October 1, 1999

For years the world's poorest countries have paid more to service their international debts than they receive in overseas aid. But this week's revamp of the three-year-old Highly Indebted Poor Country Initiative, foreshadowed at the G7 summit in July, is expected to help overcome the problem.

The original scheme earmarked 41 countries for attention but attached such tough strings that only four countries qualified for debt relief.

Initial plans by the International Monetary Fund to finance the scheme by selling 10 per cent of its gold reserves sparked opposition from developing countries and the World Gold Council. The fall in gold prices between March and July alone would cost the HIPCs up to $200 million in lost export earnings in 2000.

The IMF relented over gold sales and the creditor nations signed up this week for the enhanced initiative. Will it have a real impact? Oliver Morrisey, senior lecturer in economics at the University of Nottingham and a specialist in development economics, said: "I would not expect dramatic changes. It is likely to mean more countries qualifying for inclusion rather than the existing number benefiting more."

Robert Read, lecturer in economics at Lancaster University, said: "The deal is a recognition, particularly on the part of the IMF, that structural adjustment along laissez-faire lines is not the universal panacea for problems in developing countries.

"Less dogmatic structural adjustment may encourage growth and may certainly reduce its adverse social effects (cuts in government spending on health, etc). What also really matters is that the HIPCs actually have good and continued access to developed country markets for their exports."

Stephany Griffith-Jones, a fellow of the Institute for Development Studies, University of Sussex, said constraints on the World Bank, IMF and the G7 countries were political. "If en-hancement is done through the revaluation of gold, and not at the expense of aid for HIPC and other poorer countries, nor through more expensive loan programmes for middle-income countries, it is very valuable."

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