The debt trap

May 03, 1999

This is an excerpt of a New York Times editorial published Friday.

LAST YEAR, when Uganda became the first country to get some relief of its external debt under a new program of the World Bank and the International Monetary Fund, it used the money it saved largely to eliminate fees charged for primary school. The impact was dramatic.

While two years ago 54 percent of Uganda's children attended primary school, this year 90 percent do. In contrast, neighboring Zambia, which spends five times more each year on debt service than on primary education, had to raise school fees. Its enrollment is dropping.

The 41 most highly indebted poor nations, 80 percent of them in Africa, pay on average 40 percent of their annual budgets for debt service. That leaves little to invest in basic education, health and other programs that help people escape from poverty.

Prodded by religious and development groups, the World Bank and the IMF began a program in 1996 to help poor countries reduce their debt. But the program is far too limited. Both institutions are now committed to enlarging it, a subject they discussed at a meeting in Washington last week. When they meet again in September, they will agree on a new plan. It should be large enough to allow many countries to redirect their money to fighting poverty.

Most of the indebted countries borrowed heavily in the 1970s when interest rates were low and lenders, including the World Bank, were pushing loans. Some of the money was wasted or simply stolen. Now the debts are compounding, as many countries cannot even pay the required interest. The problem is worsened by a drop in foreign aid, which is at an 18-year low, although the World Bank concludes that developing countries have learned to use it far more effectively.

Despite the urgency, the debt relief program so far has helped only Uganda and Bolivia, and will add only three more nations this year. Before getting relief, nations must meet IMF criteria for economic reform and budget austerity for six years. Few can meet this goal, especially when hit by a natural disaster or a drop in the price of commodities they export.

In addition, most qualifying nations will get so little relief that they will still pay a crippling percentage of their budget for debt service.

Nongovernmental groups have presented the World Bank and the IMF with worthy reform proposals. Most advocate giving debt relief while a country meets reform criteria, instead of waiting until years after. They would also change requirements to eliminate the burden many austerity programs place on the poor. Some groups want to keep a country's debt burden down to a manageable 10 percent to 15 percent of its budget.

Oxfam International, a development organization, advocates requiring countries to copy what Uganda did voluntarily -- putting the savings into a well-designed and monitored fund, with considerable participation from civic groups, directed at basics like schooling, which fight poverty.

All these changes are expensive but sensible investments in the world's poor.

Pub Date: 5/03/99

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