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Africa: Debt Relief Inadequate
Africa: Debt Relief Inadequate
Date distributed (ymd): 980625
Document reposted by APIC
+++++++++++++++++++++Document Profile+++++++++++++++++++++
Region: Continent-Wide
Issue Areas: +economy/development+ +US policy focus+
Summary Contents:
This posting contains a resolution from the U.S. Conference of Mayors calling
for significant debt reduction for African countries, and an article by
Joe Hanlon of Jubilee 2000 updating the controversy over how much debt
relief Mozambique actually received under the recent HIPC decision. Additional
background information and web links are available on the Africa Policy
Web Site
(http://www.africapolicy.org/action/debt.htm).
+++++++++++++++++end profile++++++++++++++++++++++++++++++
The Africa Fund
June 24, 1998
U.S. Conference of Mayors Calls for Debt Relief for African Countries
The 1,000 member U.S. Conference of Mayors at its 66th annual meeting
in Reno, Nevada, adopted a resolution calling on the President and Congress
to provide leadership in working toward significant debt reduction and
cancellation of debt owed by the poorest African countries.
"By adopting this resolution the U.S. Conference of Mayors is providing
important leadership and guidance on U.S. Africa policy while also pointing
to the critical link between human development and mutually beneficial
trade relationships," said Susie Johnson, Projects Director of The
Africa Fund, who addressed the International Affairs Committee at the conference
on Africa's efforts to overcome economic obstacles to growth.
The resolution notes that "twenty-two of the world's poorest 30
nations are in Africa, which continues to struggle under a crushing burden
of debt." The resolution also notes that debt repayment impedes Africa's
ability to meet basic human needs, with many African countries spending
more on debt repayment than on education and health care.
The U.S. Conference of Mayors is a non-partisan organization of more
than 1,000 cities with populations of more than 30,000. Each city is represented
in the Conference by its mayor. The resolution's primary sponsor, the Hon.
Wellington E. Webb, Mayor of Denver, was joined by Hon. Dennis W. Archer
(Detroit, MI); Hon. Emmanuel Cleaver II (Kansas City, MO); Hon. Robert
B. Jones (Kalamazoo, MI); Hon. Gary Loster (Saginaw, MI); Hon. Robin Lowe
(Hemet, CA); Hon. Meyera E. Oberndorf (Virginia Beach, VA); and Hon. William
E. Ward (Chesapeake, VA).
Founded in 1966 by the American Committee on Africa, The Africa Fund
works for a positive U.S. policy toward Africa and supports human rights,
democracy and development. For more information contact Susie Johnson or
Richard Knight at The Africa Fund, 50 Broad Street, Suite 711, New York,
NY 10004. Phone: 212-785-1024. Fax: 212-785-1078. E-mail: africafund@igc.org
Web: www.prairienet.org/acas/afund.html
The following is the full text of the resolution:
DEBT RELIEF FOR AFRICAN COUNTRIES
- WHEREAS, twenty-two of the world's poorest 30 nations are in Africa,
which continues to struggle under a crushing burden of debt now totaling
$323 billion, a significant portion of which is owed to multilateral development
agencies; and
- WHEREAS, many African countries spend more on debt repayment to bilateral
government creditors, multilateral agencies like the International Monetary
Fund and others than they do on education and health care, spending more
than one quarter of their total export earnings on debt servicing; and
- WHEREAS, debt repayment impedes Africa's ability to meet basic human
needs, siphoning away funds needed to strengthen human capacity, weakening
civil society and inducing a downward spiral of economic, social and political
decline; and
- WHEREAS, social and economic development are inextricably intertwined
processes that are critical to achieving sustainable development and equalizing
opportunities for all of Africa's people in the context of harmony and
social justice; and
- WHEREAS, the highly indebted poor countries (HIPCs) debt relief initiative
sponsored by the World Bank and the International Monetary Fund provides
recognition of the debt crisis, it is not a comprehensive strategy to deal
with this burden, has so far only benefitted a handful of African countries
and does not provide for definitive debt cancellation which is necessary
if Africa's cities are to achieve economic growth and engage in mutually-beneficial
trade that can create jobs in the U.S. and Africa;
- NOW, THEREFORE, BE IT RESOLVED that the U.S. Conference of Mayors agrees
that the crushing debt burden inhibits trade and is crippling the lives
of Africa's people; and
- BE IT FURTHER RESOLVED that the U.S. Conference of Mayors calls upon
the President and the Congress of the United States to provide leadership
in working toward significant debt reduction and cancellation of debt owed
by the poorest African countries to the world's richest industrial nations,
known as the G-8, and to multilateral agencies such as the World Bank and
the International Monetary Fund.
New official data shows Mozambique Gains Little or Nothing From Debt
'Relief
By Joseph Hanlon, 4 June 1998
New figures confirm that Mozambique gained little or nothing from the
highly publicised debt "relief" granted on 7 April 1998. The
poorest country in the world will continue to spend as much on debt service
payments as on health and education - with the result that high child mortality
will continue and primary education for all will be deferred again.
Debt relief is surrounded by hype and secrecy; the World Bank and International
Monetary Fund (IMF) make exaggerated claims but refuse to release details.
In May the British Treasury finally released figures for Mozambique. Responding
to this and pressure from the Jubilee 2000 Coalition, the IMF then released
figures of its own.
The two sets of figures do not agree, but both show how little Mozambique
actually gained. British Treasury figures show Mozambique gains nothing
at all, while IMF figures claim Mozambique gains 80 US cents (US$ 0.80,
UK pounds 0.49) per person per year - far below earlier claims. The Bank
and Fund were particularly proud of the debt "relief" granted
to Mozambique on 7 April under the Heavily Indebted Poor Countries (HIPC)
Initiative. In its press statement the World Bank said the deal would "free
budgetary resources and allow Mozambique to broaden the scope of its development
effort." Others have stressed that it would release vital money for
health, education and clean water. It is now clear that this is completely
false. But it has taken an extended campaign to force the Fund to release
data which confirm this. (This story is reported below; summary figures
are given at the end of this article.)
The World Bank calls Mozambique the poorest country in the world, and
it was seen as a test case for HIPC. The deal took more than a year of
intense negotiation; it was bitterly fought by Germany and was only reached
because Brazil and Britain each put in an extra $10 million. Now, Mozambique
provides clear evidence that the debt "relief" now on offer is
insufficient. Speaking at the 1998 Southern Africa Economic Summit in Windhoek,
Namibia, on 17 May, Mozambique's President Joaquim Chissano said creditor
nations should cancel the debt of the poorest, most indebted countries;
he called for united African pressure for debt cancellation.
DEBT KILLS
The IMF says that Mozambique has been spending more on debt service
than it spent on health and education. Debt service during 1995-97 averaged
$7.45 per person per year; health and education spending was $5.04 according
to the government or $6.76 according to the IMF. After debt "relief",
Mozambique will continue to spend as much on debt service as on health
and education combined. As we have seen, precise figures are not available,
but health and education spending should rise to $5.57 (government) or
$7.46 (IMF estimate) per person, while debt service payments will be $6.02
(IMF estimate) or $6.82 (British Treasury estimate). If just half of the
debt service payments were spent on health and education, it would save
the lives of more than 300 children each day; 16 fewer women a day would
die in childbirth.
This is based on the following calculation. The United Nations Development
Programme "Human Development Report 1996" (page 113) says "A
1 percentage point increase in average share of GDP invested in health
and education is estimated to reduce .. the child mortality rate by 24
percentage points." In simple terms, increasing spending on health
and education by 2.5% of GDP halves child mortality. We assume a similar
fall for material mortality. Mozambique's debt service is over 6% of GDP,
so turning half of that to health and education would surely halve child
and maternal mortality. That would save the lives each year of 115,000
children and 6000 mothers giving birth. Donor governments put much emphasis
on the need for education. Yet Mozambique has had to defer the introduction
of primary education for all until the year 2010, because, says the Ministry
of Education, money is being diverted away from teachers' salaries and
toward debt service. (Noticias, Maputo, 16 March 1998).
IMF SECRECY: KEEPING THEIR OWN DIRECTORS IN THE DARK
The whole HIPC process is surrounded by secrecy and confusion. It is
often said that IMF and World Bank staff treat their directors like mushrooms
- keep them in the dark and cover them in rubbish. It took a month-long
campaign by the Jubilee 2000 Coalition to force the publication of useful
figures.
In a paper issued in January, the IMF's Anthony Boote says that "scheduled
debt service is a misleading indicator in countries like Mozambique ...
A more meaningful measure is the actual debt service paid." Incredibly,
the "Final HIPC Document" approved by Bank and Fund executive
directors on 7 April did not contain a comparison of actual debt service
payments before and after HIPC, nor did it contain sufficient figures to
allow directors to calculate this. Bank and Fund executive directors were
kept in the dark about the "more meaningful measure"; they were
only shown a confusing graph and dazzled by large numbers for what Boote
himself calls a "misleading indicator". Executive directors approved
the deal because staff told them it was good; they had no way to make an
informed judgement.
Initially, the Bank and Fund refused to release figures, but the Jubilee
2000 Coalition was able to use other confidential IMF tables to estimate
debt service paid before and after HIPC. Publication of this estimate triggered
a month of correspondence. The IMF sent one set of figures to the Jubilee
2000 Coalition on 1 May, but when it published a report on these figures,
Anthony Boote of the IMF wrote to the Jubilee 2000 Coalition that it was
"confused" because it had assumed that what Boote listed as "debt
service paid" actually meant "debt service paid".
In mid-May, two further and conflicting sets of figures were released.
On 12 May the British Treasury released figures on debt service to be paid,
which were similar to the first IMF figures and which showed that post-HIPC
debt service payments were identical to the pre-HIPC ones, averaging $113
million per year. Two days later the IMF took the unprecedented step of
putting a different set of figures on its web site - because, it said,
"various commentators have criticized the assistance to be provided
under the HIPC Initiative to Mozambique". The IMF figures show a fall
from $113 million per year pre-HIPC to $100 million per year post-HIPC.
The IMF made great play that actual debt service will be $70 million less
than scheduled debt service - exactly the comparison which its own Anthony
Boote said was "misleading". The Jubilee 2000 Coalition considers
both the British Treasury and the IMF figures to be "official"
figures, and both are used in its calculations.
CRUEL HOAX
Mozambique shows that the entire HIPC exercise is a cruel hoax on the
poorest. It has been hugely promoted as an "exit" from the debt
trap, which it is not. Instead, HIPC is a very elaborate accounting exercise.
Poor countries have been paying only a small portion of the debt service
(interest and repayments) actually due. HIPC is designed to cancel that
part of the debt which is not being paid and never would be, and to ensure
the debtors pay promptly on the rest.
Substantial amounts of debt have been cancelled - in Mozambique's case
an estimated $1.4 billion under HIPC - but this is a meaningless number,
because these debts would never have been paid. Mozambique would have more
chance of sending a football team to France for the World Cup than paying
those debts. So numbers for cancelled debts are like the number of goals
Mozambique might have scored in France this year. As the IMF's own Anthony
Boote wrote: "Scheduled debt service is a misleading indicator".
HIPC is based on a concept of "sustainability" which is defined
as the level that a country can pay without defaulting. In practice, this
is the level that the country has already been paying - so it is not surprising
that Mozambicans gain little or nothing. The official definition of "sustainable"
has no link to what the country needs for development. Instead, the World
Bank says that debt service is "sustainable" if it is between
20% and 25% of exports.
For Mozambique, the IMF predicts that debt service post-HIPC will fall
to 11% of exports in the year 2001.That seems a good deal until two points
are considered:
+ First, the IMF assumes Mozambique's exports will double by 2001. Mozambican
officials think this highly unlikely; they actually predict a short term
fall in export earnings because of falling commodity prices. The real debt
service will surely be above 16% of exports.
+ Second, this ratio should be compared to debt relief given to Germany
after World War II. The allies demanded a 10% debt-service-to-export-ratio
(half the HIPC level), but German negotiators used development and reconstruction
criteria to argue 10% was unsustainable. In the final London Agreement
of 1953, the debt service ratio was set at 3.5%. The wisdom of massive
debt relief is clear - it formed one basis of the German economic miracle.
Yet Germany has consistently been the strongest opponent of improving on
the present level of debt relief. At the G8 meeting in Birmingham, England,
on 16 May, it blocked attempts to improve on HIPC. In negotiations over
Mozambique, it refused to go the last step; Britain and Brazil were forced
to provide an extra $10 million each, which was effectively aid to Germany
(not to Mozambique). Yet Germany was objecting to Mozambique's debt service
payments being brought down to ONLY four times what Germany paid after
the London agreement. Mozambique is also a post-war country, which suffered
$20 billion damage at the hands of an apartheid South Africa which had
been backed by German banks and companies. Despite being repeatedly questioned
on the subject, the German government refuses to explain if it was wrong
45 years ago to say that 10% was unsustainable, and if not, why it considers
Mozambique to be so different from itself.
SUMMARY OF THREE DIFFERENT SETS OF OFFICIAL FIGURES FOR DEBT
SERVICE PAID
[More detailed figures are available on the Jubilee 2000 web site: http://www.oneworld.org/jubilee2000.
The IMF's figures are on their web site: http://www.imf.org]
BEFORE HIPC:
Year (1) (2) (4)
1995 111.7 112 111.7
1996 131.2 131 131.2
1997 96.7 97 96.7
av. 113.2 113.3 113.2
AFTER HIPC:
Year (1) (3) (5)
1998 124.1 124 108.5
1999 148.6 147 95.7
2000 96.9 97 96.9
2001 100.9 101 100.9
2002 96.6 97 96.6
av. 113.4 113.2 99.7
SOURCES: (1) "Debt service paid" in an IMF e-mail to the Jubilee
2000 Coalition on 1 May 1998. (A subsequent letter said that "debt
service paid" did not actually mean "debt service paid"
for some years!)
(2) "Debt service paid" in a 12 May 1998 British Treasury answer
to a parliamentary question.
(3) "Debt service that Mozambique will have to pay after receiving
debt relief under ... HIPC" in a 12 May 1998 British Treasury answer
to a parliamentary question.
(4) "Debt service paid before HIPC" in a table put on the IMF
web site on 14 May 1998.
(5) "Debt service payable after HIPC" in a table put on the IMF
web site on 14 May 1998.
Health and education spending figures come from "Mozambique: Spending
on debt service, health and education", IMF, January 1998.
By Joseph Hanlon, 4 June 1998
Dr Joseph Hanlon is policy officer of the Jubilee 2000 Coalition, author
of "Peace without profit: How the IMF blocks rebuilding in Mozambique",
and a visiting senior research fellow at the Open University, Milton Keynes,
England. Contact: j.hanlon@open.ac.uk
or jhanlon@jubilee2000uk.org
This material is being reposted for wider distribution by the Africa
Policy Information Center (APIC), the educational affiliate of the Washington
Office on Africa. APIC's primary objective is to widen the policy debate
in the United States around African issues and the U.S. role in Africa,
by concentrating on providing accessible policy-relevant information and
analysis usable by a wide range of groups individuals.
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