IMF Must Grant Debt Relief for Poor Nations, Study Concludes

Contact: Adrianne Kaufmann
Phone: 617-495-8290
Date: September 21, 1999

Seven hundred million people live in extreme poverty in 42 countries so heavily burdened with foreign debt that they spend more money servicing their debt than they do addressing their citizens' health and social needs.
Unless these countries receive substantial debt relief, these nations could face massive outbreaks of disease that would dwarf the historic bubonic plague, according to a new study released by the Center for International Development (CID) at Harvard University, which is based at the Kennedy School of Government.
Jeffrey Sachs, professor of economics and co-author of the study, said the International Monetary Fund needs to consider complete debt forgiveness for those countries that adopt bold strategies for addressing their social and health needs. The call for international debt relief has garnered support from numerous international leaders and celebrities. A coalition of religious faiths and aid agencies, supported by the Dalai Lama and Pope John Paul, has spearheaded a worldwide movement on the issue known as Jubilee 2000. Professor Sachs, the rock star Bono, and others will meet with the Pope on September 23 to discuss the campaign.
The CID will host, with the Global Coalition for Africa, a conference in Washington, DC on September 24-25, to explore alternative approaches to debt relief for the highly indebted poor countries. Many finance ministers from these countries will attend, as will Bono, the leadership of Jubilee 2000, and leaders of key international organizations including the International Monetary Fund.
On September 25, the finance ministers from more than two dozen developing countries will meet to prepare a position for the upcoming annual meetings of the IMF and World Bank, which will take place the following week. The results of the CID workshop will feed into the deliberations of these developing countries.
The CID proposal also has received a sympathetic ear in Congress, and members of CID have briefed several Congressmen and Senators. CID members also have testified to the key House Banking Committee, which will mark up legislation sponsored by Rep. Jim Leach expanding U.S. participation in the international debt relief effort.
While the international community recognizes that some form of debt relief is appropriate, the new study is the most in-depth analysis that demonstrates the financial feasibility and social urgency of an across-the-board cancellation of debts for the highly indebted poor countries. The study calls for prosperous nations to forgive almost all of the debt in return for strategies that meet a country’s social, educational and health needs.
Sachs, a leading economist, says the proposal is fiscally sound. He estimates that the US would need only to appropriate approximately $640 million in order to forgive all the foreign loans owed by the highly indebted poor nations to the U.S. Government. This figure, which amounts to less than a penny a day for the US taxpayer, compares to an annual US foreign aid budget of approximately $13 billion.
In order for a country to be absolved of repaying a debt, under the CID plan, it would need to demonstrate that the net increase in its national budget would be utilized to deal with the country’s social and health needs. The CID proposal calls on the United Nations Development Program and the World Bank to assist these nations in preparing "social audits" and help craft strategies to meet urgent social needs.
The problem is not a new one. For years, richer nations have struggled to find workable ways to provide relief to impoverished nations. The conditions spelled out by a 1996 World Bank initiative on the issue are so stringent that only a few countries have qualified. Even the more liberal debt initiative approved in Cologne this past June sets standards that are too stringent, and the amounts of relief provided are insufficient, said Sachs.
"These countries are having to make horrendous choices," says Sachs, "whether to default on their loans or to buy vaccines for children. These countries are bankrupt and they are confronting incredible social needs."
Tanzania, for example, spent four times as much on debt servicing as on health during 1998, with one-third of all government revenues devoted to debt servicing. Even then, Tanzania only paid 57 percent of the debt falling due. Tanzania’s life expectancy is 48 years, down from 50 years in 1990. In most of these indebted countries, malaria remains a serious health risk and the AIDS epidemic is rampant. Two thirds of the world’s population infected with the HIV virus are sub-Saharan Africans according to United Nations. And 95 percent of worldwide HIV cases are in the developing world.
"Given the immense wealth in the rich countries and the immense poverty and burden of disease in the poor, comprehensive debt relief for the poorest of the poor is not only good economics but also a great moral imperative," says Sachs.
The CID study can be found at http://www.cid.harvard.edu

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