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Africa: Debt Relief Inadequate
Date distributed (ymd): 980625
Document reposted by APIC
+++++++++++++++++++++Document Profile+++++++++++++++++++++
Region: Continent-Wide
Issue Areas: +economy/development+ +US policy focus+
Summary Contents: This posting contains a resolution
from the U.S. Conference of Mayors calling for significant
debt reduction for African countries, and an article
by Joe Hanlon of Jubilee 2000 updating the controversy
over how much debt relief Mozambique actually received
under the recent HIPC decision. Additional background
information and web links are available on the Africa
Policy Web Site (http://www.africapolicy.org/action/debt.htm).
+++++++++++++++++end profile++++++++++++++++++++++++++++++
The Africa Fund June 24, 1998
U.S. Conference of Mayors Calls for Debt Relief for African Countries
The 1,000 member U.S. Conference of Mayors at its 66th annual meeting in Reno, Nevada, adopted a resolution calling on the President and Congress to provide leadership in working toward significant debt reduction and cancellation of debt owed by the poorest African countries.
"By adopting this resolution the U.S. Conference of Mayors is providing important leadership and guidance on U.S. Africa policy while also pointing to the critical link between human development and mutually beneficial trade relationships," said Susie Johnson, Projects Director of The Africa Fund, who addressed the International Affairs Committee at the conference on Africa's efforts to overcome economic obstacles to growth.
The resolution notes that "twenty-two of the world's poorest 30 nations are in Africa, which continues to struggle under a crushing burden of debt." The resolution also notes that debt repayment impedes Africa's ability to meet basic human needs, with many African countries spending more on debt repayment than on education and health care.
The U.S. Conference of Mayors is a non-partisan organization of more than 1,000 cities with populations of more than 30,000. Each city is represented in the Conference by its mayor. The resolution's primary sponsor, the Hon. Wellington E. Webb, Mayor of Denver, was joined by Hon. Dennis W. Archer (Detroit, MI); Hon. Emmanuel Cleaver II (Kansas City, MO); Hon. Robert B. Jones (Kalamazoo, MI); Hon. Gary Loster (Saginaw, MI); Hon. Robin Lowe (Hemet, CA); Hon. Meyera E. Oberndorf (Virginia Beach, VA); and Hon. William E. Ward (Chesapeake, VA).
Founded in 1966 by the American Committee on Africa, The Africa Fund works for a positive U.S. policy toward Africa and supports human rights, democracy and development. For more information contact Susie Johnson or Richard Knight at The Africa Fund, 50 Broad Street, Suite 711, New York, NY 10004. Phone: 212-785-1024. Fax: 212-785-1078. E-mail: africafund@igc.org Web: www.prairienet.org/acas/afund.html
The following is the full text of the resolution:
DEBT RELIEF FOR AFRICAN COUNTRIES
1. WHEREAS, twenty-two of the world's poorest 30 nations are in Africa, which continues to struggle under a crushing burden of debt now totaling $323 billion, a significant portion of which is owed to multilateral development agencies; and
2. WHEREAS, many African countries spend more on debt repayment to bilateral government creditors, multilateral agencies like the International Monetary Fund and others than they do on education and health care, spending more than one quarter of their total export earnings on debt servicing; and
3. WHEREAS, debt repayment impedes Africa's ability to meet basic human needs, siphoning away funds needed to strengthen human capacity, weakening civil society and inducing a downward spiral of economic, social and political decline; and
4. WHEREAS, social and economic development are inextricably intertwined processes that are critical to achieving sustainable development and equalizing opportunities for all of Africa's people in the context of harmony and social justice; and
5. WHEREAS, the highly indebted poor countries (HIPCs) debt relief initiative sponsored by the World Bank and the International Monetary Fund provides recognition of the debt crisis, it is not a comprehensive strategy to deal with this burden, has so far only benefitted a handful of African countries and does not provide for definitive debt cancellation which is necessary if Africa's cities are to achieve economic growth and engage in mutually-beneficial trade that can create jobs in the U.S. and Africa;
6. NOW, THEREFORE, BE IT RESOLVED that the U.S. Conference of Mayors agrees that the crushing debt burden inhibits trade and is crippling the lives of Africa's people; and
7. BE IT FURTHER RESOLVED that the U.S. Conference of Mayors calls upon the President and the Congress of the United States to provide leadership in working toward significant debt reduction and cancellation of debt owed by the poorest African countries to the world's richest industrial nations, known as the G-8, and to multilateral agencies such as the World Bank and the International Monetary Fund.
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New official data shows Mozambique Gains Little or Nothing >From Debt 'Relief
By Joseph Hanlon, 4 June 1998
New figures confirm that Mozambique gained little or nothing from the highly publicised debt "relief" granted on 7 April 1998. The poorest country in the world will continue to spend as much on debt service payments as on health and education - with the result that high child mortality will continue and primary education for all will be deferred again.
Debt relief is surrounded by hype and secrecy; the World Bank and International Monetary Fund (IMF) make exaggerated claims but refuse to release details. In May the British Treasury finally released figures for Mozambique. Responding to this and pressure from the Jubilee 2000 Coalition, the IMF then released figures of its own.
The two sets of figures do not agree, but both show how little Mozambique actually gained. British Treasury figures show Mozambique gains nothing at all, while IMF figures claim Mozambique gains 80 US cents (US$ 0.80, UK pounds 0.49) per person per year - far below earlier claims. The Bank and Fund were particularly proud of the debt "relief" granted to Mozambique on 7 April under the Heavily Indebted Poor Countries (HIPC) Initiative. In its press statement the World Bank said the deal would "free budgetary resources and allow Mozambique to broaden the scope of its development effort." Others have stressed that it would release vital money for health, education and clean water. It is now clear that this is completely false. But it has taken an extended campaign to force the Fund to release data which confirm this. (This story is reported below; summary figures are given at the end of this article.)
The World Bank calls Mozambique the poorest country in the world, and it was seen as a test case for HIPC. The deal took more than a year of intense negotiation; it was bitterly fought by Germany and was only reached because Brazil and Britain each put in an extra $10 million. Now, Mozambique provides clear evidence that the debt "relief" now on offer is insufficient. Speaking at the 1998 Southern Africa Economic Summit in Windhoek, Namibia, on 17 May, Mozambique's President Joaquim Chissano said creditor nations should cancel the debt of the poorest, most indebted countries; he called for united African pressure for debt cancellation.
DEBT KILLS
The IMF says that Mozambique has been spending more on debt service than it spent on health and education. Debt service during 1995-97 averaged $7.45 per person per year; health and education spending was $5.04 according to the government or $6.76 according to the IMF. After debt "relief", Mozambique will continue to spend as much on debt service as on health and education combined. As we have seen, precise figures are not available, but health and education spending should rise to $5.57 (government) or $7.46 (IMF estimate) per person, while debt service payments will be $6.02 (IMF estimate) or $6.82 (British Treasury estimate). If just half of the debt service payments were spent on health and education, it would save the lives of more than 300 children each day; 16 fewer women a day would die in childbirth.
This is based on the following calculation. The United Nations Development Programme "Human Development Report 1996" (page 113) says "A 1 percentage point increase in average share of GDP invested in health and education is estimated to reduce .. the child mortality rate by 24 percentage points." In simple terms, increasing spending on health and education by 2.5% of GDP halves child mortality. We assume a similar fall for material mortality. Mozambique's debt service is over 6% of GDP, so turning half of that to health and education would surely halve child and maternal mortality. That would save the lives each year of 115,000 children and 6000 mothers giving birth. Donor governments put much emphasis on the need for education. Yet Mozambique has had to defer the introduction of primary education for all until the year 2010, because, says the Ministry of Education, money is being diverted away from teachers' salaries and toward debt service. (Noticias, Maputo, 16 March 1998).
IMF SECRECY: KEEPING THEIR OWN DIRECTORS IN THE DARK
The whole HIPC process is surrounded by secrecy and confusion. It is often said that IMF and World Bank staff treat their directors like mushrooms - keep them in the dark and cover them in rubbish. It took a month-long campaign by the Jubilee 2000 Coalition to force the publication of useful figures.
In a paper issued in January, the IMF's Anthony Boote says that "scheduled debt service is a misleading indicator in countries like Mozambique ... A more meaningful measure is the actual debt service paid." Incredibly, the "Final HIPC Document" approved by Bank and Fund executive directors on 7 April did not contain a comparison of actual debt service payments before and after HIPC, nor did it contain sufficient figures to allow directors to calculate this. Bank and Fund executive directors were kept in the dark about the "more meaningful measure"; they were only shown a confusing graph and dazzled by large numbers for what Boote himself calls a "misleading indicator". Executive directors approved the deal because staff told them it was good; they had no way to make an informed judgement.
Initially, the Bank and Fund refused to release figures, but the Jubilee 2000 Coalition was able to use other confidential IMF tables to estimate debt service paid before and after HIPC. Publication of this estimate triggered a month of correspondence. The IMF sent one set of figures to the Jubilee 2000 Coalition on 1 May, but when it published a report on these figures, Anthony Boote of the IMF wrote to the Jubilee 2000 Coalition that it was "confused" because it had assumed that what Boote listed as "debt service paid" actually meant "debt service paid".
In mid-May, two further and conflicting sets of figures were released. On 12 May the British Treasury released figures on debt service to be paid, which were similar to the first IMF figures and which showed that post-HIPC debt service payments were identical to the pre-HIPC ones, averaging $113 million per year. Two days later the IMF took the unprecedented step of putting a different set of figures on its web site - because, it said, "various commentators have criticized the assistance to be provided under the HIPC Initiative to Mozambique". The IMF figures show a fall from $113 million per year pre-HIPC to $100 million per year post-HIPC. The IMF made great play that actual debt service will be $70 million less than scheduled debt service - exactly the comparison which its own Anthony Boote said was "misleading". The Jubilee 2000 Coalition considers both the British Treasury and the IMF figures to be "official" figures, and both are used in its calculations.
CRUEL HOAX
Mozambique shows that the entire HIPC exercise is a cruel hoax on the poorest. It has been hugely promoted as an "exit" from the debt trap, which it is not. Instead, HIPC is a very elaborate accounting exercise. Poor countries have been paying only a small portion of the debt service (interest and repayments) actually due. HIPC is designed to cancel that part of the debt which is not being paid and never would be, and to ensure the debtors pay promptly on the rest.
Substantial amounts of debt have been cancelled - in Mozambique's case an estimated $1.4 billion under HIPC - but this is a meaningless number, because these debts would never have been paid. Mozambique would have more chance of sending a football team to France for the World Cup than paying those debts. So numbers for cancelled debts are like the number of goals Mozambique might have scored in France this year. As the IMF's own Anthony Boote wrote: "Scheduled debt service is a misleading indicator".
HIPC is based on a concept of "sustainability" which is defined as the level that a country can pay without defaulting. In practice, this is the level that the country has already been paying - so it is not surprising that Mozambicans gain little or nothing. The official definition of "sustainable" has no link to what the country needs for development. Instead, the World Bank says that debt service is "sustainable" if it is between 20% and 25% of exports.
For Mozambique, the IMF predicts that debt service post-HIPC will fall to 11% of exports in the year 2001.That seems a good deal until two points are considered:
+ First, the IMF assumes Mozambique's exports will double by 2001. Mozambican officials think this highly unlikely; they actually predict a short term fall in export earnings because of falling commodity prices. The real debt service will surely be above 16% of exports.
+ Second, this ratio should be compared to debt relief given to Germany after World War II. The allies demanded a 10% debt-service-to-export-ratio (half the HIPC level), but German negotiators used development and reconstruction criteria to argue 10% was unsustainable. In the final London Agreement of 1953, the debt service ratio was set at 3.5%. The wisdom of massive debt relief is clear - it formed one basis of the German economic miracle. Yet Germany has consistently been the strongest opponent of improving on the present level of debt relief. At the G8 meeting in Birmingham, England, on 16 May, it blocked attempts to improve on HIPC. In negotiations over Mozambique, it refused to go the last step; Britain and Brazil were forced to provide an extra $10 million each, which was effectively aid to Germany (not to Mozambique). Yet Germany was objecting to Mozambique's debt service payments being brought down to ONLY four times what Germany paid after the London agreement. Mozambique is also a post-war country, which suffered $20 billion damage at the hands of an apartheid South Africa which had been backed by German banks and companies. Despite being repeatedly questioned on the subject, the German government refuses to explain if it was wrong 45 years ago to say that 10% was unsustainable, and if not, why it considers Mozambique to be so different from itself.
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SUMMARY OF THREE DIFFERENT SETS OF OFFICIAL FIGURES FOR DEBT SERVICE PAID
[More detailed figures are available on the Jubilee 2000 web site: http://www.oneworld.org/jubilee2000. The IMF's figures are on their web site: http://www.imf.org]
----> The table below will line up correctly if you
put it in a typewriter font that is NOT variable spaced,
such as Courier, Monaco, or TTY.
BEFORE HIPC: -----------
Year (1) (2) (4)
1995 111.7 112 111.7
1996 131.2 131 131.2
1997 96.7 97 96.7
average 113.2 113.3 113.2
AFTER HIPC: -----------
Year (1) (3) (5)
1998 124.1 124 108.5
1999 148.6 147 95.7
2000 96.9 97 96.9
2001 100.9 101 100.9
2002 96.6 97 96.6
average 113.4 113.2 99.7
SOURCES: (1) "Debt service paid" in an IMF e-mail to the Jubilee 2000 Coalition on 1 May 1998. (A subsequent letter said that "debt service paid" did not actually mean "debt service paid" for some years!) (2) "Debt service paid" in a 12 May 1998 British Treasury answer to a parliamentary question. (3) "Debt service that Mozambique will have to pay after receiving debt relief under ... HIPC" in a 12 May 1998 British Treasury answer to a parliamentary question. (4) "Debt service paid before HIPC" in a table put on the IMF web site on 14 May 1998. (5) "Debt service payable after HIPC" in a table put on the IMF web site on 14 May 1998. Health and education spending figures come from "Mozambique: Spending on debt service, health and education", IMF, January 1998.
By Joseph Hanlon, 4 June 1998
Dr Joseph Hanlon is policy officer of the Jubilee 2000 Coalition, author of "Peace without profit: How the IMF blocks rebuilding in Mozambique", and a visiting senior research fellow at the Open University, Milton Keynes, England. Contact: j.hanlon@open.ac.uk or jhanlon@jubilee2000uk.org
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From: apic@igc.org Message-Id: <199806251332.GAA00833@igc3.igc.apc.org> Date: Thu, 25 Jun 1998 09:31:29 -0500 Subject: Africa: Debt Relief Inadequate
Editor: Ali B. Ali-Dinar
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