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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 Please note that many outdated links in this archived document may not work.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: Mozambique Debt
Any links to other sites in this file from 1996 are not clickable,
given the difficulty in maintaining up-to-date links in old files.
However, we hope they may still provide leads for your research.
Africa: Mozambique Debt
Date distributed (ymd): 961215

In the first major debt restructuring since this fall's
adoption of a new initiative for Heavily Indebted Poor
Countries (HIPC), Paris Club creditors of Mozambique decided
to forgive $400 million of the $600 million owed by Mozambique
for the period 1996 through 1998, the remainder being
rescheduled over a twenty-year period.  The amount forgiven
represents 10 percent of the country's total debt.

As indicated in the following news story from InterPress
Service and statement by European non-governmental
organizations, however, the action does not yet address the
potentially larger debt forgiveness theoretically possible
under the HIPC initiative.  Six countries (Benin, Bolivia,
Burkina Faso, Guyana, Mali and Uganda) have previously been
granted stock-of-debt reductions under similar terms received
by Mozambique.

More extensive background on the HIPC initiative can be found
(1) on the IMF Web site at
(2) on the World Bank Web site at
(3) on the Eurodad Web site at
(4) on the Oxfam site at, and

InterPress Service (excerpts)

MOZAMBIQUE: Paris Club Ruling Undermines HIPC Debt Initiative
- NGOs

[This article reposted with permission. IPS Africa coverage is
regularly available in the conference on the APC
networks,and by subscription from PeaceNet World News (for
information, send a message to For
information about cross-posting, send a message to For more information about access to and
reproduction of IPS Africa coverage, contact Peter da Costa in
Harare (]

By Angeline Oyog

PARIS, Nov 21 (IPS) - The Paris Club of bilateral creditors
agreed Thursday to restructure Mozambique's external debts,
but non-governmental organisations criticised the Club for
failing to give the severely indebted and war-ravaged country
sufficient relief.

After a two-day talk with a delegation from Mozambique, the
Paris Club took note of the country's low per capita income of
90 dollars and heavy debt burden and offered to write off
67 percent of debt service obligations under eligible loans
and credits.

In offering Mozambique this debt restructuring option
Thursday, under the 'Naples Terms' rules, the creditors said
that they were calling for an ''exceptional treatment of
debt'' in Mozambique, to foster economic growth and accelerate
development in the country.

But NGOs were hoping for an 80 percent cut, theoretically
possible under the Heavily Indebted Poor Countries (HIPC)

''It is extremely disappointing that Mozambique, the poorest
country in the world, recovering from a bitter and destructive
conflict, should not be granted (an) 80 percent reduction,''
said Ann Petitfor of the Debt Crisis Network in London.

According to Petitfor the Paris Club decision on Mozambique
was a step backward from the HIPC Initiative under which
debtor countries would be given a minimum of 80 percent debt

Although in disagreement with a number of the features of the
HIPC Initiative as designed by the World Bank, the
International Monetary Fund (IMF) and the Paris Club, many
NGOs have conceded that it still represents an advance on
earlier debt reduction options, such as the Naples Terms.

The NGOs criticised in particular the HIPC requirement that
indebted countries hoping to benefit would have to sign up for
years of painful structural adjustment programmes and early
cut-off dates of debts eligible for reduction.

''This Paris Club negotiations with Mozambique shows that the
major creditors are not serious about implementing the HIPC
initiative, recently agreed in Washington,'' said Petitfor.

''The message of the International Monetary Fund and the Paris
Club is that they will maintain their roles as debt-collecting
agencies, determined to extract their pound of flesh from the
poorest people on this earth,'' she added.

In drawing up the HIPC Initiative, the World Bank had
identified Mozambique as one of the eight countries with an
unsustainable foreign debt and several NGOs had hoped that the
Paris Club would initiate a ''drastic'' write-off of the
country's obligations.

According to figures from the Mozambique government, the stock
of external debt had reached 5.3 billion dollars by the end of
1995, of which 1.1 billion was overdue.

Between 1985-1995, multilateral debt stock rose from 113.2
million to 1.6 billion, or an increase of 1,322 percent. It
also grew from four percent of total debt stock in 1985, to 30
percent in 1995.

Its multilateral debt service from 1997-2002 is expected to
rise by 61 percent, from 58.6 million dollars to nearly 95
million dollars. Debt service is likely to fall between 2002
and 2010, but will grow substantially from 2010 onwards.

Bilateral debt stock has grown by an average 11 percent during
the 1985-1990 period, with the Paris Club debt largely owed to
France, Italy, Portugal and Germany.

The government estimates that from 1997 until 2003, the year
Mozambique hopes to benefit from the HIPC initiative, global
debt service would rise to 190.6 million dollars a year,
compared to 57 million between 1990-1995, representing an
increase of 234 percent in average payments.

But even with relief from the HIPC Initiative, the Mozambique
Planning and Finance Ministry forecasts debt service bills of
172.5 million dollars in 2004 and 170.5 million in 2005.

Petitfor pointed out that Mozambique is still recovering from
a long and destructive civil war which ended only four years
ago. ... She added that it has carried out an uninterrupted
IMF programme for 10 years. Yet despite 12 years of successive
Paris Club rescheduling and a moratorium on bilateral
borrowing since 1990, Mozambique's debt burden has continued
to grow heavier.

''The debt has grown not because Mozambique has carried on
borrowing, but because of what (is) called the magic of
compound interest. ... '' said Petitfor. ...

''We know that in Mozambique, 190 million dollars a year could
be put to very good use by the government. Infant mortality
rate is tragically high and its young children are badly
malnourished,'' she said.

That Mozambique's debts are simply unpayable should have been
the most powerful economic reason for a massive write-off,
said Petitfor. Citing Bank sources, arrears in 1990
constituted 90 percent of debt service due. In 1993, the
arrears had decreased but still made up 81.2 percent of debt
service due.

''The Paris Club continues to maintain a charade of
re-scheduling and reshuffling these unpayable debts,'' she

''This has two effects: it maintains the debt overhang for
Mozambique, retarding her economic development, primarily by
discouraging investment and encouraging capital flight.
Secondly, it undermines the credibility of the Paris Club
process itself.''

(END/IPS/AO/RJ/96) Origin: Amsterdam/MOZAMBIQUE/[c] 1996,
InterPress Third World News Agency (IPS) All rights reserved.

Statement from European Network on Debt and Development

EURODAD - European Network on Debt and Development,
Square Ambiorix 10, B-1000 Brussels, Belgium; Tel: 32.2.743 87
95, Fax: 32.2.732 19 34, E-mail:; Web:

EURODAD is a network of European non-governmental
organisations (NGOs) from 15 countries working on issues
related to debt, structural adjustment and the accountability
of the Bretton Woods Institutions.

Paris Club Meeting on Mozambique
November 1996

Mozambique went to the Paris Club on 20 and 21 November 1996,
where the restructuring of Mozambique's bilateral debt was
discussed. The meeting was chaired by Francis Mayer, Assistant
Secretary of the Treasury for International Affairs at the
Ministry of Economy and Finance. The Mozambican delegation was
led by Adriano Alonso Malbiana, Governor of the Central Bank
of Mozambique, and included also the Minister of Planning and
Finance. This Mozambican Paris Club meeting could also be seen
as a first concrete case that shows how seriously
international creditors will deal with the HIPC Debt

The outcome was disappointing as EURODAD had expected it: only
67% debt relief were agreed with a consolidation period of 32
months, until June 1999, the period of the IMF's ESAF
programme. The IMF and World Bank have argued for giving
Mozambique 80% debt relief in June 1997, when the country is
to be invited to a new meeting with the Paris Club. One
wonders why creditors have not given now 80%, instead of
waiting another seven months.

IMF Managing Director Michel Camdessus stated during a visit
to Maputo, last October, that the Paris Club should go beyond
the Naples terms and give 90% debt reduction. At the same
time, the IMF together with the World Bank, is said to
recommend that Mozambique because of a recent drop back in
economic performance needs to show first a better track
record, which will delay its eligibility for an overall
treatment of its debt stock with a range of years. This is
very disturbing, because in the past years Mozambique has been
praised for its commitment to IMF and World Bank programmes.

After its independence from Portuguese colonial rule,
Mozambique made a crucial contribution to political change in
Zimbabwe and South Africa. As a consequence and in the context
of the East-West conflict, the country was almost completely
destroyed by insurgency, foreign intervention and war. Despite
this war, that went on until 1992, the Mozambican government
has been complying with harsh structural adjustment programmes
of the IMF and the World Bank since 1987, thus almost for ten
years. Mozambique had to follow a policy of initially rigid
monetary stabilisation, without paying attention to social
consequences or broader concerns on sustainable and social

Since 1995 economic growth is stagnating again in Mozambique.
The refugee programme is winding down, because the impact of
rehabilitation is decreasing. In 1993 there still was high
economic growth. 1994 showed a slower increase, growth stopped
in 1995 and has remained stagnant in 1996. The IMF and World
Bank consider Mozambique therefore as off track; in order to
become eligible for the best possible and urgent treatment of
its debt, it needs to show first renewed commitment to
adjustment. This would delay effective treatment of its debt
to several years beyond 2000. In September 1996, the
Mozambican Finance Ministry showed in a projection of debt
service for 1997-2003 that 67% debt reduction would lead to a
further increase of its debt. Furthermore, this would result
in substantial higher debt service ratios of 20-25% than the
IMF/World Bank regard as sustainable. Debt service is expected
to double as a proportion of total government's expenditure,
rising to 44% of the total in 2002. Compared to an average of
$57 million over the period 1990 - 1995, the average annual
(global) debt service payments from 1997 until 2003 will rise
to $190 million. An amount of money which could be put to very
good use by the government of Mozambique.

Mozambique is a country that has had 12 years of successive
Paris Club re-scheduling. Between 1984 and 1993 there have
been four external debt rescheduling agreements signed with
the Paris Club. Despite this - or in part, because of this and
despite a moratorium on bilateral borrowing since 1990 - debt
owed to OECD creditors has ballooned from $929.6 million in
1985 to $1.9 billion in 1995. The debt has grown not because
Mozambique has carried on borrowing, but because a growth in
debt service arising from rescheduling being included
successively in subsequent rescheduling. This is owed to what
the Mozambique government calls insufficient payment capacity,
caused by the difficulties this economy has in earning and
retaining hard currency.

Despite its enormous efforts to reform its economy under the
aegis of the IMF and World Bank, four years after the end of
the war Mozambique has remained one of the poorest countries
in the world. The per capita income with +/- US$100, still is
about the same as in 1987; industrial production represents
just a third of its potential value; agricultural production
still was in 1995 below the 1987 level. Today foreign debt is
double of what it was in 1984/85, when Mozambique became
member of the IMF and five times larger than its GDP. The
amount of families living in absolute poverty has increased:
this was in 1987 10 to 15% of the population living under the
absolute poverty level, now it is more than two-thirds. Also
the number of unemployed has grown. Distribution of income and
wealth has become more inequable. Infant mortality rate is
tragically high, and its young children are badly
malnourished, which damages the country's future development
potential. The country still lacks the fundamental
infrastructure like roads, water, food distribution logistics,
an educated workforce and capital, to rebuild the economy that
fell apart and fragmented in small informal activities, that
have not recovered yet.

In the absence of an international independent, insolvency
procedure, which could give impartial, rational and due
recognition to what is in effect Mozambique's bankrupt state
- the Paris Club continues to maintain a charade of
re-scheduling and re-shuffling these unpayable debts. This has
two effects; First, it maintains a debt overhang effect for
Mozambique - retarding her economic development primarily by
discouraging investment and encouraging capital flight.
Second, it undermines the credibility of the Paris Club
process because it imposes the harshest possible discipline on
debtors, and no discipline whatsoever on creditors.

We do not believe that it is very productive now to engage
further in a debate whether this lack of progress has been
caused by the programme as such or by a deficient
implementation. The people and government of Mozambique need
to find a way out. The global community can help them by
creating better conditions. The early and optimal
implementation of the HIPC Debt Initiative, or in other words
deep and timely debt reduction is one of these crucial
conditions. This also is important for securing the peace
process in the country. Obviously, this just would be a first
step on the road to sustainable economic and social

For more information about the Mozambican debt situation or
the HIPC Debt Initiative, please contact the EURODAD
Secretariat (

This material is being reposted for wider distribution by the
Africa Policy Information Center (APIC), the educational
affiliate of the Washington Office on Africa. APIC's primary
objective is to widen the policy debate in the United States
around African issues and the U.S. role in Africa, by
concentrating on providing accessible policy-relevant
information and analysis usable by a wide range of groups and


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