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Note: This document is from the archive of the Africa Policy E-Journal, published
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Africa: Debt Update
Africa: Debt Update
Date distributed (ymd): 010119
Document reposted by APIC
+++++++++++++++++++++Document Profile+++++++++++++++++++++
Region: Continent-Wide
Issue Areas: +economy/development+ +debt+
Summary Contents:
This posting contains year-end status reports on debt relief, as
well as links for more detailed information, from Jubilee 2000 UK
and from the World Bank/IMF. Another posting sent out today
contains the text of the Dakar Manifesto calling for 'total and
unconditional cancellation of Africa's debt.'
+++++++++++++++++end profile++++++++++++++++++++++++++++++
Twenty-two Countries Due to Gain Some Debt Relief in 2000, but
Cancellation must Go Deeper
Jubilee 2000 Coalition 1 Rivington St, London EC2A 3DT Tel 020
4077447 ext 265. E-mail: mail@jubilee2000uk.org Web:
http://www.jubilee2000uk.org
A full policy briefing, including statistical tables and footnotes,
can be found at:
http://www.jubilee2000uk.org/reports/dropped1200.html
A comprehensive recent summary of country-specific data on African
debt, entitled Eye of the Needle, can be found at:
http://www.jubilee2000uk.org/reports/needle.html
21 December 2000
By the end of the year 2000 a maximum of twenty-two countries will
have reached the decision point or half-way stage in the Enhanced
Heavily Indebted Poor Countries (HIPC) Initiative. A year ago the
IMF and World Bank promised 24 or 25, less than half the number
Jubilee 2000 views as urgently requiring relief. However, even this
modest target proved too ambitious. Amongst the 22 countries, there
are admittedly some clear successes - Uganda, Mozambique and Guyana
are examples - where debt relief has been deep enough to make a
real impact on poverty reduction. Other milestones are the
agreement of the US Congress in October to provide $435 million of
funding towards the initiative, and the announcement of the British
government in December either to cancel outright or hold in trust
all payments made by HIPC countries to the UK. But despite these
successes Jubilee 2000's overall assessment is that the Enhanced
HIPC is failing - it is providing too little relief for those
countries that are in the initiative, it is moving at too slow a
pace, and it excludes too many indebted countries.
How much debt has been cancelled so far?
As of 21 December 2000, seventeen countries (Benin, Bolivia,
Burkina Faso, Cameroon, Gambia, Guinea Bissau, Guyana, Honduras,
Mali, Mauritania, Mozambique, Niger, Sao Tome & Principe, Senegal,
Tanzania, Uganda, Zambia) have begun to receive relief under the
enhanced Heavily Indebted Poor Countries (HIPC) initiative agreed
in Cologne. These seventeen have been promised debt relief of $11
billion, although the reality is that this is spread very thinly,
delivered in reductions in debt service payments over the next 25
years. The next five countries in line for debt relief at decision
point are Malawi, Guinea, Madagascar, Rwanda and Nicaragua. Of
these Rwanda may not make decision point in December, but if this
is the case it will follow early in 2001. On average for these 22
countries the reduction in debt service will be just over a third.
Are these countries getting enough debt relief?
No. Even after HIPC relief, these countries are still paying over
one and a half times more in debt service than they are on health.
Uganda has one of the highest levels of HIV infection in the world,
which has already left one million children orphaned. 60% of the
population in Bolivia do not have access to even basic sanitation,
and one third of the population has no access to safe water. In
Mauritania the adult illiteracy rate stands at 62%, one of the
highest in the world. Mozambique is facing the daunting task of
reconstruction following the worst floods the country has
experienced in living memory. In Tanzania about a third of the
country's children are malnourished, and under half are enrolled in
primary school. Yet in Tanzania, the government will be faced with
even greater payments than it has currently been paying.Zambia is
the latest case to illustrate the inadequacy of the HIPC
initiative. Despite the half-hearted efforts of the IMF to deal
with the steep rise in debt repayments due to the institution,
Zambia faces increased payments after reaching HIPC decision point
in December. This comes when the country is still reeling from the
depressed price of copper, its main export, in world markets, and
the impact of HIV/AIDS. The disability-adjusted life expectancy
(DALE) in Zambia is now 30.3 years. The World Bank is concerned
that its IDA funding, rather than being used for poverty reduction,
will instead be used to repay its sister institution in Washington.
For the countries in Latin America, the outlook for debt service
reductions is similarly disappointing. Guyana reached decision
point in November, but debt service repayments will still consume
30 per cent of current government revenue, admittedly an
improvement from the levels of over 50 per cent before HIPC, but
still much too high if the country is to be able to make
significant reductions in its widespread poverty. Nicaragua can
expect a large write-down in its unpayable debt - $5 billion in
nominal terms - but even this will only bring minor reductions in
debt service payments from current levels. The average payments for
the next few years are likely to be $140 million a year. Central
America provides another stark example of how western aid money is
used to pay the debts of the IFIs. Following the devastation caused
by Hurricane Mitch in late October 1998, western donor countries
paid $175 million into the Central American Emergency Trust Fund —
which was used to ensure that the IMF and World Bank still had
their debts paid.
Have any countries received real benefit?
Yes. Uganda, Mozambique and Guyana, which are all advanced in the
HIPC process, have shown how debt relief can be translated
effectively into poverty reduction. The Ugandan government has
disbursed resources released from debt relief through to its
districts to improve education. School management committees
monitor expenditure, the quality of education and student test
results. In concrete terms the programme to provide free primary
education has in a short period doubled the school enrolment rate.
In Mozambique resources released through debt relief have been
channelled into various areas, all vital to sustaining development.
The budgets for health, education, agriculture, infrastructure and
employment training have all benefited. In all the increase was
over $60 million. As well as increasing spending in the social
sectors, Guyana has invested resources into information technology
to increase the efficiency of its public sector and its
anti-poverty strategy. In all cases the governments have engaged
with civil society in the development of their anti-poverty
strategies. Although this new process also creates problems, in
principle it is making governments more accountable to their
electorates, and giving local communities a voice. However, even in
these successful country cases, it is clear that resources released
have been insufficient to tackle the deep-rooted economic and
social problems.
What are the recent developments in bilateral debt?
The British Chancellor, Gordon Brown, announced on 2nd December
2000 that the British government would either cancel or hold in
trust all debt payments to Britain from the 41 Heavily Indebted
Poor Countries. The total owed to Britain by the 41 countries at
the end of March 2000 was 2 billion pounds. The new initiative
applies to those countries which have not already reached decision
point - when they first receive some relief on debt payments - in
the Heavily Indebted Poor Countries initiative. For these
countries, which do not have poverty reduction strategies in place,
any payments made to Britain after December 1st 2000 on existing
debt will be will be held in trust and returned to the country when
it can be shown that the money will be used for poverty reduction.
This initiative builds on those of the G7, who have collectively
agreed to increase the amount of debt relief on offer, by providing
100 per cent debt cancellation for HIPC countries. Norway, Sweden
and Australia have also expressed their willingness to cancel 100
per cent of their bilateral debts. The details and timing of these
initiatives differ, but the new British initiative now should act
as an incentive for other creditor governments to follow suit. The
Canadian finance minister, Paul Martin, called for a moratorium on
HIPC debt payments to bilateral creditors at the Prague Annual
Meetings of the IMF and World Bank. On 19 December Mr Martin
announced that from 1 January 2001, Canada will apply a moratorium
on debt repayments from eleven countries in Africa and Latin
America.
Why has the process been so slow?
There are a number of reasons for the delays, some of which are the
result of problems of conflict or bad governance: the examples of
the Democratic Republic of Congo and Myanmar illustrate this. But
many other delays are the result of simple creditor intransigence:
- Japan has reportedly exerted heavy pressure on debtor countries
not to proceed to the HIPC initiative. As a result of this pressure
and the increasing evidence of the modest gains the initiative
offers, both Ghana and Laos indicated the wish not to proceed -
despite having unsustainable debt burdens. Ghana may now be
reconsidering, but there has been a significant delay.
- The US Congress was slow to agree contributions to the HIPC Trust
Fund, insisting that IMF reform should come first. The agreement
from Congress is now secure, but the delay gave other creditors an
excuse for not providing timely funding themselves.
- The introduction of new conditions for debt relief is proving a
major factor in the delay. Debtor governments have to prepare a
poverty reduction strategy paper (PRSP) in consultation with civil
society. Although in principle this link between debt relief and
poverty reduction is welcome, in practice it is having the effect
of delaying the delivery of debt relief yet further.
Fundamentally, the reason for the failure of the HIPC initiative is
that it is designed by creditors and controlled by creditors.
Creditors have the power to define who gets what, and when, and
how. This means that their own political wrangling, conflicting
agendas and minimising of cost become the dominant issues, not
delivery of debt cancellation to those most in need.
Jubilee 2000 is calling for a new independent mechanism to
introduce a more disciplined, fairer and more transparent approach
to international borrowing and lending. This would involve the
appointment (with consent of both creditors and the debtor nation)
of an independent arbitrator who would establish a Debt Review Body
(DRB) with members from the debtor and creditor sides, including
representatives from civil society in the debtor nation. The DRB
would ensure that funds released from debt cancellation are
carefully monitored and spent on agreed poverty reduction and
development priorities; and it would also scrutinise future loan
offers to help prevent a debt crisis on this scale happening again.
This idea of an independent arbitration process was championed by
the United Nations Secretary General, Kofi Annan, in his 21st
Century Action Plan.
If the HIPC timetable can be restored, will all countries that need
debt cancellation get it?
No. Jubilee 2000 has consistently called for countries beyond the
official HIPC list of 41 to be included. A number of countries are
clearly in urgent need of debt cancellation:
Nigeria was discreetly removed from the HIPC list in 1998, despite
the fact that it is obliged to pay ten times what it pays in
poverty-alleviation on servicing debts. President Obasanjo has
appealed strongly for debt cancellation. Tackling Nigeria's burden
of debt ($30 billion) is crucial for the whole of West Africa.
Haiti also urgently needs debt cancellation. It is the poorest
country in the Western Hemisphere and nearly half of the debt was
contracted under the Duvalier dictatorship. It has 50 per cent
adult illiteracy, 70 per cent unemployment and infant mortality is
more than double the Latin America & Caribbean average.
How much debt cancellation is needed?
The social crisis in the heavily indebted poor countries is now so
acute that total cancellation of the foreign debts of many of these
countries is needed as a first and necessary step towards effective
poverty reduction.
The Meltzer Commission, set up by the US Congress to make proposals
for the future shape and status of the Bretton Woods institutions
recommended exactly this - not only for the bilateral lenders, but
also for the multilateral institutions, led by the World Bank and
IMF. It was unanimously agreed by the commission and received
widespread backing including by the Director of the United Nations
Conference on Trade and Development (UNCTAD) and the Secretary
General of the United Nations, Kofi Annan.
A number of bilateral creditors have now accepted this position as
far as their own debts are concerned - the US, UK and Canada are
three examples. It is time now for the multilateral creditors to
declare their support and commitment to the cancellation of 100 per
cent of the multilateral debt, by matching at the very least the
policies of these more progressive bilateral creditors. Over 35 per
cent of the long-term debt of HIPC countries is multilateral.
What should happen now?
Four actions need to be taken by creditors:
- Stop taking payments from the poorest countries immediately and
ring-fence the money for the poor, to demonstrate their political
commitment to cancelling debts and ensure the money released is
used to tackle poverty.
- Commit to the cancellation of 100 per cent for the poorest
countries from all creditors including multilateral institutions,
particularly the World Bank and IMF.
- Ensure that countries excluded from the HIPC list yet heavily
indebted and impoverished, such as Nigeria and Haiti, become
eligible for debt cancellation.
- Set in process a new mechanism for dealing with debt and lending
- a fair and transparent process that helps to ensure the debt
crisis does not return in the new millennium.
Debt Relief for the Poorest Countries: Milestone Achieved
Joint Statement by Horst Köhler and James D. Wolfensohn
For additional documentation, including World Bank statements
and statistics on HIPC debt, see
http://www.worldbank.org/hipc
In this millennium year, the Bretton Woods Institutions have been
determined to play their part in tackling one of the most pressing
challenges of our time - helping the poorest members of the world
community to share in the prosperity enjoyed by so many. A key
element has been debt relief for the heavily indebted poor
countries (HIPCs).
In 1996, the International Monetary Fund and the World Bank
launched an initiative with many other partners to reduce the debt
of the HIPCs to sustainable levels as a way to renew their
prospects for growth and to free up resources for vital social
needs. Last year, we committed to strengthen that initiative to
provide faster, deeper, and broader debt relief. When progress
still seemed too slow, we pledged to make every effort to permit at
least 20 countries to benefit from debt relief by the end of this
year. This goal has been reached and even exceeded.
In recent weeks, our Executive Boards and staffs have worked
intensively to finalize debt relief for many HIPCs. These efforts
will lift some $34 billion in debt service obligations from the
shoulders of 22 eligible countries, 18 of them in Africa. As a
result, after they reach their completion point and receive the
full assistance under the enhanced HIPC Initiative, these countries
will see their foreign debt reduced by almost half on average.
Combined with existing debt relief programs - such as those of the
Paris Club of creditor nations - these countries will see their
debts fall, on average, by about two-thirds.
Much hard work and commitment has been required. The countries
concerned have shown their willingness to put debt relief to
effective use to improve the lives of the poor. They have
formulated strategies to reduce poverty, to invest in their
people's future, and to create the basis for sustained growth in
their countries.
These countries face a continuing challenge to remain focused on
long term goals - even in the face of difficult circumstances, not
least the AIDS pandemic affecting so many of them. Together we have
laid a strong foundation, and will continue to make every effort to
build upon it in all of these 22 countries.
We shall also continue working to bring debt relief to the
remaining heavily indebted poor countries which have yet to qualify
for HIPC Initiative assistance. Their already difficult situations
are, in many cases, compounded by civil conflict or its immediate
aftermath. An end to these conflicts is an essential first step for
these countries to rebuild economically and truly benefit from debt
relief.
To ensure that the relief is translated into poverty reduction, the
beneficiary countries must continue with their economic, social,
and governance reforms. In this context, they will need to design
and implement nationally owned poverty reduction strategies. Our
Institutions and many other partners look forward to helping poor
countries in these efforts. We will continue to offer our advice
and financial assistance in support of their programs of human
development, good governance, and sound economic management.
But the international community must play its full part to improve
the lot of poor countries, for there cannot be a good future for
the rich nations if the poor nations do not share prosperity. The
combination of improved policies and debt relief will not be enough
in most cases. We need to make sure that the HIPC Initiative is
supported by all creditors, including official bilateral and
commercial creditors that have yet to provide the required debt
relief. Also, it is important to resolve remaining funding issues
for some multilateral creditors, and to ensure that financing for
the HIPC Initiative is truly additional and does not come at the
expense of other aid flows. More broadly, we call upon industrial
countries to raise their official development assistance towards
internationally agreed levels. And we urge them to open their
markets to the exports of the poor countries, giving them a better
chance to succeed on their own. The international community also
has an important role in conflict resolution, especially in Africa.
At the turn of the millennium, many parts of the world are enjoying
unprecedented prosperity. But we also know that too many people can
not yet meet their very basic human needs. It is time to redouble
our efforts to make the global economy work for the good of all.
This material is being reposted for wider distribution by the
Africa Policy Information Center (APIC). APIC provides
accessible information and analysis in order to promote U.S.
and international policies toward Africa that advance economic,
political and social justice and the full spectrum of human rights.
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