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Africa: Debt Update, More Bad News
Africa: Debt Update, More Bad News
Date distributed (ymd): 020925
Document reposted by Africa Action
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 excerpts from the latest report by Jubilee
Research documenting the failure of debt relief action by the World
Bank, IMF and major creditor countries. A related posting also
sent out today has additional links on the issue of debt
cancellation, and a call by Africa Action for a new start on debt
cancellation. An Africa Action press release - "World Bank and IMF
Fiddle While Africa Burns" - is at:
http://www.africaaction.org/desk/debt0209.htm
+++++++++++++++++end profile++++++++++++++++++++++++++++++
Latest HIPC Report Brings More Bad News for Poor Countries
By Romilly Greenhill, Jubilee Research
Jubilee Research, at the New Economics Foundation,
Cinnamon House, 6-8 Cole Street, London SE1 4YH
t: ++44 (0)20 7089 2810 f: ++44 (0)20 7407 6473
e-mail: info.jubilee@neweconomics.org
web: http://www.jubileeresearch.org
September 2002
[Excerpts only: for the full report, including footnotes and
tables, see:
http://www.jubileeresearch.org/hipc/hipc_news/latest190902.htm
The World Bank referred to below is available at
http://www.worldbank.org/hipc]
N1. Introduction
The World Bank and IMF's Heavily Indebted Poor Country (HIPC)
initiative, started in 1996, has a stated aim of providing a
'lasting exit' to the debt sustainability problems of the poorest
countries. However, the latest draft 'Status of Implementation
Report' for the HIPC initiative, due to be released in time for
the 2002 Annual Meetings of the Bank and Fund, suggests that the
initiative is doing anything but.
In summary, the report shows that:
- Of the 19 countries originally expected to reach Completion Point
by the end of this year, at least 11, or 60%, will fail to do so;N
- The number of countries now expected to face unsustainable debt
burdens at Completion Point is now 13, 3 more than expected in
April 2002N
- 13 out of the 20 'interim' period countries have gone off-track
with their IMF programmes at some point, thus delaying debt
cancellation and denying them interim debt service relief;N
- Overall, even according to the narrow definitions of the World
Bank and IMF, HIPC only appears to be working for between 7 and 10
countries out of the 42 included within the initiative;N
- The IMF and World Bank have considered, but rejected, alternative
proposals for debt relief on the grounds that they are
'unaffordable' and will create 'moral hazard' - both charges
rejected by Jubilee Research.
In this briefing, which is an update of our paper released in April
2002, we provide a full analysis of the latest Bank and Fund report
- and make proposals for reform.
2. Limping through HIPC - will they ever make it?
In December 2000, there was a flurry of activity to get as many
countries as possible to the so-called Decision Point under HIPC -
the point at which debt relief is committed, and some interim
relief provided. Under pressure from international Jubilee 2000
campaigners, the Bank and Fund were keen to demonstrate that they
had met the millennium deadline for as many countries as possible.
Since then, however, the brakes on the HIPC initiative seem to have
gone into over-drive. This year, only 2 countries, Ghana and Sierra
Leone, have reached Decision Point, meaning that almost a third of
the countries which need some assistance under HIPC have gained
nothing so far from the initiative. This is despite the fact that
the remaining countries are some of the poorest and most
war-ravaged countries on earth.
And the 20 countries that are between Decision Point and Completion
Point seem to be stuck in a permanent state of limbo. Over the past
9 months, only 2 countries have got to Completion Point, bringing
the total number of countries which have seen any reduction in
their stock of debt under HIPC up to 6 - or less than 16% of the
total number deemed to need relief under HIPC. According to the
World Bank and IMF projections, at most 2 more countries - Benin
and Mali - may reach Completion Point by the end of this year. This
means that, of the 19 countries originally expected to reach
Completion Point by December 2002, a maximum of 8 - or a little
over 40% - will have done so. For many countries, progress towards
Completion Point has been delayed by them going 'off-track' with
their IMF programmes - an issue discussed further below. HIPCs
appear to be resisting the IMF medicine, but are suffering the
consequences.
3. Update on debt sustainability - more bad news
In the Spring of 2002, the World Bank and IMF released two reports
which confirmed the predictions of NGOs, including Jubilee
Research, that HIPC countries would never reach the export growth
targets set in the Decision Point documents. This would not be a
problem if it were not for the fact that the amount of debt relief
provided under HIPC is assessed using debt-to-export ratios -
meaning that, the higher exports are expected to be, the lower the
amount of debt cancellation needed. NGOs including Jubilee Research
have accused the IMF and World Bank of cynically using
unrealistically high forecasts for export growth in order to limit
the costs of debt cancellation for their own pockets.
... creditor countries and institutions have agreed that some
countries will need additional 'topping up' of relief at Completion
Point in order to bring their debts down to sustainable levels, and
have already provided such relief to Burkina Faso. At the G8
meeting in June 2002 in Kananaskis, Canada, G7 leaders committed -
though have not yet delivered - an additional $1bn of debt relief,
in nominal terms, for this purpose. But the criteria for providing
such relief remain extremely narrow, and relief is only to be
provided in 'exceptional cases.' According to the Bank and Fund,
the costs of this additional relief will be between $0.4bn and
$0.7bn, in NPV value terms.
However, Jubilee Research is alarmed that the World Bank and IMF
have calculated the additional relief that will be required to
bring debt burdens down to sustainable levels by looking at
debt-to-export ratios after, rather than before, the additional
debt cancellation promised by some bilateral creditors. ...
... what is essentially happening is that the additional bilateral
relief is simply substituting for relief that countries should have
been receiving anyway under HIPC, had the export projections used
been fair and realistic. In other words, in desperately poor
countries such as Benin, Ethiopia, Guinea, Guinea-Bissau, Malawi,
Niger, Senegal and Zambia - some of which are also facing severe
food crises - additional bilateral relief is simply not additional,
but is instead replacing relief that other creditors - including,
of course, the World Bank and IMF - should be providing. And in the
case of Chad, The Gambia, and Rwanda, the additional bilateral
relief will still not bring them down to debt sustainability levels
which even approach the HIPC targets. Instead, even including the
additional bilateral cancellation, their debt to export ratios will
be as high as 190%.
At Jubilee Research, we have re-calculated the additional relief
that will be required, assuming that debt is brought down to 150%
of exports before additional relief is considered ,,, [this]
shows that another $2.3-$2.8bn of debt cancellation, in net present
value terms, would be needed. It is clear that the $1bn announced
in the G8 summit in Cologne will only be a fraction of the
additional resources needed - even to bring the interim HIPCs to
within the inadequate levels of debt cancellation promised under
HIPC. And of course, this does not even include the additional
relief deserved by post-Completion Point countries such as Uganda,
which can expect little extra relief despite their manifestly
unsustainable debt burdens.
4. IMF programmes - Time to Blame the Teacher?
In May 2002, we reported that a total of 7 countries - The Gambia,
Zambia, Malawi, Nicaragua, Guinea, Guinea-Bissau and Guyana - were
facing suspension of interim relief from the IMF because of failure
to stay 'on-track' with their IMF programmes.
Once again, the news from the latest 'Status of Implementation
Report' is, if anything, even worse. Although Guinea has now
re-started her IMF programme, as have Rwanda and Niger - who must
presumably have gone 'off-track' since May 2002 - several other
countries have fallen foul of the IMF's iron rod, including Sao
Tome and Principe, Honduras, Senegal, and Madagascar. Some of these
countries are taking the ominously named 'corrective measures' in
order to build a track record of policy performance for resumption
of an IMF programme, while others - Guinea-Bissau, Honduras,
Senegal and Madagascar seem to be lost in no-man's land.
Going 'off-track' with IMF programmes not only delays countries
from reaching Completion Point and results in the suspension of
relief from the IMF. It can also mean total suspension of interim
relief from the Paris Club - the informal group of bilateral
creditors, including most of the rich industrialised nations. ...
According to the IMF and World Bank report, this appears to have
occurred for The Gambia, Nicaragua and Sao Tome and Principe -
while Zambia also faced a severe delay in receiving Paris Club
relief due to Paris Club inefficiencies.
In summary, as Table 1 shows, a total of 13 of the 20 'interim'
period countries have at some point faced problems with their IMF
programmes, while at least 8 countries are apparently still
off-track.
Of course, the IMF would charge that failure to fulfil IMF
conditionalities is the fault of the countries concerned. They
would argue that countries need to demonstrate 'sound'
macroeconomic management and a commitment to reform in order to
benefit from relief. If a country goes off-track, this clearly
demonstrates their inability to manage their budget and economy
properly, and thus implies that they do not 'deserve' relief.
Jubilee Research and other NGOs involved in the international
Jubilee 2000 campaign have long argued that countries receiving
relief should demonstrate that it will be put to good use, with
proper monitoring and accountability to local civil society. But
the question remains: who should determine whether a country is or
is not able to spend debt relief resources effectively: local civil
society organisations or economic technocrats based in Washington?
Moreover, many of the conditionalities imposed by the IMF do not
apply to the ability of governments to spend debt relief money
effectively - often, they concern entirely unrelated 'structural'
issues, such as privatisation. Indeed, in a recent report by
Jubilee Research, we showed that many of the 'dissenting' countries
have substantially increased their spending on education and health
as a result of the interim relief they have so far received through
the HIPC initiative.
When one child in a class of 20 fails an exam, we feel inclined to
blame the child for not learning their lesson well. But when 13
children in that class fail, we are inclined to blame the teacher.
IMF programmes are simply failing in HIPC countries, and the charge
that this is due to incompetent leadership and corruption simply
does not hold water. It is time for the IMF to re-think their
policies - and to stop withholding the debt relief that is due.
5. No Alternative?
As Table 1 shows, the HIPC initiative is, at present, showing a
pass rate of somewhere between 18% and 26%, even according to its
own stated goals. With such a dismally low success rate, it comes
as no surprise that the Bank and Fund have expressed a willingness
to consider alternative proposals. For the first time, the Bank and
Fund 'Status of Implementation Report' includes consideration of
various different proposals for debt relief, including those put
forward by NGOs such as Jubilee Research and EURODAD, and academics
such as Jeffrey Sachs and Nancy Birdsall.
The Bank and Fund consider three such proposals:
(1) The suggestion to link debt relief to the Millennium Development
Goals, determined by an independent review panel with
representatives of both creditor and debt nations. This is the
proposal which most closely matches the proposals of Jubilee
Research for a 'Jubilee Framework' for resolving international debt
crises. Under the Jubilee Framework, debtor countries would be able
to make representations to an independent review panel on the
amount of debt cancellation that would be needed to meet the
internationally agreed Millennium Development Goals.
As the Bank and Fund acknowledge, 'this would likely be complete
debt cancellation plus increased foreign assistance.' Oddly,
however, the Bank and Fund reject this proposal on the grounds that
'there are no reliable estimates of the cost of scaling up debt
relief to achieve the MDGs.' This is despite the fact that several
large UN agencies have produced papers costing the majority of the
MDGs, which have been used by a number of NGOs, including Jubilee
Research, to demonstrate the extent of debt cancellation required.
It also neglects the fact that work is currently on-going in the
United Nations Development Programme (UNDP) to provide detailed,
country by country, costings of the MDG resource requirements.
(2) Linking debt relief to particular levels of debt service.
This proposal would entail limiting debt service to a particular
proportion of revenues, possibly with different limits set for
different groups of countries - for example IDA and non-IDA only
countries, or countries facing a 'health emergency' and other
countries. This proposal has been put forward by, amongst others,
African leaders in the New Economic Partnership for Africa's
Development (NEPAD), and the US Congress.
(3) Deepening and broadening debt relief.
According to this proposal, debt relief should be provided to
countries outside of the HIPC initiative, many of whom face similar
debt problems to the HIPC countries. Some of the countries listed
by the Bank and Fund are also those which Jubilee Research has
urged should be considered for greater debt cancellation, such as
Nigeria, Pakistan and Indonesia.
Unfortunately, having considered these proposals, the Bank and Fund
reject them out of hand. The main reason appears to be the that
they 'would result in higher overall debt relief to HIPCs, and
[thus] would clearly lead to higher costs for creditors.' The Bank
and Fund are concerned that even the current HIPC initiative is not
fully financed, with a shortfall of between $750m-$800m in the HIPC
Trust Fund at present.
The obvious response to these concerns is that the World Bank
should simply cut more deeply into their own reserves. Independent
research by accountants Chantrey Vellacott DFK last year offered
proposals that would release more than $30bn of resources to fund
deeper World Bank and IMF debt cancellation. Back of envelope
calculations suggest that this would almost cover the World Bank
and IMF's contribution to total debt cancellation for the HIPC
countries.
As a secondary excuse, the Bank and Fund wheel out the tired old
'moral hazard' arguments, namely that 'additional debt reduction to
further limit debt-service [would] raise the issue of moral hazard
and could provide the wrong incentives to HIPCs: to the extent that
losses in export earnings or reductions in revenues would be
compensated by increased debt relief, countries will have little or
no incentive to increase and/or diversify their exports, improve
revenue collection, and to pursue economic policies consistent with
these goals.' Quite why the Bank and Fund expect countries to
deliberately limit their exports and revenues and thus maintain
their populations in the poverty in which they are currently mired,
simply for the sake of some additional debt relief, is a mystery.
Furthermore, given that the current debt sustainability indicators
are already based on export performance, one might expect that
countries would have a greater incentive to 'deliberately' hold
back their export performance under the current HIPC initiative
than under a proposal based on, say, the resources needed to meet
the Millennium Development Goals.
Finally, the IMF and World Bank appear to be again reversing to
their 'blame the victim' mentality - a mentality that was already
very much in evidence in the spring of this year, when they wrote
that 'the growth of...exports...to a large extent reflects a
country's economic policies.' They only indirectly admit that
countries export performance is being limited by chronic price
declines in their key commodities, by the fact that trade
liberalisation under structural adjustment programmes has prevented
poor countries from moving away from their dependence on primary
commodities, by northern protectionism, and by the global reach of
multinational corporations. The IMF's ideological lens makes it
impossible for them to see that global economic structures are
doing everything they can to prevent poor countries from escaping
their current predicament.
6. Conclusion
... Jubilee Research is calling for a way of dealing with sovereign
debt crises. The failure of HIPC is, as already noted, no surprise
to seasoned NGOs working on debt. Indeed, we predicted it more than
a year ago. This is why we are calling for a new process, based on
independent arbitration, the protection of the human rights of
debtors - however poor they may be - and the application of justice
and reason. Until we have a new process - or Jubilee Framework for
international insolvency - we can expect no better.
This material is being reposted for wider distribution 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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