IMF/WB DRAGGING FEET ON DEBT INITIATIVE?

10:07 AM Feb 21, 1997

IMF/WB DRAGGING FEET ON DEBT INITIATIVE?
Geneva 21 Feb (Chakravarthi Raghavan) -- The International Monetary Fund and the World Bank, with the broad backing of the US, France, Germany, Italy and Japan, are delaying the implementation of the Highly Indebted Poor Countries (HIPC) initiative for multilateral debt relife, Eurodad, the European Network on Debt and Development has charged.

In a communication, the Brussels-based NGO which has been closely monitoring the issue, notes that Uganda was believed to be the first case to benefit this year from the HIPC proposal and thus a test case.

Though the IMF Managing Director had stated in January (in the Financial Times) that he expected Uganda to get to the decision-point by end-April, and to completion point by September (Annual Fund/Bank meetings), "it looks as if that five of the seven G-7 countries are working with the IMF management to get Uganda's debt plan delayed and its effect reduced."

Behind the broad backing of the G7, the IMF and the World Bank are demonstrating that they are not serious about the implementation of the HIPC proposal, Eurodad charged.

They tell everybody, that the implementation is timely and is going well, that the treatment of six countries for this year is on schedule, with Uganda being the first reaching the completion point in 1997. However, according to the paper sent to the IMF and the World Bank Boards, Uganda will only get its completion point in April 1998 at the earliest, Eurodad says, adding, "the IMF even included an option for April 1999."

As a result,

* because of a different calculation used for export incomes (related to coffee prices), caused by the delay of the debt plan to April 1998 and the maintenance of strict ceilings, the "loss" in debt reduction will be some $100 million in net present value terms or about $30 million in debt service a year;

* from the promises made by international creditors and donors (at the Uganda consultative group meetings in November 1996), Uganda government (judging from its presentation at the Hague meetings) counted in its budget this year on extra debt relief from the HIPC plan; and budgeted enrolment in primary school of 4.3 million children, based on a government commitment that four children from every family would get free primary education. Without the debt relief, government would be forced to send some 1.7 million children back home again;

* Uganda got a Paris Club creditors debt stock reduction of 67% in February 1995, and the April 1998 completion point means it will take the full three years for getting multilateral debt reduction under the HIPC initiative -- completely in contradiction of all promises and commitments made by the institutions, creditors and G-7 countries;

* At the instigation of the G7 governments, the IMF and the World Bank are supporting harsh IMF line and seem to be playing a game with Uganda (and whatever other country comes up for the HIPC initiative.

* Also, a new element has been introduced, namely that the second phase from decision to completion needs a minimum of one year based on a social track record in addition to classical adjustment performance. The US appears to have particularly argued for this. Uganda has a track record of eleven years of structural adjustment, but this apparently has not been helpful to get an earlier and better deal. Instead, Uganda is being penalized for its long adjustment record.

* The Ugandan government has been fairly positive about the tripartite (Fund/Bank/government) exercise on the Debt Sustainability Analysis (DSA). But different from the expectations in the HIPC initiative, the paper presented by the Fund/Bank managements to their boards has been an exclusively IMF/Bank product. The Uganda government may not even have got the opportunity to look at the paper before it went to the Boards. This is a serious step backward in the way major policy papers like Country Assistance Strategy Papers and Policy Framework Papers are treated, and not in line with what was assumed to be HIPC Debt Plan.

* While the IMF publicly has been promising early implementation of the initiative for Uganda and other countries, it is trying to postpone the implementation and minimizing the debt relief and "seems to be terrified to have to bring to the table the need to sell gold for its contribution to the initiative.... the IMF seems to undermine the HIPC initiative than to comply with even the minimum expectations on its implementation.

* the World Bank has been arguing for marginal improvements in the Uganda case and countering efforts to undermine a successful implementation. But the HIPC people in the Bank don't seem to manage to get the initiative for Uganda dealt with in a timely and effective way, let alone for other countries.

Bank President Wolfensohn will embarrass himself at the Spring and Annual Meetings, if he has no record to show of successful implementation of the HIPC initiative... Education targets are priority one for the Bank in Africa. But the case of Uganda shows that undermining the debt plan undermines these targets.

* the Nordic countries, the Netherlands, Canada and the UK have been pressing for an early and good deal for Uganda, and for a second stage as close to zero as possible - within the 3-year time frame.

* But Italy and Germany, both doubtful about eligibility of Uganda seem to maintain a reluctant position.

* Japan as often is not clear or does not speak out.

* the US, which has a swing position, has been arguing for one extra year of social record between decision and completion points, making thus early treatment impossible.

* France still seems to have problems with Uganda being the first HIPC case. As Chairman of the Paris Club, French Treasury official Christian Noyer has said that Uganda already has a debt exit program from the Club and therefore is not supposed to be treated so soon and so generously.

Also, France would prefer Francophone countries like Cote d'Ivoire to receive an early deal.

"Finally, the Elysee is not considering Uganda as a partner in the Great Lakes region, even less now that Rwanda has applied for membership of the Commonwealth instead of the Francophone group."

Besides Uganda, other countries to be soon discussed (under the HIPC plan) by the Boards of the IMF and the Bank are Burkina Faso, Bolivia, Guyana, Cote d'Ivoire and Mozambique.