMF and Bank satisfaction with government efforts to slash public sector spending and wages, raise taxes, and privatise the national telecommunications and electricity companies.

World Bank and IMF officials have maintained that such reforms are meant to balance debtor governments’ national accounts and lay the foundations for private investment. HIPCs need to pay due heed to the reasons for accumulating debt in the first place, said World Bank spokesperson Anthony Gaeta. Officials also have faulted borrower governments for corruption and a lack of transparency.

Looking ahead, Jubilee Plus said it plans to pursue a “debt for security” initiative to replace or supplement traditional macroeconomic and monetary conditionality. The group’s argument, in a nutshell, will be that if the ethical reasons for granting debt relief are insufficient for creditors, then security concerns provide an urgent call for action.

Jubilee Plus said it hopes to persuade policy makers that that terrorist attacks are partly the result of poverty, inequality, and economic burdens and injustices that breed ignorance and hatred.