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Ireland took a lead internationally on the debt issue when the government adopted a new debt policy last year. This policy has a number of strong points. It:

• Supports 100% debt cancellation for low income countries; states that debts of countries with high prevalence of HIV/Aids should be cancelled as soon as possible
  
  
• Calls for human development to be taken more fully into account in assessing how much debt countries can afford to repay. Currently the debt to export ratio is the main indicator used by the IMF and World Bank to assess debt reduction needed.

Debt Cancellation: What Progress has been Made?

In l999, responding to the Jubilee 2000 campaign, the G8 promised $100 billion debt cancellation. Only a third of this has materialised to date. Eight countries have received the full debt reduction promised and a further nineteen are in the process of qualifying for debt reduction. On average debt servicing has been reduced by 40%. The benefits of this can be seen in increased public spending on health (a 70% increase) and education (a 40% increase) in countries for which data is available[1].

Onerous conditions set by the IMF and World Bank are holding up debt reduction. Thirteen countries faced delays because of failure to meet conditions including the requirement to privatise key utilities and industrial sectors. Privatisation plans have resulted in strikes in Honduras, Zambia and Nicaragua which still await the full debt reduction promised. These conditions are particularly inappropriate given that to receive debt reduction countries must adopt a Poverty Reduction strategy, drawn up in consultation with civil society, and debt savings must be allocated through this strategy.

Debt and The Millennium Development Goals

This year's UNDP 'Human Development Report' was launched in Ireland. The Report focuses on the Millennium Development Goals. According to the UNDP[2] two thirds of the countries facing major obstacles in reaching the Goals are heavily indebted poor countries. The Report supports the government's position that these countries will need 100% debt cancellation if they are to meet the Goals.

Can the IMF and World Bank Afford to Cancel Debt?

The government has weakened its case for cancellation by accepting IMF/World Bank arguments that they cannot afford to cancel debt owed to themselves. Given the increasing poverty in many heavily indebted countries[3],the question is: can the IMF and World Bank afford not to cancel their debt if they are to fully support progress towards the Millennium Development Goals.

IMF debt reduction to date has been funded through the sale a small portion of their gold. We see no reason why the IMF cannot repeat this exercise. Their reserves are not being depleted as it is the interest realised on the proceeds from the gold sales which is being used. It is interesting to remember that the Oireachtas Joint Committee on Foreign Affairs Committee was the first parliamentary body to call on the IMF to sell some of its gold to fund debt cancellation - in l994.

The World Bank has used some of its net income for debt reduction. Chantrey and Vellacott[4], a City of London accountancy firm, carried out a study of World Bank reserves and concluded that the World Bank could use a small portion of its reserves in addition to a portion of its annual net income for further debt cancellation.

Recommendations

We would make the following recommendations for action to the Joint Committee on Finance and the Public Service:

1. The Irish debt policy has raised considerable interest in Ireland - and beyond. In order to ensure that progress on the debt policy can be followed by interested groups and individuals, formal statements on debt made by the constituency[5] of which Ireland is a part, at IMF and World Bank board meetings should be published.

2. The Minister for Finance's address to the IMF and World Bank AGM in Dubai 23/24 September is an opportunity to reaffirm Ireland's debt policy. The Minister should

• Call on the IMF and World Bank to acknowledge the need for total debt cancellation for low income countries; and urge both institutions to seriously examine their own resources to fund cancellation.
  
  
• Call for debt reduction to be delinked from IMF and World Bank conditionalities.

3. The Minister for Finance should be invited to report back to the Joint Committee on Finance and the Public Service on how he promoted Ireland's debt policy at the IMF and World Bank AGM

[1]'Relief Works' Jubilee Research at the New Economics Foundation August 2002

[2]UNDP 'Human Development Report 2003' page 152

[3]UNDP 'Human Development Report' 2003 page 3

[4]Report by Chantrey Vellacott DFK (CVDFK) for the Organisation 'Drop the Debt' Regarding the Potential Capacity for the World Bank and the IMF to contribute towards Deeper Debt Cancellation for HIPCs April 2001

[5]Ireland, Canada and 10 Caribbean countries are jointly represented by Canada at the IMF and World Bank. Canada takes the lead as it makes the largest contributions to both bodies

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