World Bank should stop acting like a loan shark

by Derek MacCuish
In January, Canada got out of the loan shark business and stopped collecting debt from the poorest countries. In fact, all rich countries are committing to debt cancellation one way or another. Italy, as the host country for the G7 gathering next week, has put together a proposal to take debt relief even further.

All this commitment to debt cancellation seems to terrify the World Bank and IMF. They're worried that they'll be told to do the same.

The two institutions have been cranking out a slew of statements and reports saying that they just can't do as other creditors have done and cancel Third World debt. Why not? Essentially, the argument seems to be that unless they collect on these debts, they won't have enough to lend out again.

Using an Alice–in–Wonderland rationale, a new briefing paper, "100 Percent Debt Cancellation? A Response from the IMF and World Bank" argues that the institutions need the money that they get from impoverished countries, so that they can fight poverty.

Implicitly accepting that the World Bank could afford to write off the debts, this paper points instead to a concern that full debt cancellation would "likely mean a" weaker capital equity position for the Bank. Indeed, when pushed for a bottom"line response, World Bankers admit that their concern is with the institution's stockholders. On the other hand, the World Bank made a profit of $2.3 billion last year, up 50% from the year before and well above projections.

The IMF, on the other hand, argues that cancelling debt would mean closing its Poverty Reduction Growth Facility (PRGF). This is not likely to stir up much sympathy in Third World communities. The PRGF is the new name for the IMF's structural adjustment program, which is widely despised and a target of demands that it be closed anyway.

Meanwhile, the latest Human Development Report is just out from the UN. It reminds us that a third of the world's extremely poor, living on less than $1 a day, live in countries that are slipping further away from goals of halving such poverty by 2015. Life expectancy in sub–Sahara Africa is still less than fifty years, and infant mortality more than one in ten. These kinds of statistics are all too familiar, as are the numbers on AIDS, deaths from malnutrition and related causes, and all the many tragic consequences of the grinding poverty into which so many millions of people are born. The rationale for debt cancellation is widely understood and supported, so the question of "whether or not" is no longer an issue.

So if they can afford it, why are the World Bank and IMF resisting so strenuously? The institutions want to continue their control of developing country economies to ensure they stay on the market–system path.

Impoverished countries are told they have to "earn their way in the global economy." What this really means is that they have to sign over their natural and human resources to the corporations. To get debt relief, poor countries have to privatise existing oil, gas and mining operations and allow the expansion of new ones. Public utilities, such as electricity, transport, telecommunications – even the provision of water – also have to be privatized.

Hesitation can be costly. Even a country like the Republic of the Congo, trying to emerge from a long period of dictatorship and civil war, has just been told it won't get debt relief, in large part because of the slow pace of privatisation.

Privatisation could more accurately be called "briberization," according to Joseph Stiglitz, the man who was Chief Economist of the World Bank until two years ago. Rapid, forced privatisation in the context of endemic poverty encourages corruption and cronyism. Stiglitz says that national leaders often don't object to the IMF and World Bank demands, knowing that they can get commissions, paid into Swiss bank accounts, for selling off their national assets.

As to the loans that are available from the World Bank for development, the institution spends billions of dollars on projects that have nothing to do with poverty alleviation. It does nothing to encourage the empowerment of the poor and the marginalized. Justifying its refusal to cancel debt by pointing to how much those countries need it is just absurd.

The G7 countries have committed to full debt cancellation. It's time they require the IMF and World Bank to do likewise, and without conditions.

Derek MacCuish is a Program Coordinator with the Social Justice Committee in Montreal and a policy analyst for the Halifax Initiative, a coalition of development and human rights organizations.