IMF 'scheme' for debt relief
The world's leaders gathering in Germany this week for the Group of Eight meeting will consider several proposals to ease the debt burden of poor countries. One proposal being promoted by the International Monetary Fund (IMF) and the US Treasury Department is to sell off a portion of the IMF's huge gold reserves to finance debt relief.
The need for debt relief has never been greater. Each man, woman, and child in the third world owes about $400 to the West, a sum greater than what many of them make in an entire year.
Sub-Saharan Africa owes $224 billion, 80 percent of the region's GNP, and pays out more in debt repayments a year than it receives in aid. The social and environmental consequences of this reverse flow of money are staggering.
Since creditors demand US dollars or other "hard" currencies, countries must export their way out of debt by accelerating the exploitation of their natural resources. Debt also diverts scarce resources from development needs such as health centers and schools.
In 1996 the World Bank and IMF announced a bold new initiative to reduce the debt of poor countries. Yet three years later, only three countries, Bolivia, Uganda, and Guyana, have actually received any debt relief. And a recently leaked report by the institutions pointed out what many had already suspected: Their much-vaunted plan to reduce debt may instead actually be increasing the amount that some countries pay.
The IMF, with the support of the US Treasury Department, now proposes to sell a portion of its huge gold reserves (currently worth $29.25 billion) to finance debt relief. On the face of it, it merits support. But, as with most such proposals, the details are the problem.
While the IMF is ostensibly asking permission to fund debt relief, only a small portion of the proceeds would go to debt relief. The bulk of the money would go to expand the IMF's Enhanced Structural Adjustment Facility (ESAF). ESAF provides low-interest loans to poor countries. But in order to access these funds, countries must agree to implement the harsh austerity programs that have proven to be catastrophes in countries such as Russia and Indonesia.
Using IMF gold sales to fund ESAF would make the program self-financing and remove it from congressional scrutiny, thereby eliminating leverage for badly needed IMF reform. In essence, the IMF and the US Treasury Department are holding debt relief hostage to a permanent ESAF. It would be the height of cynicism if an effort to provide debt relief to the poor was instead hijacked by an institution whose policies helped precipitate the crisis in the first place.
*Jesse Jackson Jr. is a Democratic Congressman from Illinois. Brent Blackwelder is president of Friends of the Earth, in Washington.
(c) Copyright 1999. The Christian Science Publishing Society