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Note: This document is from the archive of the Africa Policy E-Journal, published by the Africa Policy Information Center (APIC) from 1995 to 2001 and by Africa Action from 2001 to 2003. APIC was merged into Africa Action in 2001. Please note that many outdated links in this archived document may not work.

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

+++++++++++++++++++++Document Profile+++++++++++++++++++++

Region: Continent-Wide
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, E-mail: 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 and

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New World Bank Reports Confirm that the HIPC Initiative is Failing
By Romilly Greenhill, Jubilee Research 29th April 2002

[Excerpts only, full report at:]

1. Introduction

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 failing.

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 criteria
  • 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, and Zambia.)

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 the reality.

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 programmes.

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 failing

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 Completion Point.

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

April 2002

Executive summary only; full report, in pdf or doc format, is at:

Executive summary

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 chief conclusions:

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 technology.
  • 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 of debt.
  • 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 by 2006.
  • 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 liberalisation.
  • 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 debts.
  • Some countries will also lose substantial inflows of private capital.
  • 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, political and social justice and the full spectrum of human rights.

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