Moving funds around is no way to help the poor
From Prof Jeffrey D. Sachs.
Sir, US Treasury secretary Lawrence Summers seems to argue that if the World Bank were to give grants to the world's poorest countries, rather than concessional loans (as is the current practice), the resources available to those countries would be "dramatically" reduced ("The troubling aspects of IMF reform", March 23). He notes that debt repayments by the poorest countries are used to make nearly half of new loans to those countries, and argues that "this self-financing capacity, with respect to very highly subsidised support, is a resource we should be very wary of giving up".
But surely the real resources transferred to the poorest countries depend only on the funds actually given to them by the rich countries, not at all on the loans repaid by the poor countries themselves. If a group of poor countries repays $1bn in loans, so that the same money can be recycled to give these countries another $1bn in new loans, no net resources are transferred to the group. The poor countries are certainly not enjoying "very highly subsidised support" by this round-trip of funds. In fact, with nearly half of the World Bank's International Development Association (concessional) flows actually coming from the poorest countries themselves, the US Treasury secretary is really signaling the utter inadequacy of the current IDA scheme.
It is time that the G7 governments face up to a basic truth. The world's poorest countries desperately need more help - in the form of outright debt cancellation and increased grant aid - than that put on the table in recycled IDA funds and the utterly inadequate HIPC Initiative. The G-7 may continue the shell game of moving funds around to pretend that they are giving help when they are not, but nobody else is fooled, least of all the millions of people in the poorest countries who are sick or dying for lack of funds for medical care and adequate nutrition.
Jeffrey D. Sachs, Director, Center for International Development, Harvard University, 79 J. F. Kennedy Street, Cambridge, MA 02138, US Copyright Financial Times Limited 2000. All Rights Reserved.