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Loan to Zambia was Entirely Appropriate

A Letter to the Editor
By Ernesto Hernández-Catá
Associate Director
African Department, IMF

Financial Times
February 22, 2001

Sir, Your account of International Monetary Fund and World Bank debt relief for Zambia ("Zambian aid doubts 'ignored'", February 16) completely misrepresents the situation.

Far from "ignoring" indications of irregularities in Zambian cobalt sales, the IMF was the first to raise the issue with the Zambian government, which agreed to the commissioning of an independent, outside audit as a condition for IMF lending and for IMF debt relief. The Zambian government immediately launched the audit.

It was an IMF economist who discovered the discrepancy between the market price of cobalt and the actual return under the contract signed by Zambia Consolidated Copper Mine two years ago. As a result of this discovery, the June 30, 2000 Letter of Intent for the IMF's concessional loan to Zambia indicated that the audit of the cobalt arrangement would be launched. The Letter of Intent is available on the IMF website.

It was precisely Zambia's agreement to proceed with the audit that allowed the IMF loan and the subsequent debt reduction accord to go ahead. With that agreement in place-and because ZCCM is no longer a government entity and has new management-it was entirely appropriate to move rapidly to help a country facing a heavy debt burden and severe poverty.

The IMF is extremely interested in seeing the final results of the audit when it is completed later this year, as are the Zambian authorities. The government of Zambia should be commended for addressing this issue, and the IMF has every confidence that it will be dealt with appropriately as Zambia strives to meet the urgent development needs of its people.




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