IMF, World Bank can cancel debt

May 23, 2001
Issue 

BY SEAN HEALY

Opponents of debt cancellation claim that such a move cannot happen because it would bankrupt the World Bank and the International Monetary Fund. While such a result might be good news for the world's poor, such a claim is false.

The World Bank and the IMF could cancel all debts owed to them tomorrow, if they wanted to, and remain solvent — a truth confirmed by an April report released by Drop the Debt, the successor to Jubilee 2000 UK.

Drop the Debt hired accountancy firm Chantrey Vellacott DFK to study the two institutions' finances and the impact of debt cancellation on them.

Its report found that the cost of going beyond the current Heavily Indebted Poor Countries "debt relief" initiative to provide 100% cancellation for the 22 countries already in the scheme would be $215 million per year for the World Bank and $287 million for the IMF. To extend it to all HIPCs would cost a further $138 million and $81 million respectively.

Chantry Vellacott DFK then outlined proposals that would release more than $30 billion of resources to fund deeper World Bank/IMF debt cancellation.

The IMF could write off its debts to the HIPC countries, according to Chantrey Vellacott, by using the earning capacity of its general reserves, together with a limited revaluation of its gold holdings.

Chantrey Vellacott showed that the World Bank can afford to cancel 100% of HIPC debts owed to its two lending arms through prudent use of reserves and future net income, without impacting on the bank's credit rating or its status as a lender.

If the member-countries of the powerful Group of Seven were to fund the write-off of the World Bank and IMF's debts from HIPCs, it would effectively cost each of their citizens one US dollar a year, the report also found.

The reason the IMF, the World Bank and the richest countries refuse to cancel the debt is clearly not because they can't, but because they won't: to do so would mean giving up a weapon by which they have subjugated poor countries to their will.

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