A MILLENNIAL GIFT TO DEVELOPING NATIONS
The New York Times Op-Ed Friday, June 11, 1999
By Jeffrey D. Sachs

About 700 million people - the very poorest - are held in debt bondage by
the rich countries. The so called Highly Indebted Poor Countries are a
group of 42 financially bankrupt and largely destitute economics. They owe
more than $100 billion in unpayable debt to the World Bank, the
International Monetary Fund, regional development banks and donor
governments,often reflecting the failures of past development loans.

Many of those loans were made to tyrannical regimes to suit cold war aims.
Many simply reflect misguided ideas of the past. The moral and practical
case for freeing these countries from their debt bondage is overwhelming.

Jubilee 2000, an organization supported by people as diverse as Pope John
Paul 11, Jesse Jackson and Bono, the rock star, has called for outright
elimination of the debt burden of many of the world's poorest countries.
This idea is often scoffed at as unrealistic, but it is the "realists" who
fail to understand the economic opportunities facing the world today.

The financial bankruptcy of the poorest countries has been evident for at
least 15 vears, but the I.M.F., the World Bank and the rich countries have
delayed real solutions to this chronic problem. The World Bank and I.M.F.
take great pride in claiming that their loans never go bad. So instead of
recognizing reality, they lend the poorest countries new money to repay the
old debts, claiming that the loans are still sound.

Economics ministers from poor nations spend all of their time negotiating
to stay one small step ahead of outright default, without the time or
financial stability to address longterm problems. The only winners are the
staffs of the I.M.F. and World Bank, which have invented a perpetual motion
machine for endless missions to these hapless countries.

In, 1996, the creditors inched toward slightly bolder measures. The I.M.F.
and World Bank announced a relief program with great fanfare, but without
including any true dialogue with the affected countries.

Three years later, these plans have failed. Just two countries (Bolivia and
Uganda) were given about $200 million, while 40 others continue to wait in
line. In this same period, the stock market wealth of the rich countries
has grown by more than $5 trillion, more than 50 times the debt owed by the
42 poor countries.

So it's a cruel joke for the world's wealthy governments to protest that
they can't afford to cancel the debts. The poorest nations owe about $106
billion in total to the I.M.F., World Bank, international commercial banks
and rich-country governments. The I.M.F. is sitting on $22 billion of
unrealized capital gains on its gold reserves, since it values its gold at
$47 per ounce rather than the true market value of $262 per ounce.

By selling just a third of its gold reserves, it could achieve the $7.8
billion needed to write off the debts to the International Monetary Fund in
their entirety, without even touching the remaining balance sheet. In
addition, the I.M.F. balance sheet already abounds with special reserve
accounts intended to absorb loan losses in an orderly way.

Similarly, the World Bank could readily absorb a full writedown of its
claims out of its own resources. It would have to use special reserve funds
already set aside for loan losses, dip slightly into its capital base and
slim down its future lending to the poor countries. But with debt relief,
the poor nations would no longer need this financing at the same level.

The commercial banks in total have claims of about $19 billion, a tiny
fraction of their lending to developing countries. most of this is already
written off in their balance sheets , so a full writeoff would be easily
absorbed.

The United States, for its part, isn't so foolish as to count its roughly
$6 billion of claims on the poor nations at face value. These loans are
already carried on the books at about 10 percent of their face value, or
around $600 million. Thus, to cancel entirely the American claims on the
poorest countries would require a budget outlay of just $600 million. The
situation is analogous for other creditor governments.

Rough guidelines might hold that 80 percent or so of the debts would he
canceled outright. The remaining 20 percent would be repaid in local
currency, for uses in new social programs aimed at overcoming the inultiple
crises of health, nutrition, water and sanitation that threaten the very
survival of these societies.

The problems of HIV and AIDS, malaria, malnutrition and water control all
cross national boun,larics, especially in Africa. Tliciefurc, wu should
insist that Africa's regional groupings, like the Southern African
Development Community, help set the terms. By forcing cooperation among the
poor countries, the dollars would be emulating the strategy of the United
States in designing the Marshall Plan, which achieved success in part by
fostering exterisive economic cooperation arriong European countries.

Important leaders throughout Africa, tested at the ballot box, place to
lead this effort, including President Obasanjo of Nigeria, Thabo Mbeki of
South Africa, Navin Ramgoolam of Mauritius and Yoweri Museveni of Uganda.
In the case of the poor countries, today's visionaries may prove to be tile
realists.

Jeffrey D. Sachs is the director of the Center for International
Development at Harvard University Ond serves as an economic adviser to
Jubilee 2000 and to many developing countries