Reforming Paradoxes of Economic Development
Chapter 5: Application to debt relief, participation and knowledge
Debt relief initiatives and experience with the Poverty Reduction Strategy Papers (PRSPs) illustrate both the possibilities and limitations of change within the Bretton Woods Institutions. Even considering debt relief required tremendous political and institutional recalibrations within the World Bank and the IMF. Wolfensohn’s leadership was essential. Under Wolfensohn, debt relief moved from a completely taboo subject to being a top agenda item. Bessma Momani details how the issue of debt relief worked its way through the BWIs. Despite support from the United States (Bill Clinton), Britain (Tony Blair), and the Bank (Wolfensohn), debt relief faced substantial opposition on the part of the IMF Board of Governors and staff. This episode illustrates how a strong International Organization can resist political pressure, even from its leading share- holders. It also illustrates how IMF staff could demand accommodations that made debt relief more consistent with the organization’s internal culture and beliefs. Debt relief was initially adopted in 1996 targeting HIPC. These countries were put on a “short leash,” subject to strong IMF conditionality and oversight. While these were considered big steps for the IMF, they were viewed as only modest measures by the international community. External pressures for debt relief continued to grow. The Jubilee 2000 campaign helped usher in a more robust relief program (HIPC II), with lower thresholds of country qualification and the removal of certain ex ante IMF conditions. Significantly, HIPC II also gave Wolfensohn the opportunity to implement his new CDF under the auspices of country-led PRSPs.
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