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Africa: Oxfam Debt Statement, 1
Date distributed (ymd): 970423
Document reposted by APIC
This posting, and the next, contain the executive summary of a new Oxfam International policy paper published this month. The full text of the paper, which includes additional background on Uganda, Mozambique and other African countries, can be found on the Oxfam Web site at
http://www.oneworld.org/oxfam/policy/papers/debtdawn.htm
The Oxfam International Advocacy Office can be contacted at 1511 "K" Street, Suite 1044, Washington DC 20005, USA; Tel: 1 202 393 5332; Fax: 1 202 783 8739; Email: oxfamintdc@igc.apc.org.
Poor Country Debt Relief: False Dawn or New Hope for Poverty Reduction?
Executive summary
"My deepest wish is to go back to school. I haven't been for many years, but I remember it was a good time. It will be a beautiful day for me when I can learn to read and write. Then I will be happy."
Anna Asiimwe is a nine-year-old girl living in the Kabale district of southern Uganda, one of the poorest regions in one of the world's poorest countries. She has something in common with over two million other children in her country, and many millions more across Africa and other developing regions: Anna Asiimwe is not in primary school. From Uganda to Ethiopia, Mozambique, Bolivia and Nicaragua, a crushing burden of foreign debt results in governments spending more repaying creditors than they spend on the health and education of their citizens. Inadequate public spending on social provision means that families must meet the costs of education out of their own pockets, and Anna's parent are too poor to pay. Until last year prospects for change appeared bleak. Then the Government of Uganda announced an ambitious plan to provide free primary school places for up to four children in each family.
The plan, an element in the Ugandan Government's strategy for eradicating poverty, was to be financed partly through domestic revenues; and partly by transferring savings from debt reduction provided under the Highly Indebted Poor Countries (HIPC) initiative, which was adopted by the Boards of the International Monetary Fund (IMF) and the World Bank in September, 1996. Along with around 30 other children in her village, Anna Asiimwe was registered for a place in primary school. Her hopes for an education and a better future soared. Now they have plummeted. Having promised early debt relief for Uganda, some of the world's most powerful countries have used their influence to delay action for at least one year. The Ugandan Government is sticking to its plan for providing free education. But faced with a higher than expected debt repayments bill, the timetable for implementation has been delayed. For Anna Asiimwe and other children in her village, it means another year without school, another lost opportunity.
Debt problems are usually measured in terms of cold financial data. Public debate is discouraged by the obsessive secrecy of creditor governments and international financial institutions, and by impenetrable technical jargon. But behind this dense fog, the debt crisis wears a human face. It is the face of a young girl - a girl like Anna Asiimwe - denied an opportunity for the education which could lift her out of poverty because some northern governments regard national debt repayment as a higher priority than her schooling; it is the face of a child whose mind and body are not growing properly because of recurrent infectious diseases - diseases which could be prevented by transferring a fraction of what is spent on debt to primary health care; and it is the face of a women forced to walk for several hours to fetch water because the claims of foreign creditors have decimated the national budget for water provision. These are the faces of people whose voices go unheard at the debt negotiating table, but whose lives are profoundly affected by debt, and by the actions - and inaction - of creditors.
The debt crisis facing the poorest countries has been discussed too politely for too long. Such politeness implies a tacit acceptance of a situation which ought to be regarded as intolerable. Allowing debt to destroy the growing minds and bodies of young children, to undermine communities, and to further erode the position of the poor is the antithesis of civilised behaviour. Nothing can justify it - and it should not be tolerated.
Effective debt relief would provide the resources needed for a sustained assault on poverty, improving prospects for child survival and human development across a large swathe of the developing world. It would also provides an opportunity for governments of the industrialised world to take their own rhetoric on poverty reduction seriously. Seven years ago, at the World Summit for Children, they pledged support for an ambitious programme of human development. Two years ago they gathered again at the Copenhagen Summit for Social Development to reaffirm that pledge, and to promise co-operation in providing the resources needed to achieve "the elimination of hunger and malnutrition, the provision of food security, education (and) primary health services, including reproductive health care, safe drinking water and sanitation". Too often, such commitments are forgotten as swiftly as they are made, recalled only as an increasingly vacuous echo down the years. Today, debt reduction provides an obvious mechanism for translating noble declarations into action.
There is another reason for taking decisive action on debt reduction. It is rooted in the self-interest of creditors. At present, debt is fuelling a vicious circle of rising poverty, economic stagnation and increased social tension, contributing to processes which threaten to culminate in the collapse of states and econmic disintegration. The rest of the world will not be immune to the humanitaran and economic consequences of dealing with a growing number of Zaires, Liberas and Rwandas. These consquences can be averted. Yet there is a paralysis in international co-operation - and nowhere more so than in matters of debt relief.
Threats and opportunities
This Briefing carries two simple messages. The first is that there is now an unprecedented opportunity to end the debt crisis in the poorest countries. That opportunity is provided by the Highly Indebted Poor Countries (HIPC) initiative agreed last year by the Boards of the IMF and World Bank. True, there are problems in the design of the HIPC framework. In particular, the time-frame for implementation is too long, the debt-sustainability thresholds have been set too high, and debt relief has not been integrated into a broader programme for advancing human development. Reforms are needed in each of these areas. But the HIPC initiative still provides for the type of comprehensive and integrated approach which could achieve debt sustainability. The second message is that, for all its potential, the HIPC initiative stands on the brink of failure. Seven months ago, the World Bank's President, Jim Wolfensohn proclaimed the new debt relief framework "good news for the world's poor."
In recent months, a steady stream of positive and self-congratulatory public statements from the IMF and World Bank have reinforced this view. Such messages seriously misrepresent reality. Two of the strongest candidates for early debt relief - Uganda and Bolivia - have been treated shamefully. Neither will see any reduction in their debt burden until next year, and both will suffer significant losses of foreign exchange as a result. Most other candidates for debt relief will be placed on the back-burner until 2000 and beyond.
Far from being good news for the poor, the HIPC framework stands in grave danger of becoming a monumental irrelevance. What has gone wrong? In short, the political will to make the HIPC initiative work has been lacking. Some of the most powerful Group of Seven (G7) countries - Germany, Japan, and Italy - opposed the initiative from the outset, and are now using their influence on the Boards of the IMF and World Bank to delay implementation and minimise the level of debt relief provided. Unfortunately, they have now been joined by the US. Previously a strong supporter of the HIPC framework, the US Treasury is now seeking to delay implementation, even for countries with exemplary track records.
For its part, the IMF has played a highly destructive role. Two years ago, the IMF denied the existence of a debt problem and ruled out participation in any debt reduction. Today, the Fund's management and technical staff are developing foot-dragging on implementation into an art form, supporting the efforts of those G7 countries seeking to undermine the substance of the HIPC initiative while keeping its packaging intact. One of the primary concerns of the Fund has been to minimise the costs to itself of financing debt relief, placing narrow institutional self-interest over the needs of the world's poorest countries. This is scandalous abuse of power and authority, for which the Fund's Managing Director, Michael Camdessus, must accept prime responsibility.
A challenge to the World Bank
Set against this powerful array of political forces, advocates for the debtor governments are thin on the ground. The British Government has played a crucial role in pressing for flexible implementation of the HIPC framework. It has been supported by the governments of Australia and New Zealand. World Bank staff have also attempted to develop the initiative in a constructive spirit. Where leadership has been lacking is at the highest political level of the World Bank. Without the personal commitment of Jim Wolfensohn, it is unlikely the HIPC framework would have seen the light of day. For that he deserves credit. But the World Bank President is now failing to drive the initiative forward.
This is not in the best interests of the World Bank. Recently, Mr Wolfensohn received the backing of shareholders for his Strategic Compact - a vision for the World Bank in the 21st century. That vision, in the opening words of the Compact, is "to achieve greater effectiveness in the World Bank's basic mission - poverty reduction." Improving access to basic social services is identified as central to the success of this mission. But if the World Bank President is incapable of persuading key governments on his Board to implement a modest proposal for reducing the crushing burden of debt on the poorest countries, what hope is there of him delivering on the Strategic Compact?
In short, none at all. That is why Oxfam International sees the HIPC initiative as a litmus test of Mr Wolfensohn's commitment to poverty reduction, and of his capacity to recast the World Bank as a force for enhancing the interests of the poor. There is a growing sense that, for all the encouraging rhetoric on poverty reduction to emerge from the World Bank since Mr Wolfensohn's arrival, there has been little delivery of substance. This perception would change if he took a principled stand on behalf of the poor in debtor countries, openly challenging the IMF and those G7 countries bent on consigning the HIPIC framework to a slow death. Oxfam International urges the World Bank President to confront his Board with a simple message: "Back me in making the HIPC initiative work, or I will be unable to realise my longer-term vision for the Bank as an agency for poverty reduction." Failure to deliver on debt reduction now gravely threatens the credibility of the multilateral system. More immediately, it threatens the livelihoods of poor people. Without a renewed sense of purpose and political vision, the HIPC initiative will unquestionably fail. There are doubtless many diplomatic formulations which could be arrived at to explain such an outcome. But stripped of diplomatic niceties, what is happening in the Boards of the Bretton Woods Institutions is an outrage perpetrated against a large and highly vulnerable section of humanity. Ultimately, the actions of those responsible for delaying debt reduction is resulting in lost opportunities for human development, and - in the last analysis - lost lives.
We state this fact bluntly because it is the harsh reality. In 1990, international political leaders gathered at the World Summit for Children to agree a plan of action for reducing child deaths by half over the next decade, along with other human development targets. The external finance needed to achieve these objectives through investment in primary health, nutrition, and water and sanitation is considerably less than is being spent on debt. These are precisely the investments which Mr Wolfensohn says he wants to encourage. Yet despite the opportunity created by the HIPC framework, debt relief is not regarded by his Board as a poverty issue.
The human costs of this lost opportunity for human development
will be high. In this Briefing we review the National
Plans of Action for achieving the targets set at the
World Summit for Children for seven countries in Africa.
In each case, debt relief could make a decisive contribution,
helping to create the foundations for a sustained assault
on poverty. In each case the potential welfare gains
are enormous - and they are achievable. For the seven
countries reviewed, successful implementation of the
national plans would save the lives of 3.2 million
children over the next seven years. Viewed in a different
light, continued obstruction on the part of the IMF
and the governments of Germany, Japan, and the US will
help to consign the same children to an early grave.
(continued in part 2)
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Africa: Oxfam Debt Statement, 2
Date distributed (ymd): 970423
Document reposted by APIC
This posting, and the previous one, contain the executive summary of a new Oxfam International policy paper published this month. The full text of the paper, which includes additional background on Uganda, Mozambique and other African countries, can be found on the Oxfam Web site at
http://www.oneworld.org/oxfam/policy/papers/debtdawn.htm
The Oxfam International Advocacy Office can be contacted at 1511 "K" Street, Suite 1044, Washington DC 20005, USA; Tel: 1 202 393 5332; Fax: 1 202 783 8739; Email: oxfamintdc@igc.apc.org.
Poor Country Debt Relief: False Dawn or New Hope for
Poverty
Reduction?
(continued from part 1)
The limitations of HIPC implementation
Applied with flexibility and common sense, the HIPC framework could make a critical contribution to poverty reduction. Instead, the initiative is being implemented more with a view to minimising the costs to creditors than to maximising the benefits for debtors, and poverty reduction considerations remain of marginal concern. The cases of Uganda and Bolivia raise particularly serious concerns. Both countries have exemplary records in maintaining economic reform programmes for over a decade; both have unsustainable debt burdens, and both have governments committed to converting savings from debt into initiatives to reduce poverty. The case for early and decisive action to reward this record is overwhelming. In the event, debt relief has been delayed for a year and, in Bolivia's case, the threshold for debt sustainability has been set absurdly high, thereby reducing debt relief.
The costs for both countries will be considerable. In financial terms, the delay in debt relief will reduce the foreign exchange available for essential imports and create a climate of uncertainty for private investment. In social terms, the costs are beyond estimation. According to the Ugandan Government, the finance lost as a consequence of delaying debt relief will amount to around $193m over the next year. To put this figure in context, it is equivalent to six times the national health budget or more than the total cost of providing free universal primary education for four children in each family.
In the case of Bolivia, the combination of a delayed completion date for debt reduction and the IMF-World Bank's decision to set debt-sustainability thresholds at unrealistically high levels will cost the country around $241m. For creditors, this is a tiny sum. Measured against the social sector budget in Bolivia it is equivalent to double the national health budget or seventeen times projected spending on rural clean water and sanitation under the Government's poverty reduction programme.
Delaying debt relief sends the wrong political signals to countries in which governments have undertaken politically painful economic reforms. It also sends the wrong signals to countries in which the reform process is still being established. If other countries suffer the same treatment as Uganda and Bolivia there is no prospect of the HIPC debt crisis being resolved until well into the next decade. On a best-case scenario, the requirement that countries adhere to two consecutive IMF programmes before qualifying for multilateral debt reduction will mean:
* Ethiopia will not qualify for debt reduction until the end of 2000, even though the country still faces huge post-war rehabilitation and reconstruction problems. It is also besieged by recurrent drought and relentless environmental degradation.
* Nicaragua, one the world's most indebted country with each citizen owing the equivalent of three times their annual income, will not qualify until 2001.
* Mozambique, Tanzania, and Niger will not qualify until 2002-2003. *
Zambia will not qualify for multilateral debt relief until at least 2002 on a best case scenario. This is despite the fact that the World Bank's poverty assessment for Zambia concluded that the country's "large debt stock will have to be addressed more directly (i.e. than existing debt relief measures) if Zambia is ever to achieve sustainable and self-sufficient growth." Over half of that debt stock is accounted for by multilateral creditors.
* Rwanda may not qualify at all, and if it does it will be after 2003, despite the country's desperate post-genocide reconstruction needs.
* Heavily indebted and impoverished countries such as Guyana, Honduras, Benin, Mali, and Chad are likely to be excluded from HIPC debt relief on the basis of narrow financial criteria.
Debt relief: an investment in human development
Slow implementation and the limited application of the HIPC framework will undermine its effectiveness in reducing poverty in some of the world's poorest countries. As a group, the 41 HIPCs display the worst social indicators in the developing world. All but six fall into the lowest category of human development in the UNDP's Human development Index. Translated into human terms, this means that a child born in a HIPC is 30 per cent less likely to reach their first birthday than the average for all developing countries; and that a mother is three times more likely to die in childbirth. The IMF in particular has been at pains to stress that debt relief is not a panacea for poverty. Of course it is not. But it could make an important contribution by increasing the financial resources available for investment in people. It is surely unacceptable that most HIPC governments spend over 20 per cent of their revenues on debt servicing when confronted by such pressing human need. And it is outrageous that, in many countries, debt repayments exceed social expenditures - often by a huge margin:
* In Mozambique, debt servicing for 1996 absorbed double the amount allocated to the combined current expenditure budgets for health and education. This is in a countrywhere one-quarter of all children die before the age of five as a result of infectious disease; and where two-thirds of the population are illiterate.
* In Zambia, infant mortality rates are rising in the face of collapsing provision of health, clean water, and sanitation. Yet for every $1 spent on health, the country spends an additional $4 on debt servicing.
* In Ethiopia, over 100,000 children die annually from easily preventable and treatable diarrhoea. Less than 40 per cent of the rural population have access to the most basic health facilities. However, debt repayments are equivalent to four times public spending on health.
* In Niger, the country at the bottom of the Human Development Index, life expectancy averages 47 years and only 14 per cent of the population is literate, but debt servicing absorbs more than the combined budgets for health and education.
* In Nicaragua, where three out of every four people live below the poverty line, where one-quarter of the under-five population suffers nutritional deficiency, and where 35 per cent of the population is illiterate, debt repayments exceed the total social sector budget.
* In Bolivia, where over 90 per cent of the highland population is in poverty, where only 16 per cent of that population has access to safe water, and where over one-third of women are illiterate, debt repayments for 1997 account for three times the spending allocated for rural poverty reduction.
Such facts illustrate the lethal interaction between the debt crisis and the fiscal crisis - the growing inability of governments to finance spending on basic services out of domestic revenues. They also illustrate the high social costs of debt, in terms of lost opportunities for health, education, and poverty reduction, and the potential human welfare gains which could be achieved through debt relief.
Saving lives
The scale of these potential gains is underlined by our review of the seven national plans for achieving the targets for human development set by the World Summit for Children in 1990. Those targets included major progress against malnutrition, preventable disease, and illiteracy, in addition to a reduction by half in child mortality. This Briefing compares the external financing requirements need to achieve these targets over the period 1993-2000 for seven African HIPCs* against the debt service payments of the same countries. The striking result is that, for all but one country, debt servicing represents more than the external finance requirement for the national plans.
What does this mean in human terms? We consider this question by assuming that the World Summit targets for reducing child mortality and malnutrition can be met with adequate finance and appropriate policies. If they were met in the seven countries under review, the lives of over three million children under the age of five would be saved over a seven year period; and over four million cases of malnutrition would be avoided. For individual countries, the human development gains would be enormous, with debt relief contributing to measures which would save the lives of * 1.3 million children in Ethiopia * almost 600,000 children in Mozambique * 475,000 children in Niger * a combined total of around 440,000 children in Burkina Faso and Mali.
Even before the wider benefits of reduced vulnerability to maternal mortality and infectious disease, increased literacy, and improved productivity are taken into account, these are very high returns on a very small investment.
In this Briefing we propose that governments willing to convert savings from debt repayments into social investment should be rewarded with an accelerated time-frame for debt relief. Eligibility would be through a modified economic reform conditionality, along with a government commitment to transfer between 80-100 per cent of any savings from debt relief into a ring-fenced budget account for social investments. Concrete targets for improving human welfare would be established through dialogue with creditors, donors, and non-government organisations (NGOs). Debt relief funds would be earmarked for specific investments, additional to those provided for in existing budget plans, summarised in a debt-for-poverty-reduction contract. The aim of such a contract would not be the erection of another hurdle to eligibility for debt relief, but the creation of positive incentives for poverty reduction. Performance would be closely monitored under the World Bank's Public Expenditure Reviews. As in any contract, non- compliance would be penalised. Debtor governments failing to undertake the expenditures to which they have committed themselves would face a dollar-for-dollar reduction in their aid budgets.
The World Bank could play a central role in working with governments to draw up concrete plans and targets for converting debt into poverty reduction initiatives. This would be entirely consistent with the vision set out in the Bank's Strategic Compact. It would also enable the World Bank to develop more participatory approaches to poverty reduction, engaging with civil society and non- government organisations in identifying co-operative approaches to financing and delivering social sector provision.
An agenda for reform
The central argument of this Briefing is that debt reduction could make a decisive contribution to a broader social development strategy. That is why Oxfam International is arguing for more effective implementation of the HIPC framework, allied to some significant reforms. The time-frame for debt relief must be accelerated, the level of relief increased, and country coverage widened. An urgent review of the economic conditionalities attached to debt relief is also needed.
At present, adherence to two IMF programmes is required for qualification to the HIPC initiative. Yet these programmes have failed to establish the conditions for economic recovery. They have also been pursued at enormous social cost, with deflationary monetary targets taking precedence over social spending. Moreover, two-thirds of IMF programmes break down before completion, raising the prospect of protracted delays in HIPC implementation. It follows that more flexible approaches to conditionality are required, with economic reforms geared towards the real needs of poor countries, rather the reckless pursuit of an outmoded monetarist idelogy. More generally, poverty reduction must be integrated into the HIPC framework as a central objective, rather than being appended - as is the case at present - as a peripheral concern.
This Briefing proposes the adoption of a new debt-for-poverty-reduction contract in the HIPC initiative, under which governments will be given an incentive, in the form of increased debt relief and an accelerated time-frame for implementation, to convert savings from debt into priority social investment.
Five broad reform measures are required.
(i) The time-frame must be accelerated. The end of the decade should be established as a target date for ending the HIPC debt crisis. The period of eligibility for multilateral debt reduction should be reduced from six years to three years.
(ii) The debt sustainability thresholds should be lowered and broadened to take into account human development levels. Threshold ratios for debt service should be lowered to 15-20 per cent and for debt-to-exports to 150-200 per cent. For countries with exceptionally poor human development indicators, lower thresholds should be considered on a case-by-case basis.
(iii) More weight should be attached to fiscal criteria. Upper ceilings of between 15-20 should be set for the proportion of government revenue absorbed by debt repayments, since expenditure in excess of this level is likely to represent an unacceptable diversion of resources from investment in priority social services.
(iv) Reliance on IMF economic conditionality should be abandoned. More flexible approaches to policy conditionality are required, with less emphasis placed on deflationary monetary targets and a higher priority attached to employment creation and social investment. The alternative is to make debt relief conditional on the adoption of policies which undermine, rather than enhance, the position of the poor.
(v) Poverty reduction incentives should be integrated into the HIPC framework. Countries willing to engage in a dialogue aimed at converting debt relief into poverty reduction initiatives should be rewarded with an accelerated time-frame for debt relief.
It is claimed by some that such reform would increase the costs of debt relief to unrealistically high levels. Oxfam International accepts that the costs of HIPC would rise - but what is an unrealistic price for an initiative which could save over 3 million young lives - equivalent to the combined populations of Adelaide, Edmonton, and New Orleans? The total cost of the HIPC framework for forty one countries over an eight year period is estimated at around $5bn, is equivalent to: * slightly over 1 per cent of public spending in Britain * roughly one-twentieth of the sum spent by Germany in financing reunification * less than US citizens spend annually on training shoes.
Double spending on HIPC, and it would cost less than the resources mobilised by the IMF to finance Mexico's financial rescue package. Triple it, and it would still cost less than the New York City budget. If such investment is regarded by the international community as unacceptably high, it is a sad testament to the myopic vision of political leaders.
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From: apic@igc.org Message-Id: <199704231035.DAA03424@igc3.igc.apc.org> Date: Wed, 23 Apr 1997 06:34:29 -0500 Subject: Africa: Oxfam Debt Statement, 1/2
Editor: Ali B. Ali-Dinar
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