Help for the Poorest of the Poor

The poorest of the world’s poor countries are so mired in debt that their obligations are unsustainable. They plunge ever deeper as they struggle to pay something on their loans. Relief for these heavily indebted countries, mostly in Africa, is long overdue.

Now the World Bank and International Monetary Fund are considering a major initiative to relieve the crunch. Acknowledging that existing repayment schedules are impossible for poor countries to meet, the two international lending institutions are offering for the first time a joint approach to the debt problem.

It involves a comprehensive approach toward reducing the external debt of these countries through all sources--bilateral, commercial and multilateral. Evidence of the need and the drain made by debt obligations to multilateral creditors--mainly the World Bank and the IMF--is the fact that repayments have soared from 20% of recipient countries’ total debt service in 1980 to 50% in 1995.

Under the new initiative, the World Bank would establish a trust fund from its surplus accounts. The trust fund, to be financed by other regional development banks as well, would be used to assist eligible countries in meeting debt commitments.

Other recommendations include rescheduling debt payments and coordinating action among creditors. The plan would help about 20 of the poorest countries--Mozambique, Nicaragua, Zaire, Zambia, Bolivia, Cameroon, Uganda and Ethiopia to name a few--whose debts are more than 200% to 250% of their annual export earnings.

Directors at both the World Bank and the IMF say that the initiative is an important step toward rationalizing the long-standing problem of Third World debt. The two organizations meet again next month. Time to put action behind the talk.