Cancellation of debt breaks cycle of loans

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An agreement reached by rich countries on Saturday would for the first time eliminate the entire principal on more than $40 billion in loans owed by 18 of the world's poorest nations, rather than just lowering payments or reworking terms.

Since 1996, wealthy nations have taken incremental steps to pare back the debt of the world's poorest countries, but still have left them trapped in a cycle of borrowing to pay off old loans, rather than using all of the new funds to invest in health, education, infrastructure or other economic-development initiatives.

?We believe that by removing a crippling debt burden, we'll help millions of Africans improve their lives and grow their economies," President Bush said yesterday during a meeting with five African leaders.

Three of the five African nations -- Ghana, Mozambique and Niger -- qualify for debt cancellation under a plan outlined Saturday by finance ministers from the Group of Eight industrialized nations.

They are among 18 of the world's poorest countries that would see their debt to the World Bank and other multilateral institutions eliminated.

Since 1996, 38 nations, called highly indebted poor countries (HIPC), have been working to lower their debts to the World Bank, African Development Bank, International Monetary Fund and other multilateral lenders.

Only the 18 nations, most in Africa, have fully qualified under World Bank and IMF terms; the remaining still have not seen debt restructured under the HIPC plan, according to the World Bank.

Initially, the debt initiative offered even fewer countries a chance at debt relief because of tight restrictions that left most nations unqualified. By 1999, the World Bank and the International Monetary Fund more than doubled proposed debt relief and made more countries eligible.

"Unfortunately, the HIPC Initiative has failed to provide a lasting solution to the poor-country debt crisis. Debt-service payments for HIPC countries have been reduced by less than one-third, and the ... African countries that have received debt relief under HIPC still spent over $2 billion on debt-service payments last year," U.S. Rep. Maxine Waters, California Democrat and members of the Congressional Black Caucus wrote to Mr. Bush last week.

Theoretically, the money freed up by debt relief or cancellation would be spent on health, education and economic development.