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Mozambique: Debt Relief Proposals
Date distributed (ymd): 970902
Document reposted by APIC
This posting contains a press briefing and suggested letter from Oxfam International concerning the latest IMF/World Bank proposals on Mozambique debt relief, prepared prior to the next World Bank board meeting scheduled for September 9. Additional letters to national government officials (Finance or Treasury Ministry) on the same theme are welcome. In the US letters should be addressed to Lawrence Summers, Dep. Sec. of the Treasury, 1500 Pennsylvania Ave., NW, Washington, DC 20220 (fax: 202-622-0081).
A new Oxfam International paper on Mozambique's debt is available on the Web at:
http://www.oneworld.org/oxfam/policy/papers/moz97.htm
The executive summary is at:
http://www.oneworld.org/oxfam/policy/papers/moz97ex.htm
Earlier 1997 material on the debt issue is at:
http://www.africapolicy.org/docs97/debt9704.1.htm
and
http://www.africapolicy.org/docs97/debt9704.2.htm
Additional documents on the topic from 1996 and 1995 are also available in the document archive at the Africa Policy Web Site (http://www.africapolicy.org).
For more information contact the Oxfam International Advocacy Office, 1511 "K" Street, Suite 1044, Washington DC 20005, USA Phone: Veena Siddharth 202-393-5333, Justin Forsyth 202-393-5332, Quynh Tran 202 783 3331; Fax: 202 783 8739' E-mail: oxfamintdc@igc.apc.org.
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A. Oxfam International press briefing on World Bank/ IMF Board debt proposals for Mozambique.
August 26, 1997
1. IMF/ WB Mozambique debt paper
In the latest debt paper to their Boards (as part of implementing the Highly Indebted Poor Country Initiative), the World Bank and IMF recognize the scale of the post conflict problems facing Mozambique but fail to make recommendations that will reduce Mozambique's debt to a sustainable level or free resources up for poverty programs.
The confidential Bank and Fund Board papers, dated August 20, recognize the huge post conflict problems the country faces, the Mozambican government's commitment to economic reform, and the vulnerability of Mozambique to external shocks. The paper also notes that the Government of Mozambique has demonstrated a willingness to protect and increase expenditures in basic health and education. The report notes that "Despite a tight fiscal situation, recurrent expenditures in health and education increased by 20 percent in real terms in 1995, and by another 3 percent in 1996, while defense and security expenditures contracted significantly." Mozambique's poor social indicators and vulnerability are also mentioned in the analysis.
In the paper the staff of the Fund and Bank set out a number of options for the IMF/ WB Boards to consider. In terms of how quickly the debt could be reduced (within the HIPC framework) the paper offers either mid 1999 or mid 2000, with the staff recommending mid 1999. In terms of how much the debt should by reduced the paper recommends the debt should reduced to between a 200 and 220% debt to export ratio and below a 20% debt service to export ratio. In terms of bilateral debt relief, through the Paris Club, the paper highlights that the bilateral creditors will need to go further than the 80% agreed in the HIPC framework if Mozambique's debt is to be reduced to the 200- 220% debt to export threshold. Overall the papers say between $1.1 and $1.5 billion debt relief will be provided, depending on the decisions on the thresholds and the timing. Mozambique's debt is calculated at around $5.6 billion.
2. Oxfam International response
While Oxfam International welcomes the recognition in the IMF/ WB paper of the scale of the problems facing Mozambique, we are very disappointed that the recommendations do not match the analysis. Overall the recommendations are weak and inadequate. If the international community is to help build the peace in Mozambique and ensure it does not slip back into conflict they will need to agree much more courageous proposals than presently on offer in the IMF/ WB paper. Some governments will oppose lowering the thresholds, arguing the costs are too high. But the cost of failing to invest in peace is much higher. In Rwanda in 1994, the international community spent over $1.5 billion on humanitarian aid. In Angola it is costing $1 million a day to fund a small peacekeeping operation. It is clearly cheaper to invest in peace.
The problems Mozambique faces are huge. It is a country emerging from 16 years of conflict where:
- Roughly 9 million Mozambicans, out of a population of 16 to 18 million, go without access to health care
- Approximately 190,000 children die annually before reaching the age of five
- About 10 million Mozambicans go without access to safe drinking water.
In our new position paper: "Debt Relief for Mozambique: Investing in Peace" we contend that significant and timely debt reduction is essential if Mozambique is to achieve sustained economic growth and poverty reduction. A true exit strategy from debt rescheduling for Mozambique will depend on the willingness of the international community to adapt the HIPC framework to the Mozambican context. We urge the Boards, meeting on September 9th, to agree:
- Deeper debt reductions through appropriate debt sustainability thresholds
We are not confident that the HIPC framework's ranges for debt sustainability will allow Mozambique to escape future need for debt relief. Sustainability thresholds of 15 percent for the debt service ratio and 150% for the net present value of the debt in relation to exports should be agreed as more appropriate targets given Mozambique's extreme poverty and post-war circumstances.
- Earlier debt relief through rapid progress towards the completion point
Mozambique should move immediately to a decision point (the point it enters the initiative), of September 1997 and should reach the completion point, (the point it benefits from debt reduction), no more than one year later (September 1998). During this one year interim financing will be needed to allow the Government of Mozambique to invest in the social sectors and basic infrastructure.
- Deeper bilateral debt relief
In the HIPC framework, each creditor agrees to reduce its debt by the same proportion. Because a large section of the debt is bilateral, in order to comply with this principle of burden sharing, the Paris Club will need to widen the eligibility of debt it considers for Mozambique or go beyond the 80 percent forgiveness designated in the HIPC framework.
Quote : "If the IMF and World Bank are serious about reducing debt to sustainable levels, allowing countries to escape the tread mill of rescheduling, they will need to go below the 200-220% debt to export threshold proposed for Mozambique" said Veena Siddharth of Oxfam International, the network of ten aid agencies.
If you would like copies of the new Oxfam International position paper on Mozambique or further information on the Board discussions please contact us in Washington DC.
B. Draft letter to Governments
Dear Finance Minister
Please find enclosed our position paper: "Debt Relief for Mozambique: Investing in Peace". It is widely acknowledged that Mozambique has made serious efforts to reform despite its extreme poverty, massive reconstruction needs after years of war, and reliance on external aid. This Oxfam International report argues that significant and timely debt reduction is essential if Mozambique is to achieve sustained economic growth and poverty reduction.
A true exit strategy from debt rescheduling for Mozambique will depend on the willingness of the international community to adapt the HIPC framework to the Mozambican context. We ask you to consider the following measures:
1. Appropriate debt sustainability thresholds
We are not confident that the HIPC framework's ranges for debt sustainability will allow Mozambique to escape future need for debt relief. Sustainability thresholds of 15 percent for the debt service ratio and 150% for the net present value of the debt in relation to exports should be agreed as more appropriate targets given Mozambique's extreme poverty and post-war circumstances.
2. Rapid progress towards the completion point
Mozambique should move immediately to a decision point of September 1997. The period between decision and completion points of the initiative should be one year, during which interim financing will need to be provided to allow the Government of Mozambique to invest in the social sectors and basic infrastructure.
3. Adherence to the principle of burdensharing
In the HIPC framework, each creditor agrees to reduce its debt by the same proportion. Because a large section of the debt is bilateral, in order to comply with this principle of burdensharing, the Paris Club will need to widen the eligibility of debt it considers for Mozambique or go beyond the 80 percent forgiveness designated in the HIPC framework.
If implemented flexibly to take account of the Mozambican context, HIPC could allow Mozambique to make urgently needed investments in health, education and basic infrastructure. Without these investments, long-term prospects for growth in Mozambique are not promising. We urge you to support these points in the Board discussion and we would very much like to hear your comments on our paper.
Sincerely yours,
************************************************************ From: apic@igc.org Message-Id: <199709021214.FAA04807@igc3> Date: Tue, 2 Sep 1997 08:13:22 -0500 Subject: Mozambique: Debt Relief Proposals
Editor: Ali B. Ali-Dinar
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