IMF pressed to cancel debts of Ebola-hit countries

The calls for a debt alleviation for Guinea, Liberia and Sierra Leone are coming not only from anti-poverty organizations

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The International Monetary Fund is under mounting pressure to cancel the debts of the three poor West African countries hit hardest by Ebola, as their economies stall under the fallout from the disease.

The calls for a debt alleviation for Guinea, Liberia and Sierra Leone are coming not only from anti-poverty organizations.

In mid-December, a U.N. commission also urged serious consideration for eliminating at least some of the debts of the three countries.

And the United States, the IMF's largest shareholder, has taken a stand on the issue as well, exhorting the crisis lender to wipe out around a fifth of the $480 million in debt owed it by the trio.

Such a move would free resources to restart economic activities in the countries where the disease has taken more than 7,800 lives, U.S. Treasury Secretary Jacob Lew said.

Meeting in Australia in mid-November, the heads of the G20 group of leading economies stepped up the pressure when they said that the IMF's promise of $300 million to help fight the epidemic should include debt alleviation.

The calls for the IMF, which lends money to economies most in need, but usually with attached requirements for reforms and financial discipline, have spurred the institution into intense reflection, and it could come up with an initiative in January.

"Staff are looking at further options to provide support to the Ebola-hit countries, through reform of an existing facility," a Fund spokesman told AFP.

Traditionally bound to a narrow, orthodox mission of financial support and loans to governments that it expects to be repaid, the IMF in reality needs to expand its tools for aiding troubled economies.

After the earthquake disaster in Haiti of 2010, the Fund did create a mechanism for dealing with natural catastrophes that hit its borrowers.

That made way for the IMF to eliminate $268 million that the Haitian government owed to the fund.

But the mechanism is too restrictive to be applied to the Ebola epidemic: it is limited to "devastating" natural disasters.

According to advocates of the move, even if the loans come with zero interest rates, they constitute a constant burden that can financially strangle the governments of Ebola-hit countries.

"A broad criticism of using loans to help very poor countries is that, formally, no matter how bad their situation gets, they must repay every penny," said David Roodman, an independent expert on economic development.

Sierra Leone and Guinea both have had to make loan repayments this year to the IMF despite the Ebola crisis, according to Fund data.

The World Bank has understood the problem. It has mobilized $500 million for the three countries in the form of grants "which never need to be repaid," according to Bank spokesman Phil Hay.

Doing the same is proving more difficult for the IMF. "It's like asking a banker to embrace not getting repaid -- it goes against their nature," said Roodman.

The benefits of a debt writeoff would not be small.

"The important thing about financing coming through debt relief is that it allows long-term investment on social infrastructure" like strengthening health care systems, said Eric LeCompte of anti-poverty group Jubilee U.S.A.

Indeed, the IMF has been accused of contributing to the weakening of the health care and disease prevention operations in Western Africa through tough austerity policies it required along with loans in the 1980s and 1990s.

That is the assessment of a recent study by three British institutions.

"Policies advocated by the IMF have contributed to underfunded, insufficiently staffed and poorly prepared health systems in the countries with Ebola outbreaks," said Cambridge sociologist and lead study author Alexander Kentikelenis.

But the IMF categorically rejected their conclusion.

"Such claims are based on a misunderstanding, and, in some cases, a misrepresentation, of IMF policies," a spokesman said.

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