UNIVERSITY OF PENNSYLVANIA - AFRICAN STUDIES CENTER
Africa: UN Debl Inquiry Call Date distributed (ymd): 001120 Document reposted by APIC
APIC/Africa Fund/American Committee on Africa Joint Africa Action Fund
See November 18 letter from Salih Booker, interim executive director of the three organizations, on joint action for Africa against global apartheid: http://www.africapolicy.org/join.htm
Region: Continent-Wide Issue Areas: +economy/development+
Summary Contents: This posting contains excerpts from
a so-far little publicized report at the end of September,
in which UN Secretary General Kofi Annan called for
"an independent panel of experts not unduly influenced
by creditor interests" to reassess the debt burden
of developing countries and the international measures
taken to date to deal with them. The report notes that
the HIPC (Heavily Indebted Poor Countries) initiative
has proved inadequate even for the countries included,
and that there are many debt-burdened countries not
included in the initiative. The report also calls for
"an immediate suspension" of debt-service
payments of all HIPC's and of other countries to be
identified by the panel. The full report is available,
in pdf format, at http://www.un.org/documents/ga/docs/55/a55422.pdf
UN A/55/422 General Assembly 26 September 2000
Macroeconomic policy questions: external debt crisis and development Recent developments in the debt situation of developing countries
Report of the Secretary-General
2. An analysis of key debt indicators shows that external debt and debt-servicing problems are most severe and persistent in the heavily indebted poor countries (HIPCs), the target group of the HIPC Initiative. However, a number of other developing countries and countries in transition are also in a vulnerable position. ...
3. Various strategies have been adopted to tackle the debt problems of these countries. In this respect, the attention of the international community has over the recent past largely focused on the HIPC Initiative; but progress has been much slower than expected and the initiative is suffering from problems of underfunding, excessive conditionality, restrictions over eligibility, inadequate debt relief and cumbersome procedures. Steps have been taken to speed up the HIPC process and there is now a commitment to doubling the number of countries for which debt reduction is agreed from 10 in September 2000 to 20 by December 2000. While such an acceleration is welcome, the current approach is not likely to succeed in removing the debt overhang of the world's poorest countries.
For this purpose ... one approach, while the existing processes are under way, would be to establish an independent panel of experts that would assess or reassess debt sustainability, eligibility for debt reduction, the amount of debt reduction needed, conditionality and financing (including the provision of necessary funds for the multilateral financial institutions affected) for all HIPC countries including those that have already benefited and those that are set to benefit from debt reduction in the coming months under the existing initiative. The latter two groups should benefit from additional debt relief if the panel determines that the debt reduction provided under the HIPC Initiative is inadequate. The design of the modalities for such an approach could be expected to draw on experience of domestic insolvency procedures in major industrialized countries as well as that of insolvency procedures in private international law.
The approach should not be limited to HIPCs but should incorporate a broader spectrum of countries in need of special measures to overcome their official debt problems. Simultaneously there should be agreement on the suspension of debt-service payments by all HIPCs, with no additional consequent interest obligations being incurred, until the panel had made its recommendations and agreement had been reached on the reduction of their debts. This suspension could also be extended to non-HIPC countries declared eligible for relief by the panel during the period required for eventual agreement on debt reduction in their case. ...
A. The Heavily Indebted Poor Countries (HIPC) Initiative
9. The HIPCs in general are characterized by extreme poverty, poor social development indicators and human resources, poorly diversified economies, a high concentration of export earnings in a few primary commodities, and dependence on official aid as well as high debt overhang. The last-mentioned is reflected in high levels of debt in relation to national income, high ratios of debt service to exports, large payments arrears, and high ratios of debt service to government revenue. By the end of 1999, little assistance had been delivered under the HIPC Initiative, with only a negligible impact on the aggregate debt stocks and indicators of the HIPCs. ... There are currently 41 countries on the list of HIPCs. Thirty-three of them are in sub-Saharan Africa, and 30 are classified as least developed countries.
10. Following the Cologne Summit in June 1999, a number of specific modifications to the HIPC Initiative aiming to provide 'deeper, broader and faster' debt relief were endorsed at the International Monetary Fund (IMF) and World Bank Annual Meetings in September 1999. Deeper and broader relief is expected to be achieved through a lowering of debt sustainability targets, resulting in an increase in the number of countries to become eligible for HIPC assistance. The new scheme retains the basic framework of a two-stage process requiring an established track record of policy implementation before the delivery of relief. ...
11. A main innovation under the enhanced HIPC framework is the explicit link to poverty reduction. HIPCs are now required to present Poverty Reduction Strategy Papers (PRSPs) as part of the debt-relief process. A country aspiring to assistance under the initiative would normally be expected to have in place a comprehensive and participatory poverty reduction strategy before the decision point. In practice, interim strategies have served as a basis for the decision points for most countries now being processed under the new framework. Finalization of the PRSPs and satisfactory initial progress in implementation are expected from countries before delivery of relief at the completion point; early experience indicates that reaching this point may take one or two years. This link to poverty alleviation and the need to reach agreement on PRSPs through processes involving participation of the civil society render the HIPC process even more complex than before.
12. Up to the end of July 2000, nine countries had reached their decision points under the enhanced scheme. Bolivia, Mauritania and Uganda were declared eligible for additional relief in February 2000, Mozambique and the United Republic of Tanzania followed in April 2000, Senegal in June 2000 and Benin, Burkina Faso and Honduras in July 2000. In all, these nine countries are estimated to receive more than $15 billion in nominal terms in additional debt relief, representing an average reduction in the present value (PV) of debt stocks of close to 45 per cent on top of traditional relief mechanisms. The objective is to have 20 HIPCs reach their respective decision points under the new framework by the end of 2000.
13. Uganda became the first HIPC country to achieve the completion point under the enhanced HIPC Initiative in early May 2000. Bolivia was expected to reach this point during the second half of 2000, to be followed by Benin, Burkina Faso, Mozambique, Senegal and the United Republic of Tanzania in 2001, and Honduras and Mauritania in 2002. In these first cases under the enhanced framework (six reassessments taking into account the revised debt sustainability targets and three new cases), the countries have to a large extent been able to draw on pre-existing national poverty action plans and strategies for the preparation of the PRSPs that are to be presented to the Bretton Woods institutions. ...
15. An important development in late 1999 and early 2000 has been the commitment by an increasing number of creditor countries to granting even deeper debt relief than under the Cologne terms. In this regard, a breakthrough made towards full cancellation of (bilateral) claims was the pledge by the President of the United States of America in September 1999, in connection with the IMF and World Bank Annual Meetings, to forgive 100 per cent of debts within the context of the HIPC Initiative. Other creditor countries, notably all Group of Seven (G-7) countries, have followed with similar declarations. In April 2000, G-7 finance ministers and central bank governors meeting in Washington, D. C., collectively committed themselves to increasing debt reduction to 100 per cent of non-official development assistance (ODA) claims treated within the Paris Club framework, a commitment reaffirmed by G-7 leaders at the Okinawa Summit of July 2000.
16. However, the above should not be interpreted to mean that HIPCs can henceforth expect rapid or across-the-board cancellation of their bilateral debts: cancellation would in principle be limited to countries going through the initiative, and would be dependent on their progress in economic policy reform and poverty reduction. Country coverage, the timing of relief and the coverage of debts, for example, post-cutoff date debt, may also vary from creditor to creditor. Relief also depends on legislative authorization for the release of funds. ...
18. The G-8 meeting in Okinawa, however, did not advance any major new initiative on debt similar to the Cologne debt initiative a year earlier. ...
19. As of July 2000, only a small number of countries were well advanced in the HIPC process, while others have as yet to meet the requirements for entering the process; that is to say, they have not embarked on IMF and World Bank-supported programmes and have not entered into Paris Club negotiations for concessional rescheduling. ...
20. Overall progress is affected by the laborious resource mobilization for the initiative, which is funded essentially through voluntary contributions. Agreement on the use of IMF gold holdings to help finance the Fund's participation was reached at the Annual Meetings of the Bretton Woods institutions in September 1999. Subsequently, a series of off-market transactions were conducted and completed by early April 2000, raising about $3 billion which has been invested to generate income for the initiative. Pledges of substantial new bilateral contributions to IMF and World Bank HIPC trust funds have also been made. Yet full financing of the initiative is not yet assured. ...
23. More generally, if resource shortfalls persist, if seeking assurance on the participation of all creditors before the finalization of debt-relief packages continues to be a lengthy and difficult process, and if country cases in consequence cannot be brought forward to the decision point, then the initiative risks slowing down to a halt. ..
27. It cannot yet be judged precisely from the early cases whether HIPC assistance will actually succeed in lowering debt burdens to agreed targets or in maintaining debt at sustainable levels. Achievement of debt sustainability is a function not only of the amount of debt relief delivered, but also of the growth of export earnings and government revenue. A standard assumption in Enhanced Structural Adjustment Facility (ESAF)/ PRGF projections, reflected in the debt sustainability analysis (DSA) papers prepared for the HIPC Initiative, is of steady robust export growth. However, the experience of the first set of HIPC countries shows that this is not always realistic. For instance, export growth in the order of 6 to 7 per cent was originally projected for Uganda for 1999/00, but recent figures indicate that exports actually fell, by around one fifth, during this period. ...
28. While the enhanced HIPC/ PRSP initiative recognizes the importance of 'ownership' by debtor Governments for its success, its design is not consistent with this objective. The poverty reduction objective has been added by creditors and donors without appropriate consultations with the debtors concerned. They also largely set the PRSP policy agenda and prescribe the modalities to be followed, leaving little autonomy to debtor countries. Creditors set the terms and conditions for debt relief, which tend to depend as much on their willingness to provide resources as on the needs of the debtor countries. The ultimate judgement on whether and when poor countries qualify for such relief is in the hands of the Bretton Woods institutions. The enhanced HIPC scheme adds a further layer of conditionality, which risks overwhelming the capacities of the debtor country administrations concerned and may effectively dilute "ownership" and autonomous policy-making. ...
29. Overall, HIPC is a cumbersome and costly process requiring extensive preparations from the debtors concerned. ...
B. Non-HIPC debtors
30. There are 18 least developed countries that are not included in the HIPC category, and some of them are considered severely or moderately indebted according to the World Bank classification. ...
31. Most of the debt-distressed African countries are either among the group of HIPCs or among the group of least developed countries. However, there are notable exceptions such as Algeria and Morocco in North Africa (which are classified as moderately indebted middle-income countries); Gabon and Nigeria (both severely indebted); and Zimbabwe (a moderately indebted low-income country). A discussion of African debt problems thus cannot be confined to the HIPC Initiative or special measures adopted in favour of least developed countries alone. ...
III. International policy conclusions
69. The analysis above shows that there are serious shortcomings in the international approach to the debt problems of developing countries and economies in transition. Overcoming these difficulties would call for action on three fronts: the HIPC Initiative, the official debt of non-HIPC countries, and commercial debt.
70. The HIPC Initiative has received considerable support in the international community as a comprehensive and coordinated approach based on a recognition of the need to reach a sustainable debt position for the countries concerned in the context of growth and development. However, so far it has progressed only in incremental steps, and even with the acceleration up to the end of 2000 in the number of countries benefiting from agreed debt reduction, the initiative is unlikely to reach the objectives set. The problems associated with its design and implementation suggest that even the enhanced HIPC Initiative does not provide an adequate response to HIPCs' debt problems. A bolder approach will have to be taken to remove the debt overhang of the world's poorest nations.
71. This new approach might take the form of an objective and comprehensive assessment by an independent panel of experts not unduly influenced by creditor interests, while the existing processes are under way. ...
72. There should also be an immediate suspension of the debt- service payments of all HIPCs, with no consequent additional interest obligations being incurred until the panel has made its recommendations and agreement has been reached on reduction of their debts. This suspension should also be extended to nonHIPC countries declared eligible for debt relief by the panel during the period until agreements on the debt reduction in their case are reached.
73. It is notable that a recent independent commission of experts from different schools of thought appointed by the United States Congress, the Meltzer Commission, has made proposals that go well beyond the scope of the HIPC Initiative. The Commission agreed unanimously on the desirability of writing off all multilateral claims against HIPCs that had implemented an effective development strategy. It also recommended that bilateral creditors should similarly write off these countries debts, and that grants rather than loan-based funding should be used in the majority of programmes. These specific recommendations should not be ignored in the controversy over the Meltzer Commission's other proposals.
74. The point is not, of course, to see full and swift debt relief as a panacea for the deep-seated policy challenges facing these countries. It would, however, be one less problem for their policy makers to deal with. Many of these countries are unable to meet their external debt-servicing obligations, and for them debt relief will simply formally acknowledge a situation that already exists and stop the accumulation of arrears that are unlikely ever to be paid.
75. Reform of the international strategy regarding the official debt of poor countries should also address the problems of debt- distressed low-income countries that are not currently eligible for the special treatment accorded to the HIPCs. ...
Message-Id: <200011210200.VAA04651@server.africapolicy.org> From: "APIC" <firstname.lastname@example.org> Date: Mon, 20 Nov 2000 20:51:22 -0500 Subject: Africa: UN Debt Inquiry Call
Editor: Ali B. Ali-Dinar
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