World Bank Approves Debt Relief for 17 Countries from July 2006
The World Bank's Board of Executive Directors has approved the financing and implementation of the share of its International Development Association (IDA) section in the Multilateral Debt Relief Initiative (MDRI), with now only the vote of the Board of Governors outstanding. The World Bank hopes to be able to implement the debt relief in mid-2006 and it is estimated to amount to US$37 billion over the coming four decades. Eligible for a 100% debt write-off are Benin, Bolivia, Burkina Faso, Ethiopia, Ghana, Guyana, Honduras, Madagascar, Mali, Mozambique, Nicaragua, Niger, Rwanda, Senegal, Tanzania, Uganda and Zambia, all of which have undergone the Highly Indebted Poor Countries (HIPC) programme. Mauritania is also an HIPC country, but needs to complete expenditure-management reforms first. Additional countries still undergoing the HIPC process need to complete this first before becoming eligible for debt relief.
First mooted at the G8 summit in Scotland in July 2005, the MDRI foresees a full write-off of debt owed to the multilateral lenders, the International Monetary Fund, the World Bank and the African Development Bank (see Global: 9 December 2005: IMF Executive Board Reaches Agreement on Multilateral Debt-Relief Initiative).
Significance: The World Bank holds the largest chunk of the debt to be written off and therefore refused to agree to the debt-relief deal unless it received assurances that the funds forgiven would be replenished by the Bank's shareholders so that new lending operations would not be affected - and the World Bank has, of course, strongly backed calls for increased amounts of aid. What has been missing, however, is a fully independent, external review of the World Bank's operations and an investigation into why it should be left with such an enormous amount of bad debt. Effectively, the World Bank has ensured that it can reclaim the money it has poured into unsustainable lending operations from the taxpayers. This also means that there is limited knowledge on what should be done differently in future to avoid a similar build-up of debt, which is an implicit objective of the World Bank that, like any other institution, would seek to expand its lending and operations, particularly if it is not going to be penalised for mistakes.