The firm claimed its scheme could reduce debt owed to the World Bank and IMF by the 26 countries belonging to the Highly-Indebted Poor Countries group by $3bn (Pounds 2.09bn) immediately.
And vitally, it would put in place mechanisms, which would result in annual repayments of $1bn (Pounds 698m) effectively ending all third world debt repayment by 2026.
Chantrey Vellacott recommended the World Bank make an immediate one-off contribution of $2.8bn to the debt owed by HIPC countries, from its cash reserves and commit itself to an annual contribution of a third of its annual net income to HIPC debt cancellation, equalling approximately two thirds of a billion dollars per year.
In addition, the International Development Arm, the soft loan lending wing of the World Bank, should seek no further reimbursement from the HIPC Debt Initiative, a move which could be financed by increasing IDA member contributions by $300m a year, an increase of 8% on annual contributions.
The IDA could also contribute a further $500m per annum to HIPC debt cancellation, partly by implementing a sale and repurchase of one-eighth of its gold reserves.
The report claimed the proposal would have no detrimental effect on the financial stability and lending ability of the World Bank or IMF, given that the capital and cash reserves at the World Bank, IDA and IMF currently total more than the $410bn.
However, the World Bank has remained resistant to the plan, claiming it could negatively impact on its Standard & Poor’s AAA rating and reduce its lending role in developing countries. A Standard & Poor’s spokesperson was reported in today’s FT as saying that a widening of the World Bank’s HIPC debt relief net would erode its status.
Drop the Debt, the charity group which commissioned the report said 17 HIPC countries which currently spent $1.4bn annually repaying debts could use the money to fight the AIDS epidemic. Drop the Debt estimated these countries needed $1.5bn annually to combat AIDS at an adequate level.
Adrian Lovett, director of Drop the Debt, said: The AIDS crisis is devastating Africa and the continent’s biggest creditors, the IMF and World Bank, are still taking the money. They should take a reality check and act now to cancel the debt. From today, the old excuse that they cannot afford to do so is comprehensively demolished.’
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