World Bank report calls for changes in G8 debt plan

Washington | Updated: Aug 4 2005, 05:30am hrs
The World Bank is calling for substantial changes in the highly-touted debt relief proposal for poor African countries agreed to at last months Group of Eight summit.

A World Bank staff report given to Reuters says the deal reached by leaders of G-8 industrialized nations the United States, Britain, Germany, France, Japan, Italy, Canada and Russia lacks sufficient compensation to the banks low interest lending arm most affected by the debt relief plan. The potential cost to the banks International Development Association (IDA) lending facility could be more than $50 billion, including commitments made under previous debt-relief initiatives, according to the report.

Without some form of funding to make up for the losses, the IDA would have its ability to continue lending to the worlds poorest nations severely undermined, said the report by World Bank senior officials Geoffrey Lamb and Danny Leipziger.

If IDA is fully compensated in a robust, certain way, the institution would be able to maintain its role as the cornerstone to global development efforts, said the report. If not, IDA risks undergoing a fairly rapid decline in its financing capacity, an outcome clearly not consistent with the intention of the framers of the G8 proposal.

The IDA is the worlds largest lending facility for poor countries, offering the most affordable loans along with grants to governments in need. The report is considered an initial posturing by the World Bank on the G-8 initiative, which responded to years of pressure from activists and the development community by canceling 100 percent of the debt owed by 23 nations most of them in Africa to the IDA, the IMF and the African Development Bank. Both the World Bank and the International Monetary Fund, its sister global lending organization, are considering implications of the G-8 deal in separate meetings starting this week. According to the World Bank report, the deal would mean the IDA loses between $27.1 billion to $42.8 billion in outstanding loans, along with another $15.4 billion previously canceled under a 1996 Heavily Indebted Poor Countries (HIPC) initiative.