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Africa: Debt and Double Standards
Africa: Debt and Double Standards
Date distributed (ymd): 020509
Document reposted by Africa Action
Africa Policy Electronic Distribution List: an information
service provided by AFRICA ACTION (incorporating the Africa
Policy Information Center, The Africa Fund, and the American
Committee on Africa). Find more information for action for
Africa at http://www.africaaction.org
Issue Areas: +economy/development+ +US policy focus+
This posting contains excerpts from two new reports from Jubilee
Research, New Economics Foundation, Cinnamon House, 6-8 Cole St.,
London SE1 4YH, Tel: (44) 207 089 2853, Fax (44) 207 407 6473,
The full text of these reports, and other background, can be found at:
One report summarizes recent World Bank reports showing the
failure of the Heavily Indebted Poor Countries (HIPC) initiative,
even using the criteria established by the Bank itself. The other
report calls attention to the position of the U.S. as a HIPC
("Heavily Indebted Prosperous Country"). According to the report,
the U.S. owes almost as much in foreign debt as all developing
countries combined, but pays only one fifteenth as much in debt
service because of its dominant position in the world economy.
The new World Bank reports referred to in the posting were released
in April, and are available at
New World Bank Reports Confirm that the HIPC Initiative is Failing
By Romilly Greenhill, Jubilee Research 29th April 2002
[Excerpts only, full report at:
In two new reports issued by the World Bank in time for the recent
IMF and World Bank Spring Meetings, the World Bank has admitted
that its own Heavily Indebted Poor Countries (HIPC) Initiative is
The two reports from the World Bank show that:
- Of the 5 countries already at Completion Point, at least 2 of
these do not have sustainable levels of debt according to the HIPC
- Of the 21 countries which are currently between Decision Point
and Completion Point under the Initiative, at least 8-10 countries
will not have sustainable levels of debt at Completion Point,
according to the same criteria
- Of the same group of countries, 9 have had their interim relief
from the IMF suspended due to failure to stay `on track' with IMF
supported Poverty Reduction and Growth Facility (PRGF) programmes.
These countries are supposed to receive interim relief on their
debt service between Decision Point and Completion Point
- There have even been delays in providing interim debt service
relief for some countries which are entitled to this relief and are
`on track' with IMF programmes.
In this paper, we examine the two World Bank reports in detail, and
provide an overall assessment of how the HIPC initiative is
measuring up to the Bank's own criteria. We find that the World
Bank's own assessment shows that 31 out of the 42 countries within
the HIPC initiative are being failed by the process - even
according to the World Bank criteria.
2. Debt sustainability threatened.
Under the Heavily Indebted Poor Countries (HIPC) initiative, debt
sustainability is measured for most countries by comparing total
debt in net present value terms to a country's total exports. When
the total stock of debt is more than one and half times the value
of exports, the country is deemed to have an `unsustainable' level
of debt. Under the HIPC initiative, debt relief is provided by both
multilateral and bilateral creditors to bring down the total stock
of debt to within `sustainable' levels.
Jubilee Research and other NGOs have repeatedly charged that the
export projections used by the World Bank and IMF to calculate the
amount of debt relief that will be needed have been overly
optimistic, and that such optimism has been used by the creditors
to limit their own contribution to the initiative. For example, for
the first 24 HIPCs to reach Decision Point, the average growth in
exports for 2001 was projected to be 11.6%. This is an extremely
high figure, and bears little resemblance to the historical trend
of the HIPC countries. In fact, since 1965 annual export growth for
low income countries has been less than one third of this level.
It comes as no surprise, therefore, to learn that the actual export
growth for these 24 countries during 2001 was less than half the
World Bank's projected level, at 5.1%. ,,,
As a result of this shortfall, the average ratio of debt to exports
in 2001 for the 24 countries considered is now estimated to have
been a staggering 280%, almost twice the levels deemed
`sustainable' by the World Bank and IMF. Even the four countries
which had already passed Completion Point are estimated to have an
NPV of debt to export ratio of 156%. In total, 8 to 10 of the 20
countries which were between Decision Point and Completion Point at
the time of writing can no longer expected to have a NPV of debt to
exports at Completion Point of less than 150% (Benin, Burkina Faso,
Chad, Ethiopia, The Gambia, Guinea-Bissau, Malawi, Rwanda, Senegal,
In their report, the World Bank almost admits that their export
projections were overly optimistic, noting that `long term economic
forecasts.. depend critically on the underlying assumptions
especially on the future course of government policies as well as
external market conditions.' But they excuse their dramatic failure
to provide accurate projections on the grounds that the assumptions
were `based on policy scenarios and thus predicated upon the
successful implementation of a comprehensive set of economic and
structural reforms.' In other words, if the projections fail, the
country is itself to blame for not undertaking sufficiently
thorough `structural reforms.' ... this view simply does not meet
Firstly, as the World Bank acknowledges, much of the shortfall in
exports has been caused by dramatic falls in commodity prices over
2000-01, particularly for coffee and cotton (which fell by 60% and
10% respectively.) For this fact alone, the HIPCs can hardly be
held responsible, except to the extent that under their IMF
tutelage they have all simultaneously been attempting to increase
exports, putting downwards pressure on the price. Worse,
protectionism in the North has severely worsened the volatility of
commodity prices. When prices are protected in the North under
agricultural agreements such as the Common Agricultural Policy and
similar US agreements, all the change in price in response to
natural fluctuations in commodity prices must be borne by the poor
countries - countries that are already suffering markets which have
been flooded by cheap exports, as a result of excess production in
the North caused by agricultural subsidies.
While the World Bank does concede as much,their response is that
the HIPCs should do more to diversify their production and export
base, and note that `the experience so far with export
diversification in low-income countries that are primary commodity
producers has been rather disappointing.' They list a host of
reasons for this, including `governance concerns' (i.e.
corruption), `limited protection of property rights' (i.e. not
paying enough attention to the needs of foreign investors and
creditors), `structural impediments to private sector development'
(i.e. protection for the poor, small farmers and workers), and
`limited availability of entrepreneurial capital and technical
skills' (i.e. blame the poor for being ignorant.)
Unsurprisingly, what the World Bank does not concede is that the
poor response to diversification programmes is the result of their
own policies of trade liberalisation. The basic logic of trade
liberalisation is that countries become more specialised in areas
in which they have a so-called `comparative advantage', and
increase their reliance on imports for goods in which they have a
`comparative disadvantage.' But the fact is that most of the HIPCs
have a `comparative advantage' in pure, unprocessed primary
products. As they liberalise, and move further towards the global
`free trade' position (much further, indeed, than their protected
competitors in the North), they become more dependent on primary
commodities, not less. ...
3. Delaying Interim Relief
During the recent World Bank and IMF Spring Meetings, debt
campaigners were shocked to learn that as many of 9 of the 20
countries between Decision Point and Completion Point are having
their interim relief from the IMF suspended as a result of
so-called `policy slippages' on their IMF programmes. Contrary to
the Bank's assertion that `annual debt relief received during the
interim period between decision and completion points is a
substantial share of the annual debt relief after completion
point.[therefore] countries do not have to rush [to completion
point] for the sake of increasing flows of debt relief', the
reality appears to be somewhat different. In fact, 9 of the 20
countries between Decision Point and Completion Point at the time
the report was published have seen `slippages' on their IMF
programmes. As the World Bank note, when such slippage occurs,
suspension of interim relief from the IMF is `basically automatic.'
Most of these so-called `slippages' are for delays in meeting the
IMF targets on privatisation and liberalisation within HIPC
economies, and many are for very minor diversions from IMF
Even more worrying, the World Bank has also admitted that some
relief is being delayed because of `administrative bottlenecks' and
difficulties in reconciling data between debtor and creditor
countries. In the case of Zambia, Decision Point was reached as far
back as December 2000 but interim relief has not yet been approved.
The fact the countries that have jumped through all the needed
hoops for getting to Decision Point are being delayed interim
relief because of creditors failure to get organised is nothing
short of scandalous.
4. HIPC Reaches Judgement Day - and the World Bank finds it to be
NGOs such as Jubilee Research have long condemned the HIPC
initiative for failing to meet its stated objectives, for being
designed in the interests of creditors, and for imposing structural
adjustment type conditionalities on poor countries.
One of the criticisms often levelled at the HIPC initiative is that
it uses criteria for assessing debt sustainability which are purely
based on simple macroeconomic aggregates, such as exports, while
disregarding the human development needs of the HIPC countries, as
set out in the Millennium Development Goals. That being said,
however, one would expected that that World Bank's own initiative
would meet its own, narrow criteria for debt sustainability.
However, for the first time, the World Bank is now admitting that
its own initiative is failing. Table 1 [in full report on web]
summarises what the Bank says about each HIPC and their progress
towards reaching debt sustainability. As it shows, 31 out of the 42
HIPC countries are being failed by the initiative even according to
the World Bank criteria.
With a success rate of 25%, one might expect that the World Bank
would acknowledge the depth of failure of the HIPC initiative and,
like Jubilee Research and other NGOs, call for a new process for
debt cancellation, or `Jubilee Framework.' Instead, the World Bank
merely writes that: it would be `unrealistic to expect.that
countries will always stay below the HIPC debt sustainability
thresholds.' The Development Committee of the World Bank has even
gone so far as to say that the HIPC initiative is making `sustained
progress' in their Communique following their 21st April meeting in
Washington. Such self-delusion is almost unbelievable.
It is time to admit that creditors will have to provide more
relief, and fast, to overcome the crushing debt burdens which still
engulf the poorest countries on earth. The World Bank should
immediately review all the HIPC countries and provide immediate
further relief where required. While the Bank and IMF have agreed
that more relief may need to be provided at Completion Point in
some cases, and indeed have already done so in the case of Burkina
Faso, this is not enough. Their statement that `there should be no
presumption on country eligibility for topping up or the amount of
additional HIPC relief at the completion point' is a clear
indication that they intend to wriggle out of providing extra
relief, even when this is justified by external conditions.
Moreover, there is no provision for any further relief beyond
We call on all creditors to accept their responsibilities to the
poorest countries on earth and to cancel the un-payable debts of
these countries under an independent process of arbitration, or
`Jubilee Framework.' It is time for an end to the endless rounds of
broken promises and weasel words that constitute the HIPC
initiative. When even the World Bank admits that HIPC is failing,
it is time to change. The Jubilee Framework can wait no longer.
The United States as a HIPC* how the poor are financing the rich.
*Heavily Indebted Prosperous Country
A report from JUBILEE RESEARCH at the New Economics Foundation
by Romilly Greenhill and Ann Pettifor
Executive summary only; full report, in pdf or doc format, is at:
This short report outlines the role the US deficit has played in
driving the process of globalisation. Secondly, it analyses the way
in which poor countries are financing the US deficit and therefore
the high living standards of US citizens. The following are our
The US deficit as the real driving force behind globalisation
- The growing US deficit has, since the 1960's, been the dominant
driving force behind financial globalisation. Elected
representatives of the US and UK have actively promoted
international financial liberalisation, or "globalisation" to
finance the US deficit. Globalisation has not, we argue, been
primarily driven by corporations or by developments in new
- Today capital liberalisation is once again - as in the 1920's and
30's - leading to financial instability and growing international
tensions. Above all financial liberalisation leads to the loss of
policy autonomy by democratic as well as undemocratic governments.
- The exceptions are those highly indebted states dominant in the
global economy - the United States and the United Kingdom - whose
indebtedness has not led to major economic adjustments nor to the
loss of policy autonomy.
The US: a heavily indebted country
- The accumulated external debt of the world's richest country, the
United States of America, is equal to $2.2 trillion. This is almost
the exact amount owed by the whole of the developing world,
including India, China and Brazil - $2.5 trillion.
- In other words, three hundred million people in the US owe as
much to the rest of the world, as do five billion people in all of
the developing countries.
- Or to put it differently, every American citizen owes the rest of
the world $7,333 while every citizen of all the developing
countries only owes the rest of the world $500.
- Moreover, while developing country economies are bled dry through
debt service repayments totalling more than $300bn per year, the US
must only pay $20bn per year to service an almost equivalent amount
- Americans have been engaged in a consumer binge, which has led to
the largest current account deficit in history, a staggering $445
billion or 4% of US GDP. This deficit has been increasing by 50% a
year in recent years, and economists predict it will rise to $730bn
- Given this daily deficit of up to $2bn, plus capital outflow of
$2bn, the US in effect has to borrow $4bn from the pool of world
savings every day.
How the US deficit is being financed by the poor of the world
- The US deficit is financed by a) the thifty savers of East Asia,
in particular Japan, China and Singapore; but also b) by surpluses
built up by countries like France and Switzerland.
- More disturbingly, the US deficit is being financed by the poor
through a) capital flight from poor countries and b) the forced
holdings of high levels of dollar reserves.
- To build up reserves, poor countries are borrowing hard currency
from the US at interest rates as high as 18%; and lending this back
to the US (in the form of interest on US Treasury Bonds) at 3%.
Asian and African countries are forced, by the financial
instability caused by globalisation, to maintain dollar reserves,
at 14% and 7% of GDP respectively. The US in contrast holds only
about 1.3% of her GDP in reserves.
- The cumulative cost for developing countries of holding such high
dollar reserves may be as much as 24% of GDP over ten years; which
represent a significant drag on growth rates.
- Inflows of capital into the US and UK: a) help to lower interest
rates and therefore borrowing costs for the people of these
countries and b) inflate the value of their currencies by about
20%. This enables rich countries, therefore, to purchase imports
from the rest of the world 20% cheaper than they would otherwise
have been able to.
- If it were not for capital flight, at least 25 African countries
would be net creditors, not debtors.
- Countries like Argentina find that their governments are
borrowing hard currency, only to find it promptly leaves the
country (in the form of "capital flight") for Wall St., London,
Zurich or Madrid - a legitimate process under capital
- However the poor in these countries are then saddled with huge
public debts. Argentina's total external debt of $150 bn is almost
exactly equal to unrecorded "capital flight" of $130bn.
The next crisis?
- The US deficit is not sustainable. The issue before us is the
form that the necessary adjustment takes?
- While there is much debate about when or how this will happen,
our report notes that it is inevitably the poor countries that will
bear the highest costs of any correction to the US's unsustainable
- Some countries will also lose substantial inflows of private
- Countries that are dollarised, like Ecuador, will bear the brunt
of high interest rates, as the US is forced to ratchet up rates to
attract new capital.
- Other countries will pay in the form of declining terms of trade;
those exporting commodities will be hit the hardest.
This material is being reposted for wider distribution by
Africa Action (incorporating the Africa Policy Information
Center, The Africa Fund, and the American Committee on Africa).
Africa Action's information services provide accessible
information and analysis in order to promote U.S. and
international policies toward Africa that advance economic,
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