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Africa Action: New Start Needed on Debt Cancellation
Africa Action: New Start Needed on Debt Cancellation
Date distributed (ymd): 020925
Africa Action Document
Africa Policy Electronic Distribution List: an information
service provided by AFRICA ACTION (incorporating the Africa
Policy Information Center, The Africa Fund, and the American
Committee on Africa). Find more information for action for
Africa at http://www.africaaction.org
+++++++++++++++++++++Document Profile+++++++++++++++++++++
Region: Continent-Wide
Issue Areas: +economy/development+
SUMMARY CONTENTS:
This posting contains a call by Africa Action for a new start on
debt cancellation, and links to additional reports on the issue.
A related posting also sent out today has excerpts from the latest
report by Jubilee Research documenting the failure of debt relief
action by the World Bank, IMF and major creditor countries. An
Africa Action press release - "World Bank and IMF Fiddle While
Africa Burns" - is at:
http://www.africaaction.org/desk/debt0209.htm
+++++++++++++++++end profile++++++++++++++++++++++++++++++
Africa Action
Towards a New Start on Debt Cancellation
September 25, 2002
Two years ago this week Secretary General Kofi Annan issued a call
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. His report noted that the HIPC (Heavily Indebted Poor
Countries) initiative had proved inadequate even for the countries
included, and that there were many debt-burdened countries not
included in the initiative. The report also called for "an
immediate suspension" of debt-service payments of all HIPC's and of
other countries to be identified by the panel.
The failure to change the basic approach to resolving Africa's debt
crisis is a crippling blow to Africa's economic prospects and to
its efforts to address urgent needs such as combatting the AIDS
pandemic.
As the IMF and the World Bank gather for their annual meeting two
years later, the evidence of failure of the creditors' HIPC
initiative is even more overwhelming. So is the damage in lost
lives and devastated economies caused by the failure to address the
issue. The evidence is also clear that when money is saved by debt
cancellation, it does go for productive investment in health,
education, and other urgent needs.
African countries, non-governmental organizations working on debt
cancellation, independent thinktanks, and even some governments in
rich countries, such as Ireland, have clearly documented the
failure of the HIPC initiative. There is wide recognition that
only full cancellation of the debt overhang (combined with
additional international public investment) could really meet the
needs of the poorest countries. Nevertheless, faced with the
stubborn resistence from creditors, many have also come up with
more limited proposals, such as capping debt service at agreed
percentages of national budgets, topping up the HIPC initiative
with additional funds, and other similar suggestions. Current
proposals before the U.S. Congress follow this pattern.
There is certainly room for debate on the precise mechanisms for
implementing debt cancellation. But delaying comprehensive
treatment while adding a few extra bandaids only allows the
continued hemorrhage of desperately needed resources out of Africa.
Africa's debt crisis demands both a fundamentally different
approach from the HIPC initiative and an immediate moratorium on
debt repayments as an interim measure. Options for addressing the
debt crisis include the establishment of an independent,
international arbitration panel to mediate between debtors and
creditors, and the creation of bankruptcy mechanisms for heavily
indebted sovereign states. Until such mechanisms are in place, the
bleeding must stop. African countries should not be required to
continue diverting desperately needed resources to servicing
unsustainable external debts.
Economist Jeffrey Sachs has proposed that African countries
unilaterally redirect debt payments to urgent investment in
fighting AIDS. Nigeria, which is not even included in the
creditors' HIPC program, last month declared a unilateral halt on
payment of half of the $3.3 billion in debt payments due to foreign
creditors for 2002, in hope of future rescheduling. But dependence
on creditors still blocks African countries from decisive action
along these lines.
Given the paralysis of efforts under the IMF/World Bank framework,
and the failure of creditor country governments to support
Secretary-General Kofi Annan's call for an independent panel,
legislators should take the initiative towards a new start in the
debt cancellation debate. The following three immediate steps are
measures that could be taken, by the U.S. Congress and other
national legislatures in creditor countries, to build momentum for
a new approach that goes beyond the failed HIPC initiative.
[Note: While the references in the document below refer to the U.S.
Congress, similar considerations apply to European and Asian
creditor nations. Again, the text below refers particularly to
African countries, but the same principles would apply to other
heavily indebted countries, including many not included in the
official HIPC initiative.]
A new initiative would require the following:
(1) An inventory of the debts currently being repaid by African
countries, in order to determine the legitimacy of creditor claims.
This would involve an immediate and thorough information disclosure
on outstanding debts owed by African governments to both bilateral
and multilateral creditors.
The creation of an "inventory" of these debts would comprise an
investigation of the circumstances and purpose of the original
loans, as well as their actual use. Such an investigation would
enable a fair determination of the legitimacy of these debts and
the appropriate policy for their recovery.
Examples of illegitimate debts would include: debts contracted by
repressive regimes, where the money was used to strengthen the hold
of these regimes; or debts contracted by formally democratic but
corrupt governments, where the money was then stolen by senior
officials for their own enrichment.
Lending of this nature was prevalent during the Cold War, when geostrategic
interests often trumped development concerns. Indeed,
debts incurred by dictatorships for the purposes of enforcing their
rule may be considered "odious" in international law. Under this
established legal principle, such debts are not considered to be
the responsibility of the oppressed population or of subsequent
governments. Odious debts may, according to legal precedent, be
cancelled on the basis of international agreement. An inventory of
African governments' outstanding debts should also include an
investigation of those cases where a country's debt burden
increased or was perpetuated as a result of conditions unilaterally
imposed by creditors.
The creation of an inventory of Africa's debts is an essential step
towards achieving a just resolution to Africa's debt crisis.
Making public the purpose and use of loans and investigating their
legitimacy is a reasonable approach to assessing the extent to
which the debts of African countries should rightly be canceled.
Such a fair-minded proposal should be embraced by Congress, to send
a message to the White House and U.S. Treasury that their existing
"solutions" have failed, and to change the nature of the public
debate.
Moreover, an endorsement of this undertaking would send an
important message, that greater accountability and responsibility
shall be required from both lenders and borrowers in future
lending. This would address concerns about "moral hazard" on the
parts of creditors and debtors alike.
(2) A study to ascertain what would be the cost to creditors of
the full cancellation of Africa's debts.
This study would investigate to what extent bilateral and
multilateral creditors would be able to absorb the costs of 100%
cancellation from their own resources, and what balance would have
to be recouped from other sources. It would provide a
"bottom-line" assessment of how much it would actually cost
creditors to write the debts of African governments off their
books.
Studies of this nature, requested by Congress, would draw from the
body of recent research on aspects of this question, and build a
rigorous and comprehensive analysis of the finances involved.
While the bilateral debts owed by African governments to the U.S.
form a relatively small part of Africa's debt burden, and the U.S.
has already committed to cancelling this bilateral debt, what is
far more significant is the large amount of debt owed by African
governments to the World Bank and International Monetary Fund
(IMF), where the U.S. is the principal shareholder.
Recent studies indicate that these institutions hold sufficient
wealth on their own balance sheets to absorb the full costs of
multilateral debt cancellation from their internal resources. An
audit of these institutions by two independent accounting firms in
Britain revealed that the World Bank and IMF could write off all of
the debts of the world's poorest countries from their own assets,
without negatively impacting their credit rating or their ability
to function. Despite these studies, the World Bank and IMF
continue to maintain that outright debt cancellation is a financial
impossibility because it would critically undermine their future
operations.
Congress should commission an independent study to investigate the
veracity of these claims and to accurately assess how 100%
cancellation of Africa's debts would affect the World Bank and IMF,
and other creditors. This study should include an analysis of the
full costs of debt cancellation, how these costs might be borne,
and by whom, and what the impact would be on creditors and debtors,
both immediately and in the future.
Such a review is a matter of self-interest to the U.S., as the
leading power at the World Bank and IMF. It must also form a
crucial element of any U.S. policy determination on the issue of
debt cancellation. It is important that Congress have a thorough
cost analysis at its disposal before an accurate assessment can be
made of the possibility of 100% debt cancellation.
(3) A resolution by Congress supporting a moratorium on debt
repayments by African countries until such time as an inventory of
these debts has been compiled and the costs of 100% cancellation
have been determined, these two studies providing a foundation for
moving towards a just resolution to the continent's debt crisis.
In light of the question of illegitimacy hovering over much of
Africa's debt, it is appropriate that debt repayments be suspended
while the nature of the original debts and the validity of creditor
claims are investigated.
Debt since the Jubilee: Two Years of Creditor Stalling
By the year 2000, public pressure from Africa and from debt
cancellation campaigners around the world (the Jubilee 2000
coalitions and many others) had produced widespread international
consensus on the need to act to cancel unsustainable debts of poor
countries, to free resources for addressing urgent human crises and
long-term economic development. As a result, bilateral and
multilateral creditors promised "solutions."
The victory, however, was limited, and jubilation premature. Rich
country promises were vague. Implementation of "solutions,"
moreover, has been piecemeal. The scale has been on the order of
pilot projects rather than measures even approaching comprehensive
action. Reductions of some debts of some countries, such as Uganda
and Mozambique, have in fact allowed redirection of some resources
to urgent needs. Throughout, however, the process, managed by the
creditors' themselves, with their multilateral agents the IMF and
the World Bank, has been intrusive, inefficient, and unjust, as
well as too little and too late. Critiques by NGOs, UN agencies,
and even in internal documents of the financial institutions
themselves, have gone unheeded.
The official IMF and World Bank web pages, presenting creditor
views and documentation on HIPC, are
http://www.imf.org/external/np/hipc/doc.htm
and
http://www.worldbank.org/hipc
The links below cite a few of the many documents on this issue from
these two years. The overwhelming consensus is that HIPC has not
worked. Proposed changes are abundant. But the key missing element
is still a lack of political will on the part of creditor countries
and institutions.
Christian Aid, Oxfam, Eurodad, August 2002
A Joint Submission to the World Bank and IMF Review of HIPC and
Debt Sustainability
http://www.oxfam.org.uk/policy/papers/wbimfdebt/wbimfdebt.pdf
Ireland, Ireland Aid and the Department of Finance
Developing Country Debt Relief Strategy, July 2002
http://www.eurodad.org/articles/default.aspx?id=146
Africa Action, June 2002
Critique of the HIPC Initiative
http://www.africaaction.org/action/hipc0206.htm
Jeffrey Sachs, Resolving the Debt Crisis of Low-Income Countries
Brookings Papers on Economic Activity, 1: 2002
http://www.africafocus.org/docs02/dbt0209a.php>
Center for Global Development and Institute for International
Economics, "Delivering on Debt Relief: From IMF Gold to a New Aid
Architecture," April 2002
http://www.iie.com/publications/publication.cfm?pub_id=337
African Forum and Network on Debt and Development (AFRODAD)
Fair and Transparent Arbitration on Debt, March 2002
http://www.africafocus.org/docs02/debt0203.php>
Jubilee Research, April 2002
Debt and Double Standards
http://www.africafocus.org/docs02/debt0205.php>
UNCTAD, September 2001
UN study estimates that for each dollar of net capital flow into
sub-Saharan Africa from the rest of the world, $1.06 flows out,
51 cents through terms of trade losses, 25 cents through debt
servicing and profit remittances, and 30 cents through leakages
into capital outflows - a net transfer of resources from Africa
to the rest of the world.
http://www.africafocus.org/docs01/unct0109.php>
Africa Action, Africa's Debt Position Paper, July 2001
http://www.africaaction.org/action/debtpos.htm
Jubilee South, Global Day of Protest against Debt, July 2001
http://www.africafocus.org/docs01/dbt0107a.php>
Drop the Debt, April 2001
UK studies show the IMF and World Bank can afford to cancel 100
per cent of the debts they are owed by the poorest countries, and
that the HIPC program is failing.
http://www.africafocus.org/docs01/debt0104.php>
http://www.africafocus.org/docs01/debt0105.php>
Dakar Manifesto for Total and Unconditional Cancellation of
African Debt
http://www.africafocus.org/docs01/dak0012.php>
Zambia Government Calls for Debt Cancellation, October 2000
http://www.africafocus.org/docs00/zam0011.php>
Oxfam International, September 2000
HIPC Leaves Poor Countries in Debt
http://www.africafocus.org/docs00/ox0009.php>
Africa Fund, Religious Action Network (Africa Action),
September 2000
Cancel the Debt
http://www.africafocus.org/docs00/debt0009.php>
Secretary-General Kofi Annan, September 2000
Call for Debt Inquiry
http://www.africafocus.org/docs00/sg0011.php>
This material is distributed by Africa Action (incorporating the
Africa Policy Information Center, The Africa Fund, and the
American Committee on Africa). Africa Action's information
services provide accessible information and analysis in order to
promote U.S. and international policies toward Africa that
advance economic, political and social justice and the full
spectrum of human rights.
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