Rich Nations Look to Ease Debt Burden For Poor

New plan aims to reduce loan repayments and encourage reform

Anna Asiimwe, a nine-year-old girl living in Southern Uganda, will likely go back to school now.

The world's major creditor nations have decided to forgive some 20 percent of Uganda's $3.5 billion in external debt, and that should provide the extra resources to put Anna into school.

That, at least, is the assumption by aid organizations seeking debt relief for poor nations.

Uganda is the first nation approved to receive such relief under a major new program managed by the World Bank and the International Monetary Fund (IMF).

Many poor countries have over the years received loans from well-to-do nations, through these two organizations, for development projects, economic reform, or financial crises.

These accumulated debts often become difficult to service and at the same time pay for such domestic programs as education, health, water, and housing.

"My deepest wish is to go back to school," Oxfam International quotes Anna as saying. "It will be a beautiful day for me when I can learn to read and write."

Actually, her real name is not Anna Assimwe, says Justin Forsyth, director of the Washington office of Oxfam International, a nongovernmental organization that favors more debt relief for poor countries. But he says she is real and lives in Kabale, one of Uganda's poorest districts.

Though not completely happy with the Uganda decision, Mr. Forsyth says "Anna" "will be getting an education, although delayed." The debt relief program takes effect April 1998, rather than this month as Oxfam had hoped.

Critics say the new World Bank/IMF program falls short.

Economist Jeffrey Sachs of Harvard University in Cambridge, Mass., figures the need for debt relief appeared 10 years ago. The new plan is "not adequate," but it is "progress," he says.

For some countries, the situation is so grim that the nation's entire external debt should be written off, Mr. Sachs says.

One problem is that for varying reasons, nations often do not carry out promised economic reforms when they get development aid, he adds.

Debt relief for the poorest nations is not new. But it has been somewhat ad hoc. Canada made a splash a few years ago by forgiving the debts of some poor nations. Other industrial countries have done the same, usually through negotiations at an organization termed the Paris Club.

Last September, the executive boards of the IMF and World Bank agreed on the framework of a new debt-relief initiative.

The agreement broke new ground on two fronts.

One was that multinational institutions themselves, such the World Bank, will reduce debts owed to them. These institutions once argued that such leniency would make it more difficult for them to borrow cheaply on the world's capital markets.

The World Bank and the IMF also agreed to reduce poor-nation debt to a "sustainable level," one that can be repaid without triggering crises that require constant debt rescheduling.

Many of the qualifying debtor nations are in Africa, where total debt almost equals total gross domestic product - a severe burden.

US Treasury Secretary Robert Rubin last week described that debt as "the result of a lot of mistakes made by too many countries and by too many lenders."

But Africa has made progress, Mr. Rubin notes, including fair elections in 25 nations since 1990.

Market reforms have also taken hold in some nations. The region's annual average growth rate rose from 1.4 percent between 1991 and 1994 to 4 percent in 1995. Uganda grew by 10 percent.

To further that progress, creditor nations see debt as a stick and a carrot. Those nations with good reform records will gain debt relief. Those with little reform will not.

But the devil is in the details. Creditor nations argued over the degree of debt relief, measures of eligibility, timing of debt relief, and so on.

France successfully sought a system that measures debt not only in relation to exports but also in relation to a nation's fiscal position. This should make Ivory Coast, a former French colony, eligible.

The US, wanting to maintain reform pressures, urged that nations qualifying for relief get it right away in terms of cash flow, but canceling debt would require more reform.

You've read  of  free articles. Subscribe to continue.
QR Code to Rich Nations Look to Ease Debt Burden For Poor
Read this article in
QR Code to Subscription page
Start your subscription today