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THE policy planning committee of the World Bank put on September 25 its stamp of approval to the proposal to exempt the debts and interests of the 18 poorest countries of the world mostly in Africa. The proposal to write off the debts of the poor countries was hanging in balance for quite sometime. The move was largely stalled because the USA was not in agreement with seven other Group of Eight (G8) nations.
The IMF in a similar move had earlier announced a relief package for the poor nations. The measure will benefit 18 hard-hit nations initially but later would be extended further to cover 35 nations in all. There is some confusion about the total sum to be written off. One report said $18 billion, the second report said $55 billion and the third report said $40 billion debts and interests thereon will be wiped off.
The beneficiary nations will be given fresh loans to start anew. But loan disbursement to a great degree will be contingent upon how the recipient nations have been able to stamp out corruption, initiate good governance and inject accountability and transparency in spending.
These measures are being given top priority by both the G-8 and the two multilateral capital donors -- the WB and the IMF. Sound economic policy and good governance will be the guiding factors for all future loans. Poverty alleviation will be the focus of the WB and the IMF loans.
If the plan goes well, the 18 highly indebted countries will be freed as early as the end of 2005 from repaying about $ 1.0 billion a year in interest and principal. The criteria for eligibility was hotly debated. The USA, Japan and Germany are opposed to expanding the list of recipients from the current list of 18 nations. The loans may finally turn into outright grants.
The new WB president Wolfowitz demanded that the wealthy nations take the responsibility of the full cost of the debt relief. The G8 has agreed to cover the cost dollar for dollar. The officials are arguing to set the IMF and the WB with new roles. The United States is demanding that the two multilateral agencies put pressure on China to upgrade the value of its currency yuan, which many think is grossly undervalued and, with labour cost cheap, China is having a total control of the global international trade.
Managing Director of IMF Rodrigo de Rato had cautioned saying any move to put pressure on China would be unrealistic. The Fund could hardly achieve anything by chiding countries like China. The IMF Managing Director instead urged the USA to drastically slash its ever expanding large budget deficit and huge foreign indebtedness. Rato said the USA's massive foreign indebtedness is making its economy vulnerable.
The position of the president of the WB is filled by an American and that of the Managing Director of IMF by European.
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