The World Bank IMF and The Mirage Of Debt Relief

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"Hypocrisy is the tribute that vice pays to virtue" ( Rochefoucauld 18 century moralist).

There remains a great discrepancy between the rhetoric of the World Bank and IMF about helping the poor and their practice.

The G8 leaders have proudly announced $40billion in debt relief for eighteen heavily indebted poor countries in Latin America and Africa, just over 1 percent of the 3.2 trillion that those countries owe. But the actual debt relief granted will only be a fraction of this small amount, and the strings attached to getting it make this modest amount hardly worth getting such as close hospitals, bankrupted local businesses, and high unemployment.

When one take a close look, the debt burden as measured by the ratio of debt service, such as interest payments on principal and fees paid on the debt, to national income, is even higher than in the early 1980's. As of 2006, the nominal stock of developing country foreign debt outstanding stood at $3.24 trillion.

This debt now generates about $550 billion a year for First World banks, bondholders and multilateral institutions.

That $550billion includes $41 billion a year paid by the world's sixty poorest countries, whose capita income are all below $825 dollars per year. The annual debt service paid by the Third World Countries almost entirely negates the $40billion of annual foreign aid they receive.

Their debt burden is now a higher percentage of their national income than it was in the early 1980's. Most of the Third World Countries have very little to show for all this debt. These payments are in effect "shark fees" paid to the First world Bank creditors for funds that have long since vanished and the present value of the debt (PV) is even higher.

The ratio of third world countries present values debt to national income are relatively high: 60 to 90 percent.

So Where is the relief?

Debt service alone consumes 4 to 9 percent of national income per year. Servicing huge unproductive debts takes a large bite out of poor countries export earnings and government revenues, thus draining the funds needed for education, health care and development..

Poverty reduction requires the promotion of deep-seated structural change.

This implies the redistribution of social assets like land, education, technology, and political power.

Source: The Mirage of Debt Relief by James S. Henry.

Lionne Club, January 9 2008, 4:17 PM

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