Switzerland against rapid reduction of poor-country debt

The International Monetary Fund is meeting in Prague next week. www.imf.org

Switzerland has warned against cutting the debt of poor countries too rapidly ahead of the annual meeting of the International Monetary Fund (IMF) in Prague next week. Instead Berne says it will press for a debt-relief programme that is sustainable.

This content was published on September 20, 2000 - 17:21

Switzerland fears that the IMF and World Bank Heavily Indebted Poor Countries (HIPC) initiative could lead to countries being relieved of their debt even though they have not undertaken the necessary reforms.

Giorgio Dhima, head of the IMF section in the finance ministry, says rapid debt relief for these countries would only lead them to take out more loans at a later date.

The HIPC initiative was launched in 1996 to eliminate unsustainable debt in the world's poorest and most heavily indebted countries. Last October, the international community agreed to speed up the initiative and widen its scope both in terms of the number of countries eligible and the amount of debt-relief available.

Dhima said half the countries targeted for the HIPC initiative had seen their exports drop and growth slow down over the past year. He said Switzerland wanted to ensure that the criteria for debt relief were not watered down at the IMF meeting in Prague.

Berne is particularly concerned that British efforts to add another 10 countries to the list would be done at the expense of the strict qualifying criteria.

"We are very much in favour of the HIPC initiative, and we support it and finance it, but it would be wrong to relieve debt to countries that are not really willing to reform their economies," he told swissinfo.

To qualify for debt relief, countries must pass two selection stages laid down by the IMF. A debtor country must firstly demonstrate its capacity to carefully manage any assistance, usually over a period of three years.

In the next stage, the country must start implementing a programme of poverty reduction prepared with broad participation by different interest groups in civil society. During this period, it receives interim relief from the IMF. Only at the end does a country qualify for the remainder of the debt relief pledged by the IMF.

Dhima says Switzerland is likely to be in a minority in insisting the criteria should be respected.

"There is considerable pressure to support this initiative. This may not be news that other delegates want to hear, but we would like to make sure that this debt initiative is a success, not only in terms of spending money, but a success in really reducing poverty and the debt burden of the poorest countries."

Non-governmental organisations are among those who would like to see this process speeded up. The HIPC initiative and reforms of the international financial order are the two issues topping their agenda in talks with the IMF and World Bank in the Czech capital.

Bruno Gurtner, an economist who will be representing the Swiss Coalition of Development Organisations in Prague, says faster debt relief for poor countries must be a priority.

"The debt relief story is a sad one, because the poorest countries have been waiting for if for a long time," he said. "They need this debt relief because most of these countries have to pay more towards servicing their foreign debt than they can pay for health or education."

In spite of this, Gurtner is sympathetic to the position defended by the Swiss government.

"Some countries do not fulfil the conditions where they can be trusted to spend the money freed by debt-relief to fight poverty," he said. "But I have the suspicion that some countries do not want to speed up the initiative because they do not want to pay their contribution to finance this debt relief."

Gurtner said it was mainly the G7 group of industrialised countries that fell into this category. He said Switzerland's contributions and pledges placed it in the middle of the field.

Over the past year, $10 billion of debt relief have been committed for ten countries under the expanded HIPC initiative, bringing the total committed to $17 billion since the programme began four years ago.

The extent of progress made also depends on how far protestors are able to disrupt the gatherings in Prague, as they did in Seattle last year and more recently in Melbourne. The Czech government is deploying 11,000 police to protect the delegates, and has pledged to prevent any chaos.

by Malcolm Shearmur

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