UNIVERSITY OF PENNSYLVANIA - AFRICAN STUDIES CENTER
Africa: Debt Update Date distributed (ymd): 010119 Document reposted by APIC
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.'
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: firstname.lastname@example.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.htm
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:
1. 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.
2. Commit to the cancellation of 100 per cent for the poorest countries from all creditors including multilateral institutions, particularly the World Bank and IMF.
3. Ensure that countries excluded from the HIPC list yet heavily indebted and impoverished, such as Nigeria and Haiti, become eligible for debt cancellation.
4. 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 Koehler 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.
Message-Id: <200101192029.PAA17842@server.africapolicy.org> From: "APIC" <email@example.com> Date: Fri, 19 Jan 2001 15:26:25 -0500 Subject: Africa: Debt Update
Editor: Ali B. Ali-Dinar
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