Protection of the Poor and the Millennium Development Goals
Chapter 13: MDGs and Preferred Creditor Status
Since the very start of debt management by the BWIs they have asserted that they were preferred creditors and could therefore not be expected to ‘forgive’ any debt. Once debt reduction had become unavoidable, IFIs claimed that others would have to grant them. Over the years, this claim, strongly supported by the Paris Club, gained more and more credibility. For SCs with large shares of multilateral debts this meant an important, additional difficulty. Even after James Wolfensohn had broken the taboo by pushing for the introduction of HIPC, IFIs have remained privileged. Under HIPC all other creditors are supposed to take haircuts first. Only if this would still be considered insufficient by the BWIs, their own claims can be touched. If so, as much as possible has been shifted on to other creditors via the HIPC Trust Fund, which refunds debt relief provided by IFIs under HIPC. Although it has always been financed in part by the IBRD – Wolfensohn immediately proposed the windfall surplus in 1995 as one source of money – this fund largely shifts the financial burden. Nordic countries especially, such as Norway, have picked up the bill. In 1988, on the initiative of the Nordic countries, a debt relief mechanism called the Fifth Dimension was established to provide relief for newly turned IDA countries still having to service old loans on market-based IBRD conditions. Unsurprisingly under the MDRI, the BWIs were again able to shift the financial burden on to others. To avoid misunderstanding: the initiative by Nordic...
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