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IMF worried by huge world debt

Ngoni Chanakira

THE Washington-based International Monetary Fund (IMF) and World Bank say they are extremely concerned about slow global growth and international financial stability, inc

luding large global current account imbalances and high public debt in many countries.

In their remarks at the closing press conference after the September 24 annual meetings, IMF managing director Horst Kohler and World Bank president James Wolfensohn pointed out that there was need for better balance in the global economy.

On September 8 the IMF and World Bank said while the arrears of other countries, with the exception of Sudan, continued to rise, the most notable of these was Zimbabwe.

Zimbabwe’s quota with the IMF stands at SDR353,4 million from a world total of SDR212 794 million as of August 31.

The country has however, been in continuous arrears to the Washington-based organisation since February 2001.

As of the end of May this year, Zimbabwe’s arrears to the IMF amounted to SDR164,9 million (US$233 million), or about 47% of the country’s quota in the Fund.

In his opening address, Wolfensohn drew attention to the imbalances in income, spending, and population between the world’s rich and poor, noting that “too few control too much, and too many have too little to hope for”.

He said rich countries for example, spend US$56 billion a year on development assistance, but US$300 billion on agricultural subsidies and US$600 billion for defence.

Poor countries themselves spend US$200 billion on defence, more than they spend on education.

In its 2003 Article IV Consultation with Zimbabwe the IMF said investor confidence had been eroded by concerns over political developments, weak governance and corruption, problems related to the implementation of government’s land reform programme, the push for an increased indigenisation of the business sector, and the selective enforcement of regulations.

Kohler noted that a number of risks continued to jeopardise global growth and international financial stability, including large global current account imbalances and high public debt in many countries.

Zimbabwe’s domestic debt currently stands at $595 billion.

Kohler said for example, Europe and Japan, who face looming pressures from aging populations, must take immediate steps to place their public finances on a sound medium-term footing.

He observed that in several emerging market economies where reserve accumulation had been rapid and current account surpluses were large, greater exchange rate flexibility would be helpful both domestically and globally.

Kohler said while the sharp swing in public finances in the United States had provided economic stimulus to the global economy during this period of economic weakness, “we now look to the US to establish a credible framework for a return to a balanced fiscal position over the cycle”.

Wolfensohn described the Millennium Development Goals, which world leaders agreed upon three years ago, as remarkable.

These goals have become the basis for a bargain between developing and industrial countries.

Developing countries have pledged to improve their policies, and they made progress, Wolfensohn said.

But they need to implement more reforms, in particular to tackle cronyism and corruption.

For their part, developed countries have agreed to support developing countries’ efforts by enhancing capacity building, increasing aid, and opening their markets to trade.

They, too, have made progress, Wolfensohn said, but not enough.

He said debt relief was insufficient, and aid today was at its lowest level ever.

Moreover, two-thirds of the world’s poor people depend on agriculture for their livelihood.

The breakdown of the Cancun trade talks, according to Kohler, must be a wake-up call for the international community.

“We all know that trade is the most powerful force for global growth and poverty alleviation,” he said, emphasising that success would depend on the leadership of the major industrial countries.

He said he agreed with Wolfensohn that more financing for development was needed to reach the Millenium Development Goals, reminding advanced countries that they need to live up to their commitments.

Liberia and Zimbabwe have had their voting and related rights suspended from the IMF in March and June this year, respectively for failing to make timely repayments of their debts.

There is currently no IMF representative in Zimbabwe after the former incumbent Gerry Johnson left the country last month.

President Robert Mugabe and his government have said they will no longer take advice from the IMF and World Bank, accusing them of sabotaging the country’s economy by dishing out “wrong pills” for problems.

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