World Bank announces approval of Multilateral Debt Relief Initiative

On April 21 World Bank president Paul Wolfowitz announced that the institution had secured enough votes to approve the Multilateral Debt Relief Initiative (MDRI) for 17 countries worth $37 billion over the next 40 years.

Remember July 2005 when over 20,000 people under the banner Make Poverty History walked the streets of Dublin and then over 100,00 walked the streets of Edinburgh, Scotland calling on world leaders to cancel the debts of the poorest countries in our world.

The G8 leaders outside Glenagles, Scotland said 'a historic deal has been done today', well, the wheels of power turn very very slowly. Bob Geldoff also announced in 2005, that '240million will wake up better off today'. Again it didn't happen, but today - April 2006 - we are glad to inform campainers the length and breath of Ireland that: On the 21st of April 2006 "We have secured the total votes necessary to enact the Multilateral Debt Relief initiative," said World Bank President Paul Wolfowitz. "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."

Starting on July 1, 2006, IDA is expected to provide more than US$37 billion in debt relief over 40 years.

Background:

At the July 2005 G8 Summit in Gleneagles, Scotland, G8 leaders pledged to cancel the debt of the world's most indebted countries, most of which are located in Africa. Debt cancellation will be provided by the International Development Association IDA of the World Bank, the International Monetary Fund and the African Development Fund to countries that have graduated (called reaching the "completion point") from the Enhanced Heavily Indebted Poor Countries (HIPC) Initiative.

Initially, 17 HIPC countries will be eligible for 100 percent debt cancellation: Benin, Bolivia, Burkina Faso, Ethiopia, Ghana, Guyana, Honduras, Madagascar, Mali, Mozambique, Nicaragua, Niger, Rwanda, Senegal, Tanzania, Uganda and Zambia. Mauritania has completed the HIPC program, but will qualify for relief after implementing key public expenditure management reforms. The remaining HIPC countries (see chart below) will be eligible for debt cancellation once they have completed the requirements of the HIPC Initiative.

Donors have agreed to a financing package that calls for additional donor contributions over time to ensure delivery of fresh resources for poverty reduction. Compensatory financing over the duration of the cancelled loans will be based on strong indicative pledges already made, and donors are undertaking the necessary steps in their home countries to provide their financing commitments.

Critics of the World Bank and supporters of debt relief have welcomed the move but still remain skeptical. Some wonder if money will simply be diverted from other assistance programs into the debt relief initiative and thereby create gaps in other development lending programs. Others will likely be more satisfied when the financial commitments and pledges announced at the G-8 meeting in Gleneagles last summer are actually deposited into the initiative's account.

To reach decision point, countries should have a track record of macroeconomic stability, have prepared an Interim Poverty Reduction Strategy through a participatory process, and cleared any outstanding arrears. The amount of debt relief necessary to bring countries debt indicators to HIPC thresholds is calculated, and countries begin receiving debt relief on a provisional basis.

To reach completion point, countries must maintain macroeconomic stability under a PRGF-supported program, carry out key structural and social reforms, and implement a Poverty Reduction Strategy satisfactorily for one year. Debt relief is then provided irrevocably by the country's creditors.

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