WORLD BANK, IMF STRIKE DEBT DEAL, SHIFT SIGHTS TO WTO

After striking an agreement to cancel USD 55 billion in debt owed to them by some of the world's poorest countries, the World Bank and International Monetary Fund (IMF) have turned their focus to the WTO's stalled Doha Round negotiations. World Bank president Paul Wolfowitz exhorted WTO Members to match this consensus on debt with consensus on trade, saying that the debt relief package would be incomplete without what he termed a "true development round on trade."

The debt deal was approved by ministers and senior officials from the 184 members of the World Bank and IMF at the 24-25 September annual meetings of the two international financial institutions. IMF debts will start to be cancelled at the end of 2005; World Bank debt forgiveness will likely come into effect in July 2006. Once the plan is implemented, eighteen countries stand to have their debts cancelled immediately. Press reports suggest that an additional twenty may be eligible. The agreement will not, however, free these countries from debts owed to private creditors.

The accord gives more concrete form to the debt forgiveness promise made by the Group of Eight industrialised countries (G8) in July at Gleneagles, Scotland (see BRIDGES Weekly, 13 July 2005, http://www.ictsd.org/weekly/05-07-13/story3.htm). Concerns prior to the recent meeting that the World Bank would be unable to afford to write off that much debt were allayed by a 23 September letter from G8 governments promising to underwrite debt relief with "dollar for dollar" compensation to support the Bank's other loans and grants to developing countries.

Countries slated for debt forgiveness will have to demonstrate good governance, transparency, and anti-corruption measures in order to receive disbursements.

Developing country ministers complain about Doha progress

Finance ministers from developing countries used the meetings to air their grievances about the ongoing WTO talks. Describing progress thus far as "disappointing," Indian Finance Minister P. Chidambaram warned that rising protectionism in rich countries was a threat to global trade, and urged them to slash subsidies and open their markets in order to help get the negotiations "back on track" for the Hong Kong Ministerial Conference in December. Calling on industrialised countries to cut tariffs on agricultural products, Brazilian Finance Minister Antonio Palocci said that trade and market access were "more important than external aid." Trevor Manuel, their South African counterpart, also called on countries to step up their efforts in the Doha Round negotiations.

Lamy reiterates call for 'aid for trade' mechanism

In a speech to the IMF's International Monetary and Financial Committee, WTO Director-General Pascal Lamy called for an 'aid for trade' initiative for developing countries. Developing countries will need assistance to build the capacity necessary for them to realise actual benefits from improvements in market access and trade rules, he said. "This is where the [World] Bank, the [International Monetary] Fund and other donors come in."

He expressed the hope that WTO Members would, as a first step, agree by Hong Kong to enhance the Integrated Framework, the existing WTO-World Bank-IMF-UN programme for trade-related technical assistance to least-developed countries. "Looking to the conclusion of the Round, I believe we should arrive at a more ambitious package of commitments for technical and financial assistance by the end of 2006."

Campaign groups welcome deal, sound a note of caution

Advocacy groups had worried that the promises made by G8 countries at Gleneagles would not actually result in additional money being allotted for debt forgiveness. Thus, many were gratified to see their commitment to give the World Bank extra funding for debt relief, which would in turn free up money for beneficiary countries to spend on health and education. Some have cautioned that the conditionalities attached to the debt forgiveness could turn out to be trade liberalisation and privatisation requirements, which they contend could leave countries even worse off.

Bernice Romero, campaigns director for international charity group Oxfam International, hailed the agreement as a "huge step forward," albeit for a small number of countries. She called on the World Bank and the IMF to "apply this new standard [for debt cancellation] to all the countries that need debt cancellation to fight poverty."

Some governments have also called for expanding the list of countries eligible for debt relief. Kenya -- which will not benefit from the new agreement because the IMF deems its debt sustainable -- has complained that it is effectively being punished for not having mismanaged its finances as much as the countries whose debt has been designated for elimination.

The eighteen countries that will have their debts to the World Bank and the IMF cancelled immediately are: Benin, Bolivia, Burkina Faso, Ethiopia, Ghana, Guyana, Honduras, Madagascar, Mali, Mauritania, Mozambique, Nicaragua, Niger, Rwanda, Senegal, Tanzania, Uganda, and Zambia.

ICTSD reporting; "World Bank, IMF Agree on Debt Relief, Turn Attention to Trade," BLOOMBERG, 26 September 2005; "Debt deal hailed but details beckon," BBC NEWS, 26 September 2005; "Chidambaram hits out at advanced nations for trade barriers," PRESS TRUST OF INDIA, 26 September 2005; "Finance Chiefs Act on Debt Forgiveness," ASSOCIATED PRESS, 26 September 2005; "Oxfam reacts to World Bank and IMF debt relief announcement," OXFAM PRESS RELEASE, 25 September 2005; "Hong Kong Ministerial is last and best chance to conclude the Round by next year -- Lamy," WTO NEWS, 24 September 2005.