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01.08.2005 Business & Finance

Debt cancellation runs into a wall

Public Agenda

The widely-publicised cancellation of the debts of 18 poor countries, including Ghana has run into problems even before the implementation has begun. This is because of the failure of the G8 leaders to consult the International Monetary Fund (IMF), the World Bank and the African Development Bank to whom the 18 poor countries owe some US$ 40 billion before announcing the deal. A leaked IMF document quotes the Belgian representative at the IMF, Willy Kiekens as saying that “as long as the IMF board has not yet acted upon the G8 proposal of debt cancellation for the 18 countries, IMF's operations should continue according to present rules and policies.” That means countries like Ghana that owe the IMF/World Bank or AfDB lots of dollars and had hoped for an immediate reprieve after announcement will have to continue servicing their debts “in full and on time”, as captured in the leaked document.

The Belgian representative suggests that the IMF should insist on those countries servicing their debts to the fund. In return, the fund could provide grants equal to the amount of debt service to it on condition that the beneficiary countries implement a set of conditions IMF experts prescribe. According to the leaked document three other rich countries, which are not G8 members: Switzerland, Norway and the Netherlands have since backed Belgium. By teaming up, the four countries wish to change the terms for the debt cancellation at Gleneagles, Scotland earlier this month.

In effect, the four countries are asking for strong conditionality to be imposed on any cancellation, arguing that “conditionality is a key feature for effective use of resources that are freed up by debt relief.” The insistence on additional conditionality could be a kick in the teeth for Ghana and indeed all the 18 countries that have already reached the completion point of the Highly Indebted Poor Countries Initiative. Some experts argue that these countries have already taken an overdose of neo-liberal economic reforms: increases in school fees, health-care costs and VAT, removal of subsidies for agriculture, privatization, trade liberalization and the creation of unfair competition between local producers and transnational corporations.

It would be suicidal if the 18 poor countries sat back and hoped Belgium, Switzerland, Norway and the Netherlands would fail in their attempt to block the debt cancellation. The sheer weight of the four countries at the IMF Board should not be underestimated. Together, they hold 16 percent of the voting of the IMF and can turn any decision in their favour.

According to IMF rules, important decisions usually require 85 percent of the voting power. And that means only the United States can prevent any decision they are unhappy with. The rules are about to change. The four countries put together can bring the IMF to a stalemate. Should they succeed, it means countries like Ghana may have to wait longer than expected for the waiver of the debts.

During a meeting with the visiting Executive Director of the World Bank for Ghana Mr. Sid'Ahmed Dib last week, President John Agyekum Kufuor lauded the decision of the G8 to include Ghana on the debt cancellation list. But was quick to appeal to the the board of the Bretton Woods Institutions to decide on the cut-off date of the debt relief as early as possible to enable the country start on a clean slate.