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A Letter to the Coordinator for the Debt and Development Coalition Ireland
By Vikram Nehru, Director,
Debt Department, World Bank
and
Mark Plant, Assistant Director,
Policy Development and Review Department, IMF

This letter was sent in response to an email campaign by Debt and Development Coalition Ireland, asking the IMF and World Bank for 100% debt cancellation for poor countries.

September 3, 2004

Dear Ms. Somers:

In recent weeks we have received many messages from your members, and would like to ask that you convey our thanks to them. We share your concerns about sustainable development and appreciate your commitment to lowering the debt burden of the world's poor. Indeed, we recognize debt relief to be one important component of a comprehensive strategy to help low-income countries to reduce poverty.

Our approach to the challenge of reducing poverty is to support countries in their efforts to meet the Millennium Development Goals (MDGs), agreed by the international community in 2000. We agree that prudent debt write-off is useful and indeed necessary for certain countries to reach the MDGs. However, the provision of 100 percent debt relief has implications that must be carefully considered.

Adequate financing is essential to help reduce poverty in as many parts of the world as possible. One hundred percent debt relief to HIPCs, without significant additional support from donor countries, would lower the concessional financing available to other poor countries. Is it fair—or wise—to divert assistance from other developing countries that suffer acute poverty, even though they have managed their debt responsibly? As it stands, HIPC countries already receive nearly five times more aid per capita than other low-income countries. This raises serious questions about fairness and about the effective use of aid for poverty reduction.

A comprehensive approach is crucial. Debt relief alone will neither guarantee debt sustainability, nor ensure growth and poverty reduction. Therefore, as we address debt in low-income countries, we must not lose sight of other key development issues, including the substantial potential of increased trade and aid for boosting their economies.

Developing countries themselves need to improve governance, stamp out corruption, enhance the capacity of public institutions, and boost economic growth. At the same time, the rich nations need to support them by delivering more and better aid, by opening their own markets, and by boosting their economic growth. Collectively, these are the most critical steps toward reducing poverty and preventing future debt crises.

The World Bank and the IMF are doing their part to mobilize the resources needed for developing countries to achieve the MDGs. The Bank is in the process of replenishing IDA. We are actively advocating increased access for developing countries to world markets, and assisting low-income countries develop investment climates more conducive to growth and poverty reduction. Through the HIPC Initiative, we have already mobilized more than $53bn in debt service relief. Looking to the future, we are developing a debt sustainability framework to better monitor and prevent the accumulation of unsustainable debt in low income countries. The World Bank has recently established a Debt Department to deal more comprehensively with debt issues in low and middle income countries.

Again, we appreciate your concern about the important issues of debt relief and debt sustainability. We look forward to continued interaction with you and other stakeholders as we work together to achieve our common goals.




IMF EXTERNAL RELATIONS DEPARTMENT

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