IMF and World Bank Move Forward On Debt Initiative

• Pages: 20-21

Page 20

In September 1996, representatives of the member governments of the IMF and the World Bank announced a joint initiative to address the debt problems of the heavily indebted poor countries-most of which are in sub-Saharan Africa. This step represented a commitment by the international community to provide special assistance to those heavily indebted poor countries that followed sound policies but for which traditional debt relief mechanisms had failed to secure a sustainable external position. To convey a clearer understanding of the debt initiative, the IMF and the World Bank sponsored an Economic Forum on January 9 at IMF headquarters. Moderated by Shailendra Anjaria, Director of the IMF's External Relations Department, participants included Jack Boorman, Director of the IMF's Policy Development and Review Department; K.Y. Amoako, UN Under-Secretary General and Executive Secretary of the UN Economic Commission for Africa; Catherine Gwin of the Overseas Development Council; and Masood Ahmed, Director of the World Bank's International Economics Department.

Policy Directions

In outlining the joint IMF-World Bank debt initiative, Boorman listed six basic principles governing its operation:

* to target overall debt sustainability by focusing on the totality of a country's external debt;

* to link eligibility to a prior track record of reform and sound policies;

* to build on existing mechanisms, including the IMF's enhanced structural adjustment facility (ESAF), the World Bank's International Development Association (IDA) operations, and mechanisms of the Paris Club and other creditors.

* to ensure that additional efforts to address problem cases are coordinated among all the creditors to ensure a comprehensive resolution of the country's debt problem;

* to preserve the financial integrity of the institutions and their preferred creditor status; and

* to ensure that new external financing for the countries is on appropriately concessional terms.

There is no specific list of countries qualifying for the new debt initiative, said Boorman. The staffs of the IMF and the World Bank had performed forward-looking analyses of the balance of payments prospects for all heavily indebted low-income countries. From this analysis of 41 countries, 8 were judged to have a clearly unsustainable debt burden, and an additional 12 were seen as "stressed." To qualify for assistance, a country had to meet two...