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Africa: Debt Issue Unresolved

AfricaFocus Bulletin
Jan 18, 2005 (050118)
(Reposted from sources cited below)

Editor's Note

The first test this year for rich countries' willingness to act on world poverty is coming soon, as finance ministers from rich countries meet in London on Feb. 4. A new report from the United Nations has stressed the need for new investments in strategically targeted new investments through doubling aid (see http://unmp.forumone.com). But halting debt payments to international financial institutions could have even quicker effects, through freeing up resources for health, education, and other urgent needs.

This AfricaFocus Bulletin contains two recent statements from debt campaigners in Africa and the UK. Another AfricaFocus Bulletin sent out today contains a more detailed analysis of the potential advantages of multilateral debt cancellation. For related news on debt, see http://allafrica.com/debt. For previous AfricaFocus Bulletins on the topic, see http://www.africafocus.org/debtexp.php.

For advocacy actions on debt in the U.S. and UK, targeted at the February 4 meeting, visit http://www.jubileeusa.org and http://www.jubileedebtcampaign.org.uk

++++++++++++++++++++++end editor's note+++++++++++++++++++++++

African Social Forum
Lusaka, Zambia

14 December 2004

[ http://www.cadtm.org/article.php3?id_article=1011]

The following statement, in response to the news that the U.K. and the U.S. governments are offering different proposals aimed at 100% multilateral debt cancellation, was circulated at the African Social Forum in Lusaka, Zambia. The endorsements below were gathered in a few hours; more will undoubtedly be forthcoming as the statement's circulation broadens.

We Demand Full Multilateral Debt Cancellation for Africa and the Global South

Drop the Debt 100% -- All Impoverished Countries -- No Economic Conditions!

As civil society organizations from across the continent of Africa, we are confronted every day by the devastating reality of the crisis of debt. Debt payments to wealthy institutions like the IMF and World Bank rob our countries of resources we desperately need to provide health care, fight HIV/AIDS, provide education, and make available clean water. Debt is a tool of domination used by rich country governments and creditors like the IMF and World Bank. Conditions attached to debt relief and loans are devastating our economies and undermining our choices as sovereign nations.

For impoverished nations, multilateral creditors -- in particular the IMF and World Bank -- are the largest creditors. They are also the most powerful: because of their "preferred creditor" status, countries must pay their debts back first to these institutions. If countries do not pay, they are penalized and excluded from most forms of aid and assistance.

The Heavily Indebted Poor Countries (HIPC) Initiative was launched by the World Bank in 1996 to provide a "robust exit" to the crisis of debt faced by impoverished nations. Eight years on, the program has failed to achieve this goal. HIPC has provided too little relief, to too few countries, with devastating conditions. It is time to move beyond the failed HIPC Initiative towards another approach: Full (100%) multilateral debt cancellation for all impoverished nations, without harmful conditions.

We are aware of discussions going on now within the G-7 (in particular proposals by the UK and US governments), the IMF and World Bank, and other forums about possibilities for 100% (full) multilateral debt cancellation. We are encouraged that after many years of half-measures, full cancellation is being discussed at these levels. However, we must be clear about the principles for such discussions to meet the goals and aspirations of African civil society.

First, 100% multilateral debt cancellation is critical. Attempts to determine a "sustainable" level of debt for impoverished nations desperately trying to address the crises of HIV/AIDS and economic injustice should be rejected. For impoverished nations struggling to meet the human needs of their peoples, full 100% multilateral debt cancellation is the only option.

Second, this cancellation must come without any economic conditionalities. The HIPC program and PRSPs are riddled with conditions such as privatization, indiscriminate trade liberalization, opening up markets, fiscal and monetary targets. These conditions have devastated our economies long enough. Debt cancellation must come without any economic conditions attached. Moreover, we reject and find that the IMF's Poverty Reduction and Growth Facility (PRGF) must be dismantled and abolished. The PRGF is not a force for development in our countries; the conditions attached to loans from this facility have devastated our economies. It is time to end the role of the IMF in poor countries once and for all; closing the PRGF is a critical first step towards doing this.

Third, multilateral debt cancellation must apply to all impoverished nations, not just the 42 HIPC nations. We reject proposals which only address countries that have reached HIPC "completion point." Many countries would be excluded from this approach. Moreover, non-HIPC countries must be included in efforts towards 100% debt cancellation. Countries including Haiti, Jamaica, and Nigeria are not part of HIPC, despite their extreme indebtedness.

Finally, we think that the multilateral financial institutions should do their fair share, and should contribute the bulk of the resources to finance debt cancellation. The IMF and World Bank are two of the richest financial institutions in the world. The IMF sits atop more than $30 billion in gold which currently serves no productive purpose. The IMF could sell this gold and use proceeds to cover debt owed to the World Bank and other multilaterals. The IBRD could easily mobilize more than $10 billion in accumulated profits and reserves and could commit a share of its annual multi-billion dollar profit to debt cancellation. The IMF should close down the PRGF facility and use its resources to cancel IMF debt. These are wealthy institutions; it is high time for them to do their fair share and by paying for debt cancellation, begin to acknowledge their role and responsibility in the debt crisis.

We do not believe that concerns about the "additionality" of debt cancellation should be allowed to postpone the full cancellation of the multilateral debt. Cancellation is significantly more valuable to our peoples than additional aid. Aid comes with its own conditions, and often creates more debt. The resources realized from debt cancellation can be used as governments -- with ample interventions from civil society -- see fit. Aid is a promise we have seen broken far too often; cancellation's benefits would be lasting.

Endorsed by the following debt campaigners:

Tafadzwa Muropa - Zimbabwe
Sy Koumbo S. Gale - Chad
Constancia de Pina - Cape Verde
James Kashiki - Zambia
Godfrey Mfiti - Malawi
Rev. Lumu Shabani Democratic Republic of Congo (Kinshasa)
Benoit Essiga - CGT Liberte - Cameroon
Hassan Sayouty - Espace Associatif Maroc - Morocco
Demba Moussa Dembele - Forum for African Alternatives - Senegal
Taoufik BenAbdallah - ENDA - Senegal
Engudat Bekele - PAC - Ethiopia
Bakary Fofana - CECIDE - Guinea
Archinson Mhlata - PCO - South Africa
Pat Dooms - Orange Farm Vision - South Africa
Dao Dounantie - Jubile 2000 / CAD - Mali
Kone Solange - FNDP/ASAPSU - Cote d'Ivoire
Ouattar Diakalia - FNDP - Cote d'Ivoire
Dieng Amady Aly - Forum de Tiers Monde - Senegal
Seydou Ndiaye - ACAPES Senegal
Abubacar Ndiaye, RADI - Senegal

If not now, when?

Urgent recommendations on debt cancellation for a strong and prosperous Africa

A report by the UK All Party Parliamentary Group on Heavily Indebted Poor Countries for the Commission for Africa, based on Parliamentary hearings from African parliamentarians and civil society, from NGOs and academics, and from the Secretary of State for International Development, Rt. Hon. Hilary Benn, MP.

This paper contains the executive summary of the report, and some of the detailed recommendations contained in it.

[Source: Submission to the Commission for Africa. See submissions on the Commission site at http://www.commissionforafrica.org]

Executive Summary

The facts are clear:

• Debt relief has already made a difference to millions of people who are poor.
• Finance released by debt relief has overwhelmingly been used for poverty reduction.

But

• The HIPC Initiative has failed to provide an exit from unsustainable debt for the world's poorest countries.
• It will be impossible for the Millennium Development Goals to be met without an immediate 100 per cent debt cancellation for Africa's heavily indebted countries.
• Impoverished African countries with unsustainable debt are not being considered within the current HIPC initiative.
• Conflict, corruption and undemocratic processes are barriers to debt cancellation for effective poverty reduction

Therefore, in summary:

• The unpayable debts of Africa's impoverished countries should be cancelled immediately, in full, releasing funds for poverty reduction.
• The current HIPC Initiative should be urgently and radically reformed so that debt cancellation for all heavily indebted African countries can proceed rapidly under a fair and transparent process that reinforces the positive and active involvement of African national parliaments, other democratic institutions and processes, particularly in Africa, and the broadest definition of African civil society. This process should be established in consultation with democratic African institutions, build on the best practice for the application and monitoring of debt relief for poverty reduction and take into account the processes already initiated by NEPAD to counteract corruption.
• IMF gold should be sold immediately to maximise its contribution to rapid debt cancellation, using a process that protects the legitimate interests of the gold-producing countries and avoids significant impact on the price of gold.
• Special attention should be given to urgently dealing with debt owed to non-OECD bilateral and commercial creditors which are not participating in the HIPC Initiative, including establishing a rapid response legal technical assistance facility, independent of the IMF and World Bank, to protect African nations from predatory lawsuits.
• While it is legitimate to insist that money released by debt cancellation is spent for agreed purposes of poverty reduction and national development, and to advise national governments on the economic implications of different policy options, the international financial institutions must stop imposing economic policies on poor countries as a condition for debt cancellation, and be made more accountable to African nations for their behaviour in Africa as a whole and in individual nations.
• Each impoverished African country should be empowered and enabled to develop, own and monitor its own unique and comprehensive development programme that will meet the 2015 Millennium Development Goals and which includes a comprehensive financing plan - encompassing all issues of grants, loans, debt (both international and domestic, private and commercial and including export credit debt), taxation and international trade.
• These national development programmes should receive guaranteed and sustained funding from the world's richest nations, with a strong bias towards grants. Grants should target poverty, without compromising environmental and human rights standards, and be free of undemocratic and economically damaging conditionalities.
• These guaranteed and sustained funding agreements, including debt relief proposals, must be able to adapt rapidly so that commodity price variations and other external shocks do not destroy their effectiveness and cause more poverty.
• Each African government has its own opportunities and responsibilities in ensuring debt cancellation results in effective poverty reduction. The Commission for Africa should highlight principles and best practice in this area, indicating how the donor institutions and governments can support rather than hinder this process.
• African countries own efforts to fight corruption should be backed by a coherent and concerted effort to repatriate 'stolen assets', money siphoned off from national finances into private bank accounts, much of it from loans now being repaid by national governments. This should draw on the legislation and experience gained from the measures taken to combat the laundering of income from the illegal drugs trade and the financing of terrorism.
• Any further loans made to impoverished African countries should only be made in an open and democratically accountable manner, with clear targets of poverty reduction, without economically damaging conditionalities, and subject to an agreed insolvency process as described below. Calculations of debt sustainability must be based on human development factors, rather than on economic growth and export earnings.
• A fair, transparent and comprehensive international insolvency process should be created to allow creditor and debtor countries to resolve future debt crises without compromising the ability of poor countries to meet the basic social needs of their peoples, and without forcing poor countries to repay what the insolvency process determines to be odious debts.

These recommendations to the Commission for Africa will also be the basis for continuing political activity within the UK Parliament, the European Union, the countries of the G8 and the International Financial Institutions.

Recommendations from the report:

1. Drop the Debt

100 per cent cancellation

• The unpayable debts of Africa's impoverished countries should be cancelled immediately, in full, releasing funds for poverty reduction.
• Countries that have already demonstrated their ability to effectively use debt relief for poverty reduction should immediately receive full debt cancellation; in countries where issues of conflict, governance or commitment to poverty reduction call into question the likelihood of debt relief immediately having a positive impact on poverty, debt service payments should be placed in a trust fund so that finance can be released for poverty reduction as soon as appropriate.
• Debt cancellation should not be limited to those countries currently defined as qualifying for HIPC debt relief. Debt cancellation proposals should be extended to all African nations where debt cancellation is a prerequisite for their ability to meet the Millennium Development Goals.
• Debt cancellation should be matched by appropriate financing being made available to those African nations that have relatively low levels of debt but lack the resources to meet the Millennium Development Goals.
• The Commission for Africa, and the UK government, should encourage other creditor nations to follow the UK proposal to cancel its share of multilateral debt in order to achieve 100 per cent cancellation of multilateral debt.
• While debt cancellation is a highly effective form of transfer of resources to indebted countries for poverty reduction, and should therefore be a priority for financing to help those countries meet their Millennium Development Goals, it should not be financed at the expense of either existing aid commitments or instead of grants that will also be necessary if the MDGs are to be met. Debt cancellation should therefore generate additional funds for poverty reduction: for example, it should be matched by refunding of the African Development Bank and Fund.

IMF gold

• If this matter has not been resolved and acted upon when the Commission for Africa reports, then it should press for immediate action; the UK government should use all its influence to ensure there is no further procrastination. While it is vital that the detailed mechanisms proposed take into account the interests of gold-producing nations in Africa, there is no justification for any delay: the creditors should take the responsibility of using their own resources to cancel this debt in pursuit of poverty reduction, especially as it has been shown that this can be achieved without jeopardising the financial stability of the IFIs or disturbing the equilibrium of the gold market.
• Our evidence showed that a managed sale of gold offers the most effective and equitable method of releasing this resource for debt cancellation.
• The UK government has stated that any further debt relief from the internal resources of the International Development Association (IDA) and African Development Bank (AfDB) will 'inevitably result in a dollar-for-dollar reduction in new disbursements to low-income countries' That is why the UK government has announced that it will pay its share of debt service from eligible countries to the World Bank and AfDB from 2005 until 2015. The objective is to put the World Bank and the AfDB in a position to provide 100% cancellation on outstanding loans. But it is not inappropriate for the sale of IMF gold to be used to partially fund the cancellation of debt owed to the World Bank and other development banks, and the Commission for Africa should urge an immediate examination of this option.

2. Reinforcing democracy, fighting corruption

Conditionality

The Commission for Africa should demand a commitment from all bilateral donors and the international financial institutions that they will end all economic policy conditions for debt cancellation - and future grants and loans.

Reforming the World Bank and IMF

IFI Governance: The Commission for Africa should recommend reforms to the governance structure of the Bank and Fund towards a more equitable representation of developing countries through reforms to the BWI Leadership selection process, the Board structure and voting weights, and urge the UK Government to take a lead on this process.

We recommend the renegotiation of the Relationship Agreements between the IMF, World Bank and the UN to clarify the responsibilities of the IMF and World Bank to the UN, and enhance the ability of the UN to ensure that international financial institutions fully respect the jurisdiction of other agencies, funds and bodies. The IMF's responsibilities should be defined so as to include working for poverty reduction.

Parliamentary scrutiny of IFIs:

We recommend mechanisms for strengthening the capacity for effective parliamentary oversight of national economic policy-making and interaction with the IFIs.

• Ensure that the democratically elected representatives of recipient nations are the final arbiters of all economic policies in their countries. National parliaments have the right and obligation to be fully involved in the development and scrutiny of all measures associated with BWI activities within their borders, and should hold the final power of ratification. Approval of the PRSP must be shifted from boards of Bank/Fund to the national parliaments of recipient countries.
• The IFIs should withdraw conditions attached to loans if these are rejected by democratically elected parliaments. Donors must provide financial and technical support to increase the capacity of parliaments to analyse and formulate policy alternatives and scrutinise multilateral agreements.
• The UK parliament must play a greater role in scrutinising and overseeing the government's involvement in the Bank and Fund. Parliamentarians in the UK have a responsibility to oversee the activities of the Bank and Fund which their contributions support. Therefore they must be informed of the government's actions in the institutions.
• Welcome best practice examples such as the annual report on the Fund and the forthcoming reports on Bank.

Debt relief and defining Official Development Assistance

• Debt cancellation will not in itself be sufficient to enable the Millennium Development Goals to be met, and our recommendations for debt relief are therefore in addition to recommendations for increases in grants for development assistance.
• For the sake of transparency, the Commission for Africa should press for a new agreement on the reporting of ODA which categorises expenditure designated for poverty reduction, and separately identifies both debt relief and grants.
• Cancellation of export credit debt should not be reported as ODA but as additional non-ODA expenses.

Stolen Assets

• Urgent action should be taken to establish judicial and legislative measures to lay down processes and procedures for the repatriation of stolen assets and to prevent further looting of finance for development.
• Public funds recovered should be used for poverty reduction
• The Commission for Africa should endorse and encourage the stolen assets campaign within Africa and in Europe and the USA, and call on the European Parliament to pass a resolution calling on all banks in Europe to cooperate in the investigation into stolen assets. This should draw on the legislation and experience gained from the measures taken to combat the laundering of income from the illegal drugs trade and the financing of terrorism.

3. Future lending

A fair and transparent arbitration process (FTAP)

The Commission for Africa should endorse the need for the establishment of a fair and transparent arbitration process, and request the United Nations as a matter of urgency to begin a formal consultative process that would result in proposals by the end of 2005.

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