World Bank Names 9 New LDCs as Eligible for Debt Relief

The World Bank and International Monetary Fund have issued a joint announcement that 11 new nations have been selected as eligible for debt relief. Nine of these nations are LDCs, seven of which are in Africa. World Bank officials estimate that this latest round of debt relief will free Highly Indebted Poor Countries (HIPCs) from a crushing debt, totaling $21 billion. The International Development Association of the World Bank, the African Development Fund, and the IMF will all provide the money needed for such large-scale debt cancellation.

The selected countries, which include the Central African Republic, Liberia, Somalia, Sudan, and Haiti, have all satisfied the requirements necessary to qualify for potential debt relief. The IMF requires that nations meet three criteria in order to qualify for debt relief. First, nations must prove that they carry an "unsustainable debt burden," demonstrated by an inability to satisfy loan payments and effectively finance state services simultaneously. Second, eligible nations must demonstrate their ability to implement reform through IMF or World Bank programs. Third, eligible nations must prepare a satisfactory Poverty Reduction Strategy Paper. The newly selected countries have satisfied the first requirement, and will work to implement WB and IMF policies over the trial period of three years.

Various factors have contributed to these LDCs' eligibility for debt relief. Years of violent internal conflict have depleted the economies of the Central African Republic, Liberia, Somalia, Sudan, Eritrea, Haiti, and Nepal, while Comoros and Togo have suffered from government instability and corruption, which have paralyzed their economies, which have in turn made these nations prime candidates for inclusion in the HIPC debt relief strategy. Of these nations, only five have yet to begin working with World Bank- and IMF-directed projects.

The second stage, that of implementing World Bank and IMF programs, aim to reduce poverty throughout eligible nations in an effort to diminish the need for future aid after debt relief is secured. This is accomplished through "structural adjustment programs," or macroeconomic reforms designed to minimize state expenses while maximizing citizen earning potential. The international financial institutions encourage states to first cut social expenditures, freeing up more capital for the repayment of loans. The World Bank also advocates more neoliberal economic systems, and urges HIPC nations to privatize major industries, alleviating governments of more costly expenditures and encouraging competition. Finally, the World Bank and IMF hope to establish better governance and anti-corruption mechanisms, to ensure that future financial assistance is used effectively. "When governance systems fail, service provision weakens, corruption increases, and growth is undermined," said Paul Wolfowitz, World Bank President.

Proponents of debt relief have been heartened by the recent successes of the first round of debt cancellation. According to Jubilee Research, African nations receiving debt relief payments have witnessed a significant spike in education policy, which has nearly doubled. Spending on health services and programs has also increased by nearly $300 million, while money directed to military growth, a main worry of anti-debt relief advocates, has not increased to beyond 2% of the GDP.

"Countries will now be able to put more resources into programs that directly help those who need it most - the poor who need better education, better health services and greater access to clean water, for example," said Wolfowitz, in Washington DC on April 21.

However, the World Bank emphasizes the continuing need of foreign economic assistance, in addition to this debt relief program. Countries receiving debt relief are still struggling to finance adequate health and education programs, and do not possess the revenue to fully achieve the Millennium Development Goals. LDCs will still require the assistance of the rich nations in achieving a better standard of living for their citizens for the foreseeable future.