JOINT PROPOSAL OF THE WORLD BANK AND INTERNATIONAL MONETARY FUND (IMF) ON COUNTRIES.

11:34 PM Apr 22, 1996

JOINT PROPOSAL OF THE WORLD BANK AND INTERNATIONAL MONETARY FUND (IMF) ON COUNTRIES.
The Group of 24 (G-24), which represents developing countries on international monetary affairs, Sunday described the proposal as a "very lengthy and cumbersome procedure."

Noting that most of the 40 countries with unsustainable debt positions are in Africa, G-24 chairman Muhammad Yaqub said, "African countries have already suffered enough because of high indebtedness.

Yaqub, who is Pakistan's central bank governor, told a news conference that the proposal was "a long drawn process" that would take nine to 10 years to yield any debt relief.

Describing the debt crisis as an "urgent issue ," he said the " the proposal's time frame must be compressed."

The G-24 also questioned debt analyses of the IMF and the Bank.

"Sustainability analyses should be more realistic as to export projections, aid availabilities and the fiscal constraints of debtor governments while taking into account the overall debt/GDP ratio," said the ministers in their communique.

Such analyses, they emphasised, "should be carried out with due participation by the debtor governments, contributing donors" and the World Bank and the IMF.

While recognising the need for beneficiary countries to pursue economic reforms, the G-24 described the proposed periods for establishing a track record -- altogether six years -- as "excessively long and rigid."

They called for "flexibility with respect to eligibility criteria, the time tables, and the scale of relief", arguing that this "would help governments sustain their reform efforts."

The G-24 nonetheless endorsed the Bank and Fund proposal that bilateral creditors raise their maximum debt reduction to 90 percent of net present value.

They also emphasised that "any workable solution" to the debt crisis would require a boost of the existing resources of the Bank and the Fund "so as to preclude any transfer of limited concessional resources from one set of objectives to another."

They thus called on rich shareholders to resolve the outstanding issues on the financing of the Fund's enhanced structural adjustment facility (ESAF) and the Bank's International Development Association (IDA.)

The ministers expressed "serious concerns regarding the longer- term prospects of IDA", noting that bilateral donor contributions to IDA in its next replenishment (IDA-11) would be less than those for IDA-nine and IDA-10, which ends Jun. 30. The dominant shareholders of the Bank and the Fund, who form the Group of Seven (G-7) most industrialised countries and are also the leading bilateral creditors, had earlier rejected the debt proposal because it put too much burden on them.

Faced with so much rejection, the IMF and the Bank have come out with what they call more details of their plan.

Senior IMF officials now say that a component of the proposal is an extension of the maturities of the debts owed them by eligible countries. But the officials insist that there would be no outright debt cancellation.

"The basic principle in the proposal is that the multilateral institutions won't write down debt," one official stressed.

Other officials told journalists Sunday they would rather build on existing mechanisms such as the continued use of IDA funds to finance debt buy back.

Observers, however, argue that this may further deplete the pool of new money available to the poor countries. Meanwhile, contrary to expectations, both the World Bank and International Monetary Fund (IMF) confirm that there would be no firm multilateral debt plan for poor countries at their three-day spring meetings which opened here this weekend.

At separate press conferences this week, the World Bank and the IMF said they had produced a 'framework', but that the plan was dogged by a raging debate among their most influential members. These are the United States, Japan, Germany, France, Italy, Britain, and Canada -- the Group of Seven (G-7) leading industrialised countries.

"The G-7 objections are critical, and we must resolve them first," said IMF managing director Michel Camdessus.

All that can be expected are "relative principles and clarity to both organisations to get to work," the Bank's vice president for external affairs Mark Malloch Brown said.

Many, including some rich countries, had expected the two institutions to present a firm plan on reducing the some 60 billion dollars owed the World Bank, the IMF and regional banks by poor countries. African countries account for about 35 billion dollars of the debt. But Camdessus only said that "hopefully, there will be a solution this year."

IMF deputy managing director Allassane Ouattara sounded slightly more upbeat, though. "We expect to have a concrete initiative by October," he said in an interview.