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Africa: Debt and Deception
AfricaFocus Bulletin
Nov 4, 2003 (031104)
(Reposted from sources cited below)
Editor's Note
As the U.S. Congress approves $87 billion for the U.S. occupation
of Iraq, long-standing promises by rich creditors to provide debt
"relief" of some $49 billion for 42 countries remain unfulfilled,
and largely off the radar screen for policymakers. Yet debt remains
a crippling burden not only for the 34 African countries that
qualify as Heavily Indebted Poor Countries (HIPC), but also for
major African powers such as Nigeria and South Africa.
Jubilee Research, one of the successor organizations to the Jubilee
2000 campaign for debt cancellation, released a report in September
detailing the failure of the HIPC initiative, under the leadership
of the World Bank and the IMF, to fulfill even the limited
commitments made to date. This issue contains excerpts from that
report.
For an earlier summary critique of the HIPC initiative, see
http://www.africaaction.org/action/hipc0206.htm
Organizations currently working on debt cancellation include the
Jubilee Debt Campaign, [http://www.jubileedebtcampaign.org.uk],
World Development Movement [http://www.wdm.org.uk/action],
Jubilee USA [http://www.jubileeusa.org], and the American Friends
Service Committee's Africa Initiative
[http://www.afsc.org/africa/new-africa]. The agenda of debt
cancellation is widely shared among civil society groups in Africa,
in creditor countries, and around the world. It is one of the key
planks in Africa Action's Africa's Right to Health Campaign
[http://www.africaaction.org/action/debt.htm]
A separate issue of AfricaFocus Bulletin, also distributed today,
contains the summary of a new report on Debt and Destruction in
Senegal by Dembe Moussa Dembele. That report is also available on
the website of the World Development Movement at:
http://www.wdm.org.uk
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Real Progress Report on HIPC
September 2003 .
a report by Jubilee Research at nef http://www.jubileeresearch.org
In co-operation with
CAFOD - http://www.cafod.org.uk
Christian Aid - http://www.christian-aid.org.uk
EURODAD - http://www.eurodad.org
Oxfam - http://www.oxfaminternational.org .
[excerpts only. For the full report, including charts, footnotes,
and detailed tables, see http://www.jubileeresearch.org]
KEY CONCLUSIONS OF THE REAL PROGRESS REPORT ON HIPC
This report reviews the progress of the World Bank and IMF's
Heavily Indebted Poor Countries (HIPC) initiative, as at September
2003.
The Real Progress Report on HIPC aims to provide policy makers,
politicians, NGOs, campaigners, and debtor governments with a clear
view of what the HIPC initiative has really achieved, or not
achieved, in terms of restoring the HIPCs to long-term debt
sustainability. Prepared by Jubilee Research at the new economics
foundation, in co-operation with other NGOs, it is intended as a
shadow version of the official HIPC Status of Implementation
report.
We are unanimously of the view that the process of agreeing debt
relief should be shifted away from the current creditor-dominated
framework. In particular, we recommend that the HIPC initiative be
replaced with a fair and transparent international
insolvency/debt-reduction framework, overseen by an independent
arbitration panel nominated by both debtor and creditors.
However, in the absence of such a framework and based on the
analysis contained within the report, Jubilee Research and sister
organisations CAFOD, Christian Aid, Eurodad, and Oxfam
International are calling for the following reforms to the HIPC
initiative:
1. Debt sustainability under the HIPC initiative should be assessed
not in relation to arbitrary debt-to-export criteria, but to the
resources needed by each country to meet the Millennium Development
Goals (MDGs). The current debt sustainability analysis, undertaken
by the World Bank and the IMF alone, should be replaced with the
following procedure:
a. A detailed costing of MDG requirements, as well as other
nationally determined priorities for poverty reduction, should be
undertaken for each country by the national government, in
cooperation with the United Nations Development Programme (UNDP),
UNICEF, the WHO, and local and international civil society.
b. Based on these costings, the debtor country should calculate
what would be a realistic expansion of domestic resources, without
causing excessive distortions to the domestic economy or
jeopardising longer growth prospects. It should also provide an
indication of its other spending requirements above and beyond the
MDGs. The country should also take into account other factors such
as the HIV/AIDS epidemic when assessing its ability to meet the
MDGs.
c. Where the debtor country cannot afford to meet both the MDGs and
its debt-servicing obligations, the international community should
transfer more resources to that country. Given the greater
efficiency of debt relief over aid as a way of transferring
resources to poor countries, we believe that debt relief should be
the primary vehicle for providing such finance. In countries where
the MDG funding gap cannot be filled by debt relief alone,
additional grant aid should be forthcoming.
In all cases, the debtor country should be able to clearly
demonstrate, with transparent and accountable mechanisms, that any
additional resources received by the country, in the form of either
aid or debt relief, are channelled to priority areas for meeting
the MDGs. Local and international civil society, donors/creditors,
and international organisations such as the UN should monitor and
report on the use of these resources.
2. As well as debt relief and new aid to meet the MDGs, the
international community should design a contingency financing
facility to enable both HIPCs and non-HIPCs to weather economic
shocks. Such a mechanism would ensure that countries can still meet
the MDGs despite shocks such as falling revenues, climatic
disturbances, lower commodity prices, or oil-price hikes. Such a
facility would include mechanisms to ensure that countries still
have an incentive to increase revenue collection or to diversify
their exports away from a dependency on a narrow range of primary
commodities.
3. Progress in the HIPC initiative should be de-linked from IMF
Poverty Reduction and Growth Facility (PRGF) programmes. In order
to reach Completion Point, countries should only have to
demonstrate that they have a poverty reduction programme that will
ensure resources saved from debt relief or raised in new aid are
channelled to the MDGs. Progress in reaching Decision Point or
Completion Point should be assessed within the framework of the
annual Consultative Group (CG) meetings, with full participation
from civil society. Interim relief should only be suspended if the
CG agrees that funds saved in debt relief are not being spent on
MDG requirements.
4. The World Bank and the IMF should ensure that they absorb their
fair share of the costs of debt relief under an improved HIPC
initiative. In particular, we believe that they too can provide 100
per cent debt cancellation for the HIPCs through the use of IMF
Gold Sales and IBRD resources (retained earnings plus future income
streams).
5. The international community should provide financial and
technical assistance to the HIPCs to enable them to prevent
litigation by nonparticipating creditors, particularly commercial
creditors.
6. Reporting on the HIPC initiative should occur more frequently
and be made more transparent. In particular, HIPC Status of
Implementation Reports should provide more information as to when
and why countries have gone off-track with their IMF programmes,
including whether or not interim relief has been suspended and the
reasons why. HIPC and all relevant Board papers must include
realistic projections of the contribution that additional resources
relieved from debt servicing will make towards financing the MDGs.
HIPC reports should also provide more information on the affects of
non-participating creditors.
INTRODUCTION
... The HIPC initiative, started in 1996, at the time represented
a radical departure from previous debt relief initiatives.
Finally forced by the pressure of millions of campaigners to
recognise that the burden of unpayable debt was undermining any
prospect of achieving meaningful development in the world's poorest
countries, rich country leaders - and the international
institutions which they control - realised they had to act. They
committed themselves to providing partial debt cancellation under
a comprehensive initiative designed to ensure a 'lasting exit' from
unsustainable debt burdens for 42 heavily indebted poor countries
(HIPCs).
Since the year 2000, however, the pace of the HIPC initiative has
been glacial. It appears that creditors have done their best to
ensure that as few countries as possible trickle through the net of
debt cancellation. Like a game of snakes and ladders, countries
have climbed the ladder of 'Decision Point' where debt relief is
committed only to slide back down the snake of suspended debt
relief and yet more International Monetary Found (IMF)
conditionalities.
Moreover, civil society organisations in both North and South have
often been kept in the dark about why the HIPC initiative is
failing so badly. Countries are being forced 'off-track' by IMF
programmes which inevitably delays debt relief, and can also
result in the suspension of interim debt service relief. However,
apart from a selected few finance ministry officials in debtor
countries, and, of course, IMF staff, no one quite knows why.
Official World Bank and IMF documents on HIPCs the now once
yearly Status of Implementation Reports state only that countries
have been delayed 'because they have been delayed'. [2] Yet these
are the self same organisations that insist on transparency and
'good governance' in the countries to which they lend.
Furthermore, for an initiative designed to address debt
sustainability, the official HIPC updates tell us precious little
about whether debts are truly being left at sustainable levels,
even in the countries in which the HIPC initiative has supposedly
worked. In our view, the real meaning of a sustainable level of
debt and the debt service that results can only be a level that
allows countries to meet their human development obligations. When
US municipalities go bankrupt and can no longer pay their debts,
they do not have to abandon the basic services which are essential
to the health and well-being of their population. Similarly, if a
country becomes insolvent as the HIPCs have effectively done
they should not be forced to cut spending on the water, sanitation,
health services, and education, which are the basic human rights of
their people. Given G7 commitments to the human rights embedded in
the Millennium Development Goals, the blocking of these vital
services becomes doubly unjust and hypocritical. In short, when we
assess debt sustainability, we cannot just look at exports, or even
government revenues. A new form of 'debt sustainability analysis'
is needed. ,,,
DEBT RELIEF TO DATE
According to the original HIPC schedule, by this point 21 countries
should have fully passed through the HIPC initiative and received
total debt cancellation of approximately $34.7 billion in net
present value terms.
In fact, only eight countries have passed Completion Point, between
them receiving debt cancellation of $11.8 billion (see Table 1),
plus a further $0.26 billion that Guyana received under the
original HIPC initiative. ...
Other countries that have not reached Completion Point have also
benefited from some 'traditional' debt cancellation from the Paris
Club, totalling $14 billion.
In total, 19 countries are between Decision Point and Completion
Point under the HIPC initiative and are therefore receiving some
reduction in their debt service. If and when these countries reach
Completion Point, they will receive a further $17.1 billion in HIPC
relief and approximately $5.1 billion in additional bilateral debt
cancellation. ...
Therefore, we can say that
- A total of $26.13 billion, in net present value terms, or roughly
19 per cent of total debt stocks before relief, has been cancelled.
- A further $22.7 billion of debt relief has been committed, but
not yet delivered, to the 19 countries between Decision Point and
Completion Point, and to Cote d'Ivoire (which has reached Decision
Point under the original HIPC initiative only).
- If and when all the relief committed has been delivered, debt
stocks will fall to $90.6 billion, or approximately two thirds of
their level before relief. However, to this total must be added new
debt that countries will be taking on after receiving debt relief.
Unfortunately, we do not yet have up-to-date estimates of new
borrowing by the HIPCs, in net present value terms.
[At Decision Point, creditors commit to cancelling debt and some
debt-service relief is provided. Completion Point is the final
stage of the HIPC initiative where debts are irrevocably cancelled.
HIPC Completion Point Countries are Benin, Bolivia, Burkina Faso,
Mali, Mauritania, Mozambique, Tanzania, and Uganda.
HIPC Decision Point Countries are Cameroon, Chad, D R of Congo,
Ethiopia, The Gambia, Ghana, Guinea, Guinea-Bissau, Guyana,
Honduras, Madagascar, Malawi, Nicaragua, Niger, Rwanda, Sao Tome
and Principe, Senegal, Sierra Leone, and Zambia.
HIPC Countries likely to reach Decision Point are Burundi, Central
African Republic, Cote d'Ivoire, Comoros, Rep. of Congo, Myanmar,
and Togo.
Remaining HIPC countries are Angola, Kenya, Laos, Liberia, Somalia,
Sudan, Vietnam, and Yemen]
IMPLEMENTATION OF THE HIPC INITIATIVE
Implementation of the HIPC initiative has been agonisingly slow
with only two countries reaching Completion Point and one reaching
Decision Point since April 2002.
As Appendix 1 shows, for most countries delays have not been caused
by failure to prepare Poverty Reduction Strategy Papers (PRSPs),
which show how a country will use the money saved from debt relief
to reduce poverty. Rather, countries have been delayed in getting
through the HIPC initiative because of failure to stay 'on-track'
with strict IMF programmes, and in particular, failure to meet IMF
'structural adjustment' style conditionalities. Going 'off-track'
with IMF programmes not only delays countries from reaching
Completion Point and results in the suspension of interim debt
service relief from the IMF. It can also mean total suspension of
promised interim relief from the Paris Club the informal group of
bilateral creditors, which includes most of the rich industrialised
nations. ...
The main forms of IMF conditionality that have affected the HIPCs
have been the following:
- Fiscal criteria. Most IMF programmes include very low forecasts
for budget deficits, even though there is little evidence to
suggest that higher budget deficits, particularly when funded by
grants, are damaging. The IMF is concerned that increasing the
budget deficit will serve to increase inflation, despite the fact
that that many economists argue that inflation rates of up to 10
per cent do not pose a threat to macroeconomic stability.
- Privatisation. Many new IMF programmes have conditionalities that
were 'left over' from previous IMF structural adjustment programmes
and are thus incorporated into new programmes. UK campaigning
organisation World Development Movement has shown that of the 26
countries which had (at the time of research) already passed
Decision Point, 15 had specific mentions of future planned
privatisations in public utilities or basic services such as
energy, telecommunications, water, or transport. For example,
Zambia is required to privatise the Zambia National Commercial Bank
(ZNCB), and its electricity and telecommunications companies. In
February 2003, Zambian President Levy Mwanawasa told the IMF that
he wanted to rethink the country's privatisation programme on the
grounds that 'there has been no significant benefit to the country'
and that 'privatisation of crucial state enterprises had led to
poverty, asset stripping, and job losses.'
However, despite these concerns, the IMF representative in Zambia
is reported to have threatened the withdrawal of US$1 billion of
debt relief under the HIPC initiative if the government did not
privatise the national bank. The most recent reports suggest that
the Zambian government is now going to privatise ZNCB.
As with other areas of the HIPC initiative, there is a lack of
transparency in terms of the reasons for suspension or re-starting
of IMF programmes. Decisions on whether or not to suspend IMF
programmes which can have far-reaching impacts on the government
budget, through jeopardising new aid, which is generally linked to
IMF programmes, as well as debt relief are generally taken by IMF
staff only, behind closed doors. Local civil society organisations,
parliaments, and even other donors are seldom involved.
CONCLUSIONS
In summary, our report has shown that the HIPC initiative is
severely behind schedule with only eight countries having received
a stock-of-debt reduction to date compared with a projected 21 by
this point in time. In addition, the report shows that:
- The principle of 'burden sharing' is being violated, with the IMF
and the World Bank in particular, failing to take their full share
of HIPC relief.
- Creditor litigation against the HIPCs remains a serious issue,
and moral suasion alone will not be enough to deal with the
problem.
- Countries are being delayed in the HIPC initiative by
conditionalities that are not relevant to debt relief, including
overly stringent fiscal criteria and the requirement to privatise
large swathes of the economy under IMF Poverty Reduction and Growth
Facility (PRGF) programmes.
- The global economic outlook, falling commodity prices, and the
HIV/AIDS epidemic look set to put severe strain on the HIPCs over
the next few years.
- Debt sustainability should be defined according to whether or not
countries will be left with sufficient resources to meet the
Millennium Development Goals after debt relief; and according to
this criteria, the HIPC initiative is failing to restore the
majority of countries to debt sustainability.
Why is the HIPC initiative doing so badly? Why are there so many
weaknesses? The answer is that the HIPC initiative, like all
current frameworks for providing debt relief, is unjustly dominated
by creditors. Creditors make loans, often very bad loans; set
conditions and interest rates; insist that the loans are repaid in
the creditor's, and not the debtors currency; determine whether to
reschedule or not; and undertake debt-sustainability analyses using
their own criteria and their own methodology. Under this framework,
creditors effectively act as witness, plaintiff, policeman, judge,
and jury in their own court. This is a deeply unjust process, in
which the debtor is perceived as a 'sinner' who has to have debts
'forgiven', while the creditor is perceived, on the whole, as
blameless, and capable of 'forgiving'.
Jubilee Research, along with CAFOD and many sister organisations in
both North and South, believes that the HIPC initiative cannot be
reformed unless the current creditor dominated framework is
radically reformed. In particular, we believe that an international
insolvency framework based on Chapter 9 of the US Legal Code should
replace the HIPC initiative. This new framework would be
transparent, independent, and accountable to global taxpayers,
North and South. Under such a framework, an arbitration panel
consisting of nominees from both the debtor and the creditor would
determine debt relief. Only by applying justice and reason to the
resolution of debt crises, do we believe that debts could be made
truly 'sustainable'.
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