FOCUS: THIRD WORLD DEBT: And what will our leaders do about it today at the IMF?

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There is a sad little graph tucked away in a World Bank paper published earlier this year - sad, but also infuriating and potentially explosive. It is a simple cross. One line, representing growth in Russia in the past decade, slopes steeply downwards. The other, representing inequality, slopes equally steeply up. What that means is desperately clear to anyone who has visited Russia in the past few years: it means poverty, the dismal descent of millions of people into a state in which they cannot feed or house themselves adequately. It is a graph which Gordon Brown, the new chairman of the IMF's Interim Committee, should cut out, tape to his wall and look at every day.

Poverty will be the hallmark of the annual meetings of the International Monetary Fund and World Bank over the next few days. Poverty is written into every document, as both organisations seek new ways to improve the lot of billions around the world. Poverty is the cause behind which the many lobby groups that will swarm into Washington have rallied. Mr Brown and Clare Short have done a lot to help to ensure that these issues are on the agenda, but much more is needed.

James Wolfensohn, the head of the World Bank, has made it clear that, for his organisation at least, poverty is the number one item this week. "I'm anxious to try to focus the body on the fact that we are coming into a millennium, that in a very few number of days we'll have 6 billion people on the planet, of whom 3 billion will live under $2 a day, and 1.3 billion under $1 a day," he said last week.

And for once, the leading industrial countries which run the international financial organisations will actually do something about poverty this week. They will put the finishing touches to a scheme that should, in theory at least, lift some of the crippling burden of foreign debt on Heavily Indebted Poor Countries (HIPCs). Many borrowed massive sums in the 1970s and 1980s, and they cannot afford to pay them back. Some have stopped servicing the debt, but many simply grind on, year after year, paying interest on debts which everyone knows will never be repaid, money which could be used to build hospitals, schools or just for food.

Jubilee 2000, a consortium of groups calling for debt cancellation for the millennium, has helped to focus attention on the issue. It has had, according to Mark Malloch Brown, the United Nations Development Programme's administrator, "huge popular success in mobilising activists to lobby their governments and build a political movement to push for debt relief".

"It's not about raising money," he said. "It's about getting through to large international organisations, and using everybody to connect north with south, to connect person with person around a political idea." NetAid, a project led by UNDP, is also focusing on poverty and debt, and will stage Live Aid-style concerts next month.

It is not just a media event: it has generated political momentum. At their Cologne summit earlier this year, the G7 countries agreed to revamp their existing debt relief scheme, changing the criteria, injecting more money and increasing the pace. Development groups are still disappointed: they want the debts written off. "The Cologne initiative will give a little to a few countries and nothing to many others," said Jubilee 2000.

"Forgiving debt is a very important precondition to dealing with poverty, but forgiving debt itself doesn't generate money," said Mr Wolfensohn. "It doesn't generate a flow of resources." But it is a start.

The critics of the new HIPC deal, however, argue that it is crucially flawed: the initiative left the power of decision over who gets the money and how squarely in the hands of the IMF, the financial bureaucrats whom many blame for the whole terrible mess in the first place because of its rigid attitude towards economic reform. "Even where countries will see a drop in their debt service payments, it will mostly be marginal, must first be agreed by the IMF, and the benefits will be seen only over a number of years," said Christian Aid's Andrew Simms.

"We believe that the IMF has fundamentally failed," said Kevin Watkins of Oxfam. While the poorest nations in Africa may see some benefits from the HIPC initiative, many others continue to drift into poverty, and there will be little said about that this week. Russia, for instance, is an object lesson in the failures which continue to accumulate, a point raised repeatedly by Joseph Stiglitz, the economist at the World Bank. It was his report earlier in the year which contained that graph. Stiglitz has dared repeatedly to challenge the financial orthodoxy which is styled the "Washington Consensus".

Stiglitz argues that aggressive, across-the-board reforms failed to understand how market economies work, or the politics of reform, and in large part he too blames the IMF. In effect, the accusation is that while the HIPC initiative is trying to pull people out of poverty created by mistakes made decades ago, the IMF is busily condemning millions more to the same fate.

The IMF itself is caught in a crossfire. The left thinks it penalises the poor, is too doctrinaire on market economics and fails to spend enough. The right, especially in the US Congress, thinks it penalises the private sector, is not concerned enough with free markets and spends too much. And it is the US Congress which largely determines how much cash the organisation gets and how it is run. The Fund has made some moves towards accommodating poverty in its policies. But the politics of the international economy mean that whatever Oxfam or anybody else thinks, Western donors will continue to insist that it plays hardball even as the World Bank shifts towards more pro-development policies.

What is important is how the Fund plays that role. The debate on debt forgiveness has raised questions which go to the heart of the role of the organisation itself. But reforming the IMF may prove too complicated an issue to address through pop concerts and lobbying by celebrities.

LEADING ARTICLE: PAGE 28

This is what they should do ...

ON THE eve of the World Bank and IMF annual meetings, IMF chief Michel Camdessus said, "There is no room for complacency." The world's poor could not agree more.

Last week Gordon Brown hailed the meetings as probably the most important week in the international campaign for debt relief. Paper promises for an improved debt deal made by the G7 in June hang in the balance. Although a welcome sign of political commitment, the fate of G7 proposals for more money, to more countries, are dependent on nuts-and-bolts technical decisions to be taken this week. The deal is not yet in the bag.

Despite hopeful promises by Camdessus that financing for the debt deal will be secured this week, the World Development Movement warns that, in the eyes of the world's poor, the Heavily Indebted Poor Countries Initiative (HIPC) may still be remembered as a tragic farce that failed the very people it was supposed to help.

This is because debt relief comes with strings attached. Before getting relief, poor countries first have to implement economic reforms designed by the IMF. These include policies designed to reduce government expenditure, liberalise trade and reduce inflation. Although aimed at stabilising debtor country economies by securing economic growth, evidence has repeatedly shown that in many cases this mix of ultra-free-market policies is having a devastating impact on the poorest sectors of society, pushing them even deeper into poverty. The bitter irony is that to get debt relief, poor countries are first having to implement policies that make poor people poorer.

June's G7 meeting offered encouraging words on the need for debt relief to be linked more closely to poverty reduction. In rhetoric at least, the IMF appears to have gone some way towards picking up the challenge. Camdessus's opening address recognised that relief must be poverty-focused and conceded the need to transform IMF reform programmes.

This is both surprising and welcome, but the IMF may in reality be offering little more than a change in window-dressing. Although laudable, proposals made by the IMF to improve the poverty focus of their economic reforms by protecting spending on health and education fall short of the mark. The damaging impact of their policies on the poor are not just caused by cuts in social spending, but by the combined effects of the whole package.

The IMF may have learnt the rhetoric. But, by putting all its trust in economic growth, the benefits of which are not reaching the poor, it remains wedded to an outdated economic orthodoxy. If it is serious about poverty reduction, the IMF still has important lessons to learn.

The stakes for this week's meetings couldn't be higher. As newly-appointed chair of the IMF's powerful Interim Committee, and a pioneer for debt relief, Gordon Brown has his work cut out in Washington. Having worked so hard to get the debt deal this far, his challenge now is to ensure that HIPC doesn't fall at the final fence. Debt relief policies must not be linked to policies that make poor people poorer. A commitment must be made at the annual meetings to subject IMF reform programmes to a fundamental overhaul. Anything less is tinkering at the edges. For the billions of people crippled by the burden of debt, there is no room for half-way measures.

BETHAN BROOKES

WORLD DEVELOPMENT MOVEMENT

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