Thursday, February 15, 2007

Relief-o-rama

I can't figure out what the latest news on Liberia's debt means. Something about redirecting some IMF account.

Can somebody explain?

Meanwhile, the debt-relief ball contines to roll:

Germany announced it would forgive Liberia's entire 230 million dollars in debt to Berlin.

6 Comments:

Anonymous Josh said...

Nice site Joshua. Love what you are doing. Could you possibly link to us? I have included you in our blog roll. Thanks.

1:22 PM  
Blogger josh said...

who is us? you didnt identify yourself. cheers, jfc

1:49 PM  
Anonymous Anonymous said...

Josh,
In order for the IMF to write off Liberia's debt, donors have to come up with "new money". The U.S. is in the van-guard of this initiative. The unused funds identified by Secretary Paulson will be redirected to Liberia's debt cancellation Program. The funds will be used to make an initial payment to the IMF shreholders. This will encourage rich countries to contribute funds to this genuine undertaking initiated by the United States.

I hope this help. I am no expert on financial matters.

2:27 PM  
Blogger Sarah said...

I'm sorry, but I don't agree.

The IMF does not "have to" come up with new funds to pay for Liberia's debt relief. That is simply and argument made by the IMF, the World bank and several of their largest shareholders (mostly G8 nations, including the US). There is a strong argument that was first articulated by Sony Kapoor of Christian Aid UK (a former investment banker) that the IMF has enough funds to pay for the cancellation of all the debt owed to it by low income countries if it sold a portion of its gold reserves.

Second, the US is not now nor has it ever been at the vanguard of the push for debt cancellation in Liberia or elsewhere. People in the global south, the countries affected by the debt crisis, have been pushing for a solution since the debt crisis was really born, more than 20 years ago. Debt burdens started to baloon during the era of petrodollar recycling and a mad lending binge by northern creditors and then the second oil price shock after the Iranian revolution, rising interest rates and the increased value of the US dollar, and the huge drop in prices of the commodities developing countries export were among the series of factors that made debt payments skyrocket.

Third, there is a very strong argument that the current debt cancellation initiative - which only applies to debt "owed" to the World Bank and IMF and a few of the regional development banks but not private creditors or bilateral creditors - is inherently flawed. This program - called HIPC - requires countries to go through a series of economic reforms often called structural adjustment - to obtain debt relief in stages. This takes on average several years (5 to 7) and it doesn't address the issue of debt re-accumulation or "responsible lending" to avoid future debt. It also leaves out many needy countries, and many of the major creditors.

And more importantly to many, HIPC does not address the illegitimate nature of much of the debts "owed" by developing countries. Many countries and banks and institutions were not careful and cautious when they lent to the countries that are now indebted. They made billions in irresponsible loans, loans that were sometimes made to repressive regimes to shore up political support during the cold war, etc, or for failed projects and programs that didn't benefit the countries that received these "development loans". Think apartheid South Africa, the Marcos regime in the Phillippines, Suharto in Indonesia, Mobut in Zaire (DRC), the military junta in Argentina, Pincohet in Chile, etc., etc., etc.

There is a strong argument that these countries should not be held to these debts... they were not good faith loans made to benefit the people or a country, and often in fact contributed to their continued repression. It's a sick and cruel joke to collect debt repayments on these sorts of loans.

Anyhow, the argument is in fact more detailed and complex than I portrayed above... but I felt I should at least give you a sense that it is much more complicated than it seems at first glance.

4:05 PM  
Anonymous Anonymous said...

Josh-

I told you I am not an expert on financial matters. Now we have heard from an authoritative source.

Thanks for the detail information Sarah.

5:13 PM  
Anonymous Anonymous said...

It simply means that debts Liberia owed would be waived. I may add that Liberia did not have the capacity to repay those debts to begin with. The tragedy may be that some Liberians may be under the illusion that those are funds that will be given to the government and may soon begin making some unreasonable demands on the government.

Even the donations aren't given to the government but to non governmental organizations to implement projects on behalf of the donors. Some Liberians erroneously believe that funds go towards supporting the government's budget. That is very rare. So far only France ($1million) and a Saudi Prince ($2million) have given funds directly to the government.

10:45 PM  

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