Clinton's Debt Relief: Too Generous or Too Stingy
After President Clinton announced that he supports 100% cancellation of the debts owed by the poorest countries to the United States, some poll data suggested that people thought Clinton was being too generous.
They were probably reacting more to the soaring rhetoric of Clinton's speech, than to any grasp of the impact of the debt. The governments of these poor countries are forced to divert resources from spending on health care and education to spending to service external debts. For example, the Jubilee 2000 Coalition estimates that Mozambique could save the lives of 100,000 children a year if it were allowed to spend half the money on health care and education that it now spends on debt service.
Forty-one countries are called "Heavily Indebted Poor Countries" by the World Bank. The debts of these countries to the U.S. government are estimated at about $6.7 billion.
However, these debts are already deeply discounted by the U.S., because no one ever expects them to be paid. They're carried on the books at about 10% of their nominal value. In other words, they could be cancelled with an appropriation of about $600 million.
Let's compare that to something else in the U.S. budget: the cost of F22 aircraft that the Air Force wants to build. Each one of these planes costs well over $150 million. The Air Force wants to build 339 of them. Getting rid of four planes -- reducing the number of planes by about 1% -- would pay for the debt cancellation.
Or we could compare this $600 million to the $18 billion that the U.S. gave last year to the International Monetary Fund -- that $600 million is about 3% of what we gave to the IMF.
In fact the Administration proposal does not even call for canceling all the debts of the HIPC countries, only some of them.
However, the folks getting their information from watching speeches on TV were right in a sense. The Clinton proposal was far too generous -- but not to poor countries. It was too generous to two institutions funded by the U.S. taxpayer that have failed miserably: the International Monetary Fund and the World Bank.
Tucked into the Administration proposal was an appropriation for "multilateral debt relief" -- to address unpayable debts owed by poor countries to the World Bank and the IMF. Unlike the U.S., the IMF and the World Bank don't write down the value of unpayable debt, but insist these debts must be fully paid. They know poor countries can't pay the debt, so they insist that countries like the U.S. make extra contributions to the IMF and the Bank to compensate for the amount of debt service that can't be squeezed out of poor countries. This process is called "multilateral debt relief." It's more of a bailout to the IMF and the World Bank -- two rich institutions -- than a helping hand to poor countries, who rarely have their actual debt payments significantly reduced as a result of this kind of "relief."
As if that weren't bad enough, in order to qualify for this "relief," poor countries have to implement "economic reform" programs designed by the IMF and the World Bank. You might think that "economic reform" would be a good thing. Who is against reform? It's like being against apple pie. But it turns out that "reform" programs designed by the IMF -- sometimes called "structural adjustment programs" -- happen to be the sorts of things that University of Chicago economists installed in Chile during the military dictatorship under Pinochet: slashing wages, mass layoffs, cutting public spending on health care and education. These policies are applied on a scale that would provoke mass strikes and demonstrations if they were applied, say, in the United States or France, and indeed they often provoke mass protests in the countries where they are implemented, even under repressive governments. But these protests are often ignored, because governments are under great pressure to honor their agreements with the IMF, and government officials carrying out the policies are often picked by the IMF.
Folks reacting to Clinton's rhetoric thought he was being generous. But as usual, Clinton was only feigning to the left -- his real priorities were elsewhere. It's going to take a lot more pressure before the Administration becomes truly generous towards poor countries by getting stingy towards the IMF.
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