Mali: Doubts Grow About Debt Relief

International creditors of Mali have agreed to cancel $675 million of its debt over time under a controversial debt relief scheme, rewarding the West African nation for its pro-free market economic restructuring plan, they say.

But doubts remain over whether such a move can actually reduce poverty rates in the impoverished nation, one of the poorest in the world.

Mali, which initially qualified for the debt relief in September 2000, becomes the seventh country to reach the completion point of the Heavily Indebted Poor Countries Initiative (HIPC) - the mark when creditors permanently grant the debt forgiveness.

The International Monetary Fund (IMF) and the World Bank's International Development Association (IDA), which offers concessional loans on easy terms, said Mali's total external debt would be cut by 29 percent, or a total of 37 percent including the aid already agreed to under the HIPC initiative in 2000.

The two organizations, often blamed for adding burdensome conditions on borrowing nations, say that the new relief comes as a result of Mali's adherence to free market economic principles, and argue that the HIPC has been successful in lowering poverty.

"This debt relief package, combined with the broader reforms being carried out by the government, contributes towards Mali's sustained growth and poverty reduction in the future," said David Craig, World Bank country director for Mali, in a statement.

The two U.S.-dominated institutions said in a statement released Friday that the nation's remaining creditors, including the Paris Club - 19 governments of northern countries with large claims on other governments worldwide - are also now expected to make available their share of relief.

The money spared under debt relief will be rechannelled to fight poverty in the poor nation, according to the country's Poverty Reduction Strategy Paper (PRSP), a plan of economic reform approved by the Fund and the Bank.

"Now that Mali has succeeded in achieving a stable macroeconomic environment, HIPC debt relief will contribute to sustained growth in the country," said Cyrille Briancon, IMF mission chief for Mali.

Mali says its PRSP is designed to perk up governance and participation; develop its human capital while providing access to basic social services; and improve its infrastructure and support for key productive sectors.

IDA will provide $213 million in debt service relief, through a 50 percent reduction in debt service on IDA credits from 2000 through 2014, while the IMF will forgive $63 million , to be delivered through a 38 percent cut in debt service from 2000 to 2008.

Mali's economic liberalization programme, said the statement, has made the landlocked nation of 11 million people, which committed itself to economic liberalization in 1988, "more competitive".

Cotton production increased over the 1990s to make Mali the second-largest African exporter of cotton behind Egypt, while gold production also rose rapidly to overtake cotton as Mali's first export product, according to the Fund and the Bank.

"The reform process in Mali is beginning to have a significant impact in cutting poverty," said the Bank's Craig.

But the Zimbabwe-based African Forum and Network on Debt and Development (AFRODAD) estimates that Mali spends about 3.1 percent of its gross national product (GNP) on servicing its debt and only two percent of GNP on health and 2.2 percent on education.

About 64 percent of the population live below the poverty line of less than two dollars a day, according to the World Bank. Mali ranked 153 out of 162 countries in the 2001 Human Development Index of the United Nations Development Programme (UNDP).

And despite years of liberalization, poverty is still widespread with only 37 percent of the population having access to safe water.

Launched in 1996, the controversial HIPC scheme aims to reduce the debt - particularly that portion of the debt owed to multilateral agencies like the Bank and the IMF - of the world's poorest countries to levels at which creditors think those countries will be able to manage repayments.

But the scheme has come under heavy criticism from civil society groups, activists, some economists, and even, some of the two institutions' staff, who say that debt relief has failed to trickle down to the grassroots in beneficiary countries.

In a report last year, staff at the Bank and the Fund described HIPC as a project that has gone largely off track. Of the 26 countries that have reached the point where creditors agree to ease their debt, only five have graduated to the completion point, when the debt is actually delivered.

As many as 10 of the countries will have to grapple with debt problems after reaching their completion points, the report conceded. This is twice as many as anticipated just one year ago.

Governments in borrowing nations are trapped between the talk of the World Bank and the Fund on the need to provide services for the poor and those same institutions' relentless pressure to improve "productive sectors", a euphemism for boosting exports, the linchpin of the institutions' prescription for developing countries.

Development campaigners say that the much-touted social funds provided under HIPC have not been translated into better social services for the poor.

Mali, for instance, is still heavily dependent on foreign assistance or remittances from expatriates, despite years of economic liberalization.

Other countries that qualified for the point of completion under the debt-relief program are Bolivia, Burkina Faso, Mauritania, Mozambique, Tanzania and Uganda.

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