|
Get AfricaFocus Bulletin by e-mail!
Format for print or mobile
Ethiopia: Debt Relief Backstep
AfricaFocus Bulletin
Feb 13, 2004 (040213)
(Reposted from sources cited below)
Editor's Note
Ethiopia's debt is becoming more and more unsustainable, even
under the narrow criteria used by international agencies to
calculate what countries can afford to pay. Changes in interest
rates and continued low coffee prices are projected to drive the
value of the debt up to 220 percent of Ethiopia's exports, even
after promised relief.
But the U.S., reportedly joined by Germany and Japan, is blocking
World Bank action to "top up" debt relief to compensate for the
shortfall. According to a report in the Financial Times on
February 12, debt relief was also postponed for Niger last month
when rich countries could not agree on topping up the amount of
relief to compensate for falling uranium prices and reduced aid
flows.
This issue of AfricaFocus Bulletin contains a briefing and press
release from Jubilee Research at the New Economics Foundation on
the Ethiopia case. The London-based organization's briefing
focuses on U.S., German, and Japanese action that is blocking the
international financial institutions from living up to their own
commitments on debt relief to African countries, even while
Washington presses the case for more relief for Iraq.
The briefing thus documents a new step backwards from the already
inadequate HIPC (Heavily Indebted Poor Countries) framework, which
rich countries still claim to be an adequate response to the debt
crisis.
Additional references
"Africa: Debt and Deception"
http://www.africafocus.org/docs03/hipc0311.php
Includes documentation by Jubilee Research and other links on the
failure of HIPC
"Africa: Who Owes Whom?"
http://www.africafocus.org/docs04/debt0402.php
The continuing campaign for full debt cancellation.
The Coffee Crisis
http://www.ico.org/crisis/main.htm
The International Coffee Organization describes the crisis for
coffee producing countries, including calls for the USA and Canada
to rejoin the organization and for rich countries to further
reduce debt of countries affected by the crisis.
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Many thanks to those of you who have already sent in your
voluntary subscription payment to support AfricaFocus Bulletin.
If you have not yet made such a payment and would like to do so,
please visit http://www.africafocus.org/support.php for details.
++++++++++++++++++++++end editor's note+++++++++++++++++++++++
Doing nothing for Ethiopia
A briefing by Jubilee Research at nef
February 13, 2004
[For version including footnotes, and links to additional
background, visit http://www.jubileeresearch.org]
Twenty years ago, Bob Geldof, at the launch of Live Aid, argued:
"Doing nothing for Ethiopia would mean you were complicit in
murder." This briefing is produced by Jubilee Research at nef (the
new economics foundation) in February 2004 -- 20 years after Live
Aid, and one year after Ethiopia's worst drought in history. We
explain how G7 creditors, having promised substantial debt relief,
have stalled the disbursement of relief, and are doing nothing for
Ethiopia; this despite the fact that according to their own
commitments and rules she is fully entitled to this relief. "Doing
nothing for Ethiopia" we argue, is once again to be "complicit in
murder". Why? Because if Ethiopia is denied additional debt
relief, her government will lose US$1 billion in new money, and
be obliged to divert US$35 million [a year] to service debt
repayments to much richer creditors. This money could instead be
used for hospitals, clean water and sanitation.
Introduction
Late in 2003, the International Monetary Fund (Fund) and the World
Bank (Bank) deemed Ethiopia eligible for an additional US$700
million ("Topping Up") debt relief. Such relief is necessary to
return Ethiopia to sustainability, according to the Bank and make
her eligible for US$1 billion in new lending. If Ethiopia does NOT
receive topping up then the Government will have to spend an
average of about $35 million per year more in debt service over
the next 10 years. In other words, getting the additional debt
relief to lower Ethiopia's ratio of present value of debt to
exports to 150 per cent will reduce the annual debt service cost
by about US$35 million per year over 10 years.
Jubilee Research at nef has been reliably informed that this
promised relief is being delayed and blocked by the US with the
tacit support of Germany and Japan. This is particularly ironic,
as the Enhanced HIPC Initiative was largely the creation of the
German government, which obtained G8 endorsement for more generous
debt relief for countries like Ethiopia at the Cologne Summit of
1999. Furthermore, the denial of legitimate relief for Ethiopia
is in stark contrast to the generous relief being considered for
Iraq - whose future export revenues are projected to be 35 times
those of Ethiopia.
In response to our demands that they proceed to implement their
own rules and commitments, the US Treasury has argued that it is
concerned that Ethiopia would have an excuse to borrow more from
the Bank. "We are concerned about the bank being in a position
where it is in a continual cycle of lending and forgiveness" said
a US Treasury Official (FT 12 February 2004), to which we at
Jubilee Research retort: the US should encourage the Bank to grant
more aid - just as President Bush argued in July 2001. "Grants",
he said, "were the long-term solution to the debt burden of
developing countries ... 50% of the funds, provided by Development
Banks to the poorest countries be provided as grants for
education, health, nutrition, water supplies, sanitation and other
human needs." (BBC News)
Ethiopia's debt is not sustainable
Ethiopia needs additional debt relief, over and above that already
granted, if she is to become sustainable, argue the Bank and the
Fund. Under their stringent conditions, the external debt of poor
countries is considered sustainable at no more than 150 per cent
of that country's annual export revenues. Under current debt
relief arrangements Ethiopia's ratio would be considerably higher.
To be eligible for debt relief, Ethiopia has met with the tough
economic conditions set by creditors, and imposed through the Fund
and the Bank, over the long five-year process of qualifying.
Ethiopia has now, finally, reached completion point of the
Enhanced HIPC process. Without the additional topping up US$700
million that she has been promised and is now eligible for the
Bank and the Fund believe that Ethiopia will not emerge from an
unsustainable level of indebtedness. If additional relief is
denied, the Bank and Fund project that Ethiopia's debt-to-export
revenues ratio will rise to at 220 per cent after the full
delivery of debt relief - fully 70 per cent above that considered
sustainable.
Jubilee Research at nef has been reliably informed that although
the Bank and the Fund finalised Ethiopia's Debt Sustainability
Analysis as far back as November 2003, publication of the Board
paper that would move Ethiopia to completion point in the debt
relief process is being delayed by the opposition of powerful Fund
and Bank shareholders - notably the US, Germany and Japan. These
creditors are attempting to bypass the HIPC framework, and in
particular the principle of topping up debt relief for poor
countries in the event of external shocks.
In other words two of the world's richest creditors are attempting
to adopt arbitrary criteria to deny a small and very poor country
US$700 million of debt relief. If Ethiopia is denied this relief,
debt service payments will be an additional US$35 million per year
for the next 10 years. Worse, this denial of debt relief will
prevent the World Bank from disbursing to Ethiopia a new, promised
loan of US$1 billion - because HIPC rules prevent the Bank from
lending to countries deemed unsustainable.
US$700 million of debt relief will have a significant impact on
the Ethiopian economy as it represents almost twice the revenues
from national exports per year. A fall in debt servicing of US$35
million per year will provide a significant fillip to Ethiopia's
budget for health, education, water and other vital services.
Furthermore, if Ethiopia is to achieve its Millennium Development
Goals - Goals set by creditors like Germany and the US -
additional debt relief, new loans and aid are urgently needed.
Ethiopia: poor and of little geopolitical value
As we outline below, Ethiopia is one of the poorest countries in
the world with poverty indicators substantially worse than those
of the US and Germany. Furthermore, while her poverty indicators
are similar to those of Iraq, the economic outlookfor Ethiopia is
dramatically different from that of Iraq. Despite remarkable
efforts to achieve the conditions laid down by her creditors,
exogenous shocks have seriously affected Ethiopia's economic
recovery, and her ability to service debts. These shocks are as
follows:
- The price of Ethiopia's major export, coffee, has fallen 73 per
cent in the last 20 years and the climatic conditions of the
continent seem to deteriorate every year.
- Coffee export prices are considerably lower today, at completion
point, than the Bank and the Funded projected in 2001 when
Ethiopia reached decision point[iv] in the HIPC process.
- Because of the fall in coffee prices, the present value of
Ethiopia's debt in relation to exports has increased by around 20
per cent.
- The Ethiopian drought of 2003 was one of the worst in history
and cut agricultural production and exports dramatically as well
as necessitating large food imports.
- Moreover the international decline of interest rateshas made
Ethiopia's debt more expensive. This is because the current value
of Ethiopia's debt is calculated by adding up future debt
payments, and then discounting these payments by a chosen interest
rate. The Bank uses an arbitrary rate - the average of most recent
rates - to calculate the (net present) value of the debt. Interest
rates have fallen over the last six months. Discounting lower
interest rates from future debt payments has therefore increased
the (net present) value of the debt.
- The fall of the dollar worsens the situation too, since the
value of Ethiopia's revenues from exports (denominated in dollars)
has fallen, in contrast to the rise in the value of her debts
(denominated in non-dollar currencies).
Comparing Ethiopia to her creditors
Ethiopia has a population of almost 70 million. Nearly half, 44
per cent, live below the poverty line.
- GDP per capita is as low as US$89 per year. This compares with
the United States' GDP per capita of US$36,300 and Germany's of
US$26,200 per year.
- Overall GDP, despite recent growth, is still lower than it was
at the beginning of the nineties.
- The country is almost bottom of the UNDP's[vi] human development
league: 169th out of 175.
- Life expectancy at birthis 42 years, compared with 46 years
average in the rest of the Sub-Saharan Africa; 77 years in the US;
and 78.5 in Germany.
- Infant mortality is as high as 116 per thousand compared to 6.7
per thousand in the US and 4.2 per thousand in Germany.
- In Ethiopia even for those who survive, life is a daily
struggle:
- 47 per cent of children under five suffer from malnutrition,
compared to one per cent of children in the US.
- Ethiopia has the third largest number of people living with
HIV/AIDS of any country in the world.
- Only 24 per cent of Ethiopians have access to water sources,
while all US citizens and all Germans do.
Contrasting attitudes to Iraq and Ethiopia
While trying to prevent Ethiopia from being granted less than US$1
billion in additional debt relief US and German creditors have
gone to considerable lengths to obtain international legitimacy
for the cancellation of Iraq's debt. Official figures on Iraq's
debt are dubious, but estimates vary between US$120 billion and
US$200 billion. While there is a noticeable difference between the
two countries in terms of per capita GDP (Iraq's GDP per capita
is US$2,400) other poverty indicators for Iraq are not dissimilar
from those of Ethiopia. For example 32 per cent of Iraqi children
are deemed to be malnourished and infant mortality is 107 per
thousand - only slightly lower than Ethiopia's indicators.
However the dramatic difference between these poor countries lies
in their respective economic outlooks. According to Forbes'
newswire:
- Iraq's revenues from oil could rise to US$16.6 billion in 2004.
- These revenues are projected to reach US$21.1 billion in 2005.
In other words, oil revenues in Iraq for 2003 are projected to be
almost three times Ethiopia's total GDP and 35 times the value of
the Ethiopia's exports in 2002.
The Economist Intelligence Unit forecasts that Iraq's GDP will
grow at rates ranging from 15 per cent to 18 per cent between 2000
and 2004.
Conclusion
The double standards applied by Western creditors to these two
debtor nations reveal that debt relief no longer conforms to a set
of rules agreed by the international community under HIPC - but
instead is subject to arbitrary geo-political considerations. We
call on the international community to honour commitments made
under the leadership of the German Chancellor, Gerhard Schroeder,
in Cologne in June, 1999 - to deepen and broaden debt relief for
countries like Ethiopia. Finally we call on the G8 finance
ministers and IFI shareholders to honour their commitments to top
up relief in the event of a debtor nation suffering external
shocks.
Jubilee Research at the New Economics Foundation
US brokers debt relief for Iraq - but blocks relief for poorest
country in the world.
Press Release
Feb 4, 2004
http://www.jubileeresearch.org
In a briefing issued today, nef (the new economics foundation)
exposes the double standards of major western creditors towards
debtor nations, particularly the US and Germany. (See attached).
Nef is reliably informed that these two powerful creditors are
deliberately blocking and delaying legitimate and highly justified
debt relief for Ethiopia.
Under the Heavily Indebted Poor Country Initiative (HIPC), the US
and Germany are party to formal agreements to cancel the debts of
the poorest, most indebted nations. In the event of external
shocks these creditors have agreed to "top up" debt relief so that
debtor nations can be restored to sustainable levels of
indebtedness
In the case of Ethiopia, World Bank and IMF officials have
calculated that under the terms of the initiative, Ethiopia needs
additional $700 million debt relief to become sustainable. This
recommendation is being blocked by intransigent US and German
World Bank/IMF shareholders. At the same time the US is applying
intense international pressure to ensure that Iraq, whose future
export revenues are projected to be 35 times those of Ethiopia,
benefits from debt relief.
Ann Pettifor, director of Jubilee Research at nef said today: "In
Cologne in June, 1999, Germany's Chancellor led the creation of
the "Enhanced" HIPC Initiative. At that Summit, the US and other
G8 leaders promised their electorates - led by Jubilee 2000
supporters - that countries like Ethiopia would benefit from debt
relief.
"Today western creditors are playing fast and loose with that
commitment, and with their own international rules and
obligations. By bending over backwards to cancel Iraq's debt, and
at the same time wilfully flouting their own commitments to
Ethiopia, creditors are breaking promises to their electorates,
as well as undermining progress in heavily indebted countries.
"We call on the US and Germany to honour commitments made to
Ethiopia - and immediately grant her the relief calculated as
essential by officials in the World Bank and IMF."
End.
AfricaFocus Bulletin is an independent electronic publication
providing reposted commentary and analysis on African issues, with
a particular focus on U.S. and international policies. AfricaFocus
Bulletin is edited by William Minter.
AfricaFocus Bulletin can be reached at africafocus@igc.org. Please
write to this address to subscribe or unsubscribe to the bulletin,
or to suggest material for inclusion. For more information about
reposted material, please contact directly the original source
mentioned. For a full archive and other resources, see
http://www.africafocus.org
|
