The total debt of the world's 31 poorest countries was nearly US$210 billion in 1994, four times greater than in 1980. While the amount owed to the multilateral agencies (the World Bank, IMF, and major and minor regional development banks) is about 22% of that, nearly 50% of the debt payments of the severely indebted low-income countries (SILICs) goes to these multilaterals. The SILICs can only pay about half the debt payments they owe each year, and thus keep paying interest, not principal.

In addition to the multilateral debt mentioned above, about 60% of SILICs' debt is owed to donor governments; about two-thirds of that is owed to the US, Western Europe and Japan; the other third to the former Soviet Union or the Arab States. The reason for the discrepancy between the low proportion of debt to the multilaterals and the high amount of debt payments paid each year to the multilaterals is their "preferred creditor" status. They provide no debt relief and must be paid on time and in full. If they are not, all other credit to the borrowing government stops.

The SILICs are only able to remain current on their multilateral debts because they do not pay their other creditors. While they receive additional foreign assistance, it gets recycled to the multilaterals, or they use concessional loans from one multilateral to pay the debt of another or to pay off earlier debts to the same creditor. In short, a shell game operates so the SILICs appear current in their multilateral debt payments - and can keep borrowing with no real hope in sight.

Source - Centre Focus #131.