Calls for More Compassion, Less Discipline
At gatherings of world finance ministers and central bankers, there's a deep struggle between discipline and compassion, self-interest and a sense of humanity.Skip to next paragraph
Subscribe Today to the Monitor
So it is at the joint annual meeting of the International Monetary Fund (IMF) and the World Bank, now under way in Washington.
Self-interest has leaders of the industrial nations concerned with plunging stock prices, global recession, and turmoil in financial institutions. That concern has forced a discussion about changes in multilateral institutions to bring greater global financial stability.
These are pocketbook issues, but a sense of humanity also has the leaders of the rich nations considering the plight of poor nations.
Prosperity giving way to poverty
For example, the IMF, controlled by the industrial nations, is calling for interest rate cuts and fiscal ease in 90 percent of the world economy. They hope to stimulate prosperity and stop the spread of a financial crisis now threatening their own homes.
Private money flows to "emerging" nations have dwarfed the resources available to the World Bank, which makes development loans to poor countries, and to the IMF, which crafts rescue loan packages for countries in financial crisis.
This year some $160 billion, net, will flow into 29 emerging nations, estimates the Institute of International Finance in Washington. That's down from $240 billion last year.
This private money goes to such countries as China, India, Brazil, Chile, Hungary, and Egypt.
It goes there because investors want to make more money by contributing to economic growth in those countries. Some of it comes out when investors fear that growth has slowed and they will lose money. Such an outflow helped create the East Asia crisis.
The IMF put rescue packages together adding up up to some $100 billion for Indonesia, South Korea, and Thailand. The money hasn't yet, however, brought renewed growth and stability.
By the end of this year, 100 million Indonesians will be living in poverty, a fourfold increase since 1996, figures Oxfam International. Poverty levels in Thailand are expected to increase by a third.
Private money only dribbles into poor, highly indebted countries. They're too risky.
For these countries, the World Bank and IMF money, and national foreign aid remain crucial. And here Oxfam is pressing for more compassion and less dragged-out discipline.
Two years ago, the IMF and World Bank launched what is called the Heavily Indebted Poor Country initiative. The idea is that creditor nations will give these poor countries some debt-servicing relief, and eventually debt forgiveness, if they adhere to economic-reform programs.
Compassion in return for discipline - plus an element of pragmatism. Many of these countries can't repay their debts anyway.
But the program is still so tough that only seven countries have enrolled and only one, Uganda, has received debt relief.
High debt cost, high human cost
So countries like Nicaragua and Tanzania spend as much as 50 percent of government revenues to service foreign debts, leaving little to educate children or improve health services, notes Oxfam's Anthony Burdon. Tanzania spends nine times more on debt servicing than on primary health care.
If a nation enters the program, it gets debt-servicing relief after three years and up to 67 percent of debts cancelled after another three years.
Oxfam calls for faster debt relief and a "human development window" for the program.
If a nation agrees to convert debt relief into spending on health, education, and water and sanitation, it should get that relief. The programs would be monitored to see that savings are actually used for those purposes and do not line the pockets of corrupt officials.
Cost of the whole debt-relief program could reach $8.4 billion. To Mr. Burdon, that sum is not much when spread over several nations and several years. Nor is it much compared with the huge sums committed to rescue plans in East Asia and Russia, where the West saw its own interests more directly threatened.
Burdon hopes Germany's new, more liberal government will shift the balance in IMF and World Bank deliberations this week toward more debt relief and faster forgiveness.