Creditors took a step forward in March and April with agreements for Côte d'Ivoire and Mozambique to benefit from the Heavily Indebted Poor Countries (HIPC) initiative in 2001 and 1999 respectively. Also in April, Uganda became the first country to get actual debt reduction since the HIPC package was launched in 1996.
But international pressure has been building for faster and more flexible action in favour of more countries. In two years, only six countries have qualified for HIPC treatment -- Bolivia, Guyana and Burkina Faso are the others -- out of the 41 originally classified as HIPCs by the World Bank and International Monetary Fund (IMF). Among the 41 are 33 African countries.
Through the HIPC initiative, says the IMF, all bilateral, multilateral and commercial creditors are to "provide exceptional assistance to eligible countries following sound policies," enabling them to "service their debt through export earnings, aid and capital inflows." The Initiative will be reviewed later this year.
Partly in response to the
pressure, the Group of Eight major industrialized countries (G-8) at their
mid-May summit meeting in Birmingham, UK, recommended "speedy and determined
extension of [HIPC] debt relief to more countries." Also in Birmingham
were many thousands of protesters mobilized by Jubilee 2000, an international
coalition of mainly non-governmental organizations (NGOs), calling for debt
cancellation by the end of the millennium (see box below).
UN Secretary-General Kofi Annan had called earlier for broader access to HIPC relief. And just before the G-8 summit, UNICEF Executive Director Carol Bellamy urged G-8 leaders to revise the HIPC scope and timetable, adding that "the year 2000 should signal a new start."
Also prior to the summit, Oxfam announced that it had written to Mr. Annan urging him to commission a special study on the effects of debt on children. Claiming that Africa spends five times more on debt than on basic health, Oxfam argued that "debt is costing children their opportunities for education and their lives." Oxfam said that Germany, Japan, Italy and the IMF "have collectively sought to delay and diminish" HIPC debt relief. It said they should look at the consistency of their policies on debt relief with the Convention on the Rights of the Child, and urged the UN Committee on the Rights of the Child to press that demand.
While Côte d'Ivoire and Mozambique became the latest qualifiers for eventual HIPC treatment, major creditors decided that neither Benin nor Senegal would qualify. Evaluations completed with the two governments led to a conclusion that both could reach sustainable levels of debt through existing mechanisms. These include the Naples terms set by the Paris Club of bilateral creditors which can reduce part of bilateral debt by up to 67 per cent, and aid from multilaterals for debt service repayments on multilateral loans. Creditors are looking at other countries thought likely to qualify for HIPC treatment, which raises the maximum bilateral debt relief on Naples terms from 67 to 80 per cent and also reduces multilateral debt stocks. Officials anticipate decisions on Guinea-Bissau, Mauritania, and Mali later this year, and on Ethiopia and Tanzania in 1999. Subsequent candidates include Zambia, Niger, Democratic Republic of Congo, Burundi and Madagascar.
This timetable, debt lobbyists argue, strengthens the argument for faster and more flexible HIPC treatment. Only three African countries, they point out, will see actual debt reduction by the year 2000. These are Uganda in April 1998 (when its foreign debt began to be cut by a nominal $650 mn), then Mozambique in June 1999 (by $3 bn nominally) and Burkina Faso in April 2000 (by $200 mn).
This is because HIPC guidelines require a country to complete a three-year programme under the IMF's enhanced structural adjustment facility (ESAF) in order to reach the "decision point" -- when HIPC relief is judged necessary or not. If eligible, a country must undertake another three years of adjustment and donor supervision to reach the "completion point" -- when actual debt reduction occurs.
In special cases, creditors have shortened the period between decision and completion points by giving credit for a "track record" of successful adjustment before HIPC was launched. The period for Uganda -- which had a decade-long track record -- was set at one year, and 15 months for Mozambique, while Côte d'Ivoire will do the full three years before getting debt reduction in 2001.
Debt lobbyists, including Eurodad and Oxfam, are calling for "earlier and deeper" debt reduction based on revised criteria for eligibility. They want the "narrow focus on trade-related measurements" broadened to include poverty reduction and human development criteria in the initial analysis of debt sustainability. Eligibility for HIPC relief should also be "de-linked" from compliance with the ESAF programmes of the IMF. Citing an IMF internal review of ESAF, Eurodad says that since 1986, only a quarter of IMF adjustment programmes have been completed successfully. Therefore, the six-year HIPC time-frame could easily become longer for potential HIPC candidates, Eurodad points out.
In the largest and most complicated HIPC deal so far, Mozambique's debt will fall from $5.6 bn at the end of 1996 to $1.1 bn in June 1999 in net present value (NPV), which is the sum of all future payments of interest and principal on existing debt, discounted at the market interest rate. Similarly, the debt-to-exports ratio falls from a staggering 708 per cent in 1997 to just under 200 per cent. The "sustainable" ratio for eligible HIPCs is 200-250 per cent, and 20-25 per cent for debt-service to exports, ratios which campaigners argue should be lower. They point out that the 1953 London Agreement imposed a maximum debt-service ratio of 5 per cent on post-Hitler and post-Marshall Plan Germany.
Russia -- Mozambique's largest creditor, at $2.5 bn -- will write off about $2 bn. Bilateral creditors, applying standard Naples terms, are to cut another $1.1 bn. These deals would lower obligations to a still unmanageable $2.5 bn, or 466 per cent of exports. The actual HIPC deal worth $1.4 bn would then cut the NPV debt-to-export ratio to 200 per cent.
Mozambique's deal required strenuous efforts, by the World Bank in particular, to bring the most reluctant bilateral creditors on board. Russia took years to settle on a realistic figure for its claims on Mozambique, most of which were built up during the Cold War at unrealistic exchange rates. The fact that bilateral lenders accounted for $4.8 bn of Mozambique's $5.6 bn total foreign debt also posed problems.
The HIPC burden-sharing guidelines required bilateral creditors to put up $916 mn of the $1.4 bn contribution. This exceeded the Paris Club's 80 per cent ceiling on debt relief by some $286 mn. After much argument, the Paris Club agreed to go beyond this limit, but only by setting up a special aid package worth $170 mn to cover part of the balance. Other bilateral and multilateral creditors then agreed to cover the additional $116 mn through individual, voluntary contributions, aid sources say.
But the whole process was so protracted that debt lobbyists are calling
for greater flexibility from Russia and the Paris Club for similar cases
in future. Oxfam estimates that the Paris Club will need to go beyond 80
per cent in at least five other cases: Madagascar, Nicaragua, Rwanda, São
Tome and Principe and Guinea-Bissau. The latter will also require a special
deal with Russia, as will Ethiopia and Tanzania, Oxfam says.
****Box 1****Group of 8 again pledges to help AfricaAfrica was on the agenda of a 15-17 May summit of the Group of 8 (G-8) leading industrialized countries, held in Birmingham, UK, which focused on promoting sustainable global growth and tackling drugs and transnational crime. Much attention was devoted to the Asian financial crisis, but the G-8 also responded to the call by Jubilee 2000 campaigners for faster cancellation of poor countries' debt (see box below). A statement from summit president and UK Prime Minister Tony Blair said the "ambition" of G-8 leaders was to "encourage all eligible countries to take the policy measures needed to embark on the [HIPC] process as soon as possible, so that all can be in the process by the year 2000." Reflecting the conditionality-laden wording of the summit's final communique, he said that if HIPC countries show "a real will to pursue policies that will relieve poverty and build a sound economy, we will do our part to contribute the funds necessary to reduce their debt burden to a sustainable level." G-8 leaders acknowledged the importance of "substantial levels" of development aid, and pledged to negotiate a prompt and adequate replenishment of the World Bank's soft-loan International Development Association (IDA 12). Turning to the least developed countries (LDCs), G-8 leaders said they would allow additional duty-free access to LDC exports, "work towards" a proposal in 1999 to untie future aid to LDCs, and urge all creditors to cancel aid-related debt or take comparable action for "reforming" LDCs. Referring to the UN Secretary-General's recent report on Africa, G-8 leaders agreed to consider ways to help strengthen Africa's ability to prevent and ease conflict. Among these would be the provision of more and faster aid for post-conflict countries, including through HIPC mechanisms. The summit said the World Bank should play a "strong role" in coordinating bilateral and multilateral aid for governance as well as macroeconomic programmes. Besides supporting universal primary education and lower child and maternal mortality, the G-8 also backed the Joint UN Programme on HIV/AIDS (UNAIDS), as well as World Health Organization efforts to cut malaria death rates by 2010. It promised to speed up feasibility work on the French proposal of a "Therapeutic Solidarity Initiative" to provide subsidized drugs for treating HIV and AIDS. ****Box 1****Jubilee 2000 debt relief campaign targets G-8 leadersBy Carol Collins*On 16 May, nearly 70,000 people formed a human chain some 10 kilometres long around a conference centre in Birmingham, England, demanding that the world's richest nations provide deeper and faster debt relief to the world's poorest countries (most of them in Africa) by the end of the year 2000. The leaders of the Group of Eight major industrialized countries (G-8) were not in the conference centre at the time, but they got the message of the mass action organized by the British chapter of the Jubilee 2000 international coalition. Participants came from many of the approximately 40 national campaigns (including the US, Germany, Sweden, Norway, Ireland, Scotland, Italy, Ghana, Kenya, Mozambique, Tanzania and Uganda). Jubilee 2000 petitions bearing 1.5 mn signatures from some 65 countries were received by UK Cooperation Minister Claire Short on behalf of G-8 leaders, and summit president, UK Prime Minister Tony Blair, met with Jubilee 2000/UK leaders and issued a statement on behalf of the G-8. But campaigners expressed disappointment at the statement and also criticized the G-8's final communique for falling far short of the terms of the Mauritius Mandate proposed by UK Chancellor of the Exchequer Gordon Brown at the 1997 Commonwealth finance ministers meeting. This calls for substantial debt reduction by the end of 2000 for three-quarters of the 41 Highly Indebted Poor Countries (HIPC) on the World Bank list, of which 33 are in sub-Saharan Africa. This region's external debt of $227 bn in 1996 represented $379 for every man, woman and child, says Jubilee 2000/UK. Germany -- backed by Italy, Japan and the US -- reportedly led opposition in the G-8 to UK proposals for deeper debt relief. Launched barely two years ago, Jubilee 2000 is an international coalition of non-governmental organizations (NGOs), churches and trade unions, other organizations and individuals. Its campaign in Africa was launched at a 17-20 April conference in Accra, Ghana. Jubilee 2000 is working to produce the largest petition in history -- over 22 mn signatures -- by the end of the year 2000. The petition stresses creditors' shared responsibility with debtors for building up unsustainable debt and for corruption. It calls for cancellation of unrepayable debt, a fair and transparent debt negotiation process, the redirection of savings from debt relief to benefit poor people in debtor countries, and a civil society role in determining the conditions for debt relief and repayment. Major international Catholic agencies have called for deeper debt relief, and the World Council of Churches is expected to voice strong support for debt relief and the Jubilee 2000 campaign at its December 1998 World Assembly in Harare, Zimbabwe. Other campaigns are focusing on debt-reduction for specific countries (for example, the Democratic Republic of the Congo -- ex-Zaire -- given the "odious" nature of its debt; and Rwanda, given its recent emergence from genocide). In mid-May, South African NGOs met in Mainz with representatives of German and Swiss church groups and Jubilee 2000 to explore a possible campaign for cancellation of Southern African debt caused by apartheid. Jubilee 2000/UK and other groups have also issued major reports arguing that the HIPC initiative provides too little relief too late to too few countries. "Chains Around Africa," a Jubilee 2000/UK study of the debt burdens of 20 sub-Saharan African countries, notes that the region's debt service payments of $14.5 bn in 1996 were the highest since 1990. The human impact, Jubilee 2000 argues, has been severe, with some African countries now spending at least twice as much on debt service as on health care. Jubilee 2000 says that for every $1 Africa got in aid grants in 1996, it paid out $1.31 in debt service. And while Africa earns 5 per cent of the developing world's income, it owes 11 per cent of developing country debt. *Carole J.L. Collins is national coordinator of the Jubilee 2000 Campaign in the US. |
