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Date sent:              Wed, 21 May 2003 10:26:04 -0500
Subject:                Africa: G8 and Africa's Debt
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AFRICA ACTION
Africa Policy E-Journal
May 21, 2003 (030521)

Africa: G8 and Africa's Debt
(Reposted from sources cited below)

This posting contains excerpts from a new report on the inaction by
rich countries on debt cancellation for African and other countries
in the global South, from organizations involved in the Jubilee
Debt Campaign in the UK. The report again notes the failure of the
creditors' HIPC (Heavily Indebted Poor Countries) initiative, and
calls for a new transparent mechanism for arbitration of debts that
is not dominated by the creditors.

Leaders of the G8 group of rich countries will be meeting in Evian,
France from June 1-3, where they could take additional action on
this issue. However, a pre-summit meeting of the G7 finance
ministers (the G-8 minus Russia) gave no indication of this,
despite a vague commitment to consider what action on development
might be necessary to meet the UN's Millenium Development Goals.
Instead they simply noted that "the debt of heavily indebted poor
countries is already addressed under an existing international
initiative."

The finance ministers did propose a new approach of additional
adjustments and flexibility for the debt of other countries handled
under the "Paris Club," such as Iraq. Other countries in this
group, not eligible for the HIPC initiative, include Indonesia,
Ecuador, and Nigeria.

Note: For use in public education on Africa's debt, see the new
2-page Africa Action factsheet "Africa's Debt: Fueling the Fire of
AIDS" at http://www.africaaction.org/action/debt2003.pdf and
http://www.africaaction.org/action/debt2003.htm
and additional resources at
http://www.africaaction.org/action/debt.htm

+++++++++++++++++end summary/introduction+++++++++++++++++++++++

Did the G8 Drop the Debt?

May 2003

[Excerpts only - full report at:
http://www.jubileeresearch.org/analysis/reports/G8final.pdf]

Jubilee Debt Campaign
PO Box 36620
London SE1 0WJ Tel: 020 7922 1111
http://www.jubileedebtcampaign.org.uk
[log in to unmask]

Jubilee Research @ NEF
Cinnamon House 6 8 Cole Street
London SE1 4YH
Tel: 020 7089 2853
http://www.jubileeresearch.org
[log in to unmask]

CAFOD Romero Close Stockwell Road
London SW9 9TY
Tel: 020 7733 7900
http://www.cafod.org.uk
[log in to unmask]

In 1998 seventy thousand people formed a human chain around the G8
Summit in Birmingham, UK. Their demand for an end to Third World
debt pitched the issue to the top of the G8's agenda. ...
Responding to a coalescence and amplification of campaigning forces
that began with the Human Chain (described in some detail in this
report), the G8 enlarged the scale of the Heavily Indebted Poor
Countries (HIPC) debt relief process in 1999. Despite this, we find
that since then:

* Only eight countries have so far received substantial debt
write-off under HIPC.

* IMF 'structural adjustment' conditionalities are still designed
to protect the assets and interests of creditors they are holding
up debt cancellation, forcing deflationary policies on poor
countries, and in some cases reversing even the debt service relief
offered under HIPC.

* HIPC is failing to restore countries to debt 'sustainability'
even according to its own, narrow criteria 19 of the 26 countries
currently in receipt of assistance will not have 'sustainable'
debts even after completing their passage through HIPC.

* The additional finance provided by the G7's pledge to go beyond
HIPC's limited terms (by cancelling all, and not just a proportion,
of the debts owed to them by HIPC countries) is in some cases doing
nothing more than reducing the costs borne by the World Bank and
IMF under HIPC, with no additional benefit to poor countries.

* Non-participating creditors (such as big commercial companies,
but also countries like Iraq) are further undermining HIPC, causing
severe problems for poor countries, and moving them even further
away from debt 'sustainability'.

In terms of the total debt stock of poor countries, the amount that
has actually been written off to date (as opposed to that
notionally in the pipeline for cancellation) is a mere $36.3
billion. This is less than one third of the $110 billion promised
in 1999 and not much more than 10% of the $300 billion (at a
minimum) of unpayable debt owed by a group of 53 countries that
have been identified as very poor and indebted. On the positive
side, HIPC has reduced annual debt servicing for 26 countries by an
average of 40%. However, this benefit is not shared evenly amongst
the 26. For example:

* Four of the countries that have entered the HIPC initiative will
have annual debt service payments due in 2003-2005 which will
actually be higher than the debt service paid in 1998-2000.

* A further five countries will be paying almost as much as they
were before HIPC.

* Senegal's debt service jumps by 61% in 2004; Nicaragua's rises by
60% in 2002; Mauritania's rises by 46% in 2007, and Honduras faces
an increase of 93% in 2002.

An examination of net resource flows (i.e. combining changes to
debt servicing, new loans and variations in aid over the period)
shows that the benefits of HIPC have been weakened by new loans and
reductions in aid - these latter two factors have had an even more
alarming impact amongst those not in receipt of assistance under
HIPC:

* The 26 HIPC countries have seen an increase in net resource flows
between 1998 and 2000, from $6.9bn to $8.2bn (an increase of around
20%).

* However, total flows to the 53 countries identified as
poor/indebted have reduced quite sharply, from $6.2bn in 1998 to
$4.3bn in 2000 (being a drop of around 40%).

Conversely, our calculations show that total (or neartotal) debt
cancellation plus increases in aid will be necessary if the
internationally-agreed 2015 Millennium Development Goals are to be
met. HIPC flows must not be used as a reason for reducing aid, and
the issuing of new loans rather than grants risks perpetuating the
debt crisis.

Moreover, there is ample evidence to show that debt cancellation is
an effective means of mobilising resources. For example:

* In 1998, debt service took up twice as much (in terms of
resources) as spending on health in the ten HIPC countries for
which data was available. Since then, spending on health has risen
by 70% (and is now one third higher than debt repayments) and total
social spending has risen by 20%.

* Mozambique, for example, has introduced a free immunisation
programme for children. School fees for primary education have been
abolished in Uganda, Malawi, Zambia and Tanzania, as have fees in
rural areas of Benin.

* There is no evidence to suggest that debt cancellation is being
used to fuel military expenditures. In the countries reviewed, we
found no increase in military spending over the period.

Nonetheless, the overall outlook is bleak, primarily for two
reasons: (a) debt relief is based on the creditors' willingness to
pay (expressed in arbitrary 'debt sustainability' criteria) rather
than the need to fund basic social expenditure; (b) there is no
proper mechanism in the international financial architecture to
handle insolvency at the national level. We therefore call upon the
international community in general and the G8 in particular to:

* Replace the World Bank, IMF and G8's arbitrary and discredited
view of what debt poor countries can 'sustain' with a 'human
development' approach.

In the first instance this should be focused on achieving the 2015
Millennium Development Goals. ... Given the extent of annual debt
repayments by poor countries, and given the relative efficiency and
durability of providing finance through debt cancellation, we
reaffirm that fully writing-off poor country debts is an essential
step towards meeting the Millennium Development Goals. ...

* End the continuing attempt by the international financial
institutions to impose discredited and harmful macroeconomic
conditionalities on the poor through the debt relief process.

These conditionalities continue to be present as criteria for the
granting of debt relief, undermining the latter and causing grave
social and economic problems in their own right.

* Create a fair, transparent and comprehensive international
insolvency process for allowing creditors and debtors to resolve
debt crises without compromising the basic social needs of the
debtors' populations.

Presently there is no mechanism by which poor and indebted nations
can declare a standstill on their repayments without severe
consequences, and the current process of establishing the levels of
debt cancellation needed is controlled by the creditors alone. As
with a domestic or municipal bankruptcy, the human needs and rights
of poor country populations must be protected in a way that only an
independent, comprehensive and accountable process can do. We call
for such a process to be instituted.

Irrespective of detailed policy questions, we reiterate that
ultimately debt cancellation is a matter of simple justice. It is
demanded as such by the South, and indeed the 70,000 people who
gathered in Birmingham five years ago believed that the suffering
and loss of life that was directly or indirectly attributable to
Third World debt was intolerable and avoidable. They believed that
with enough political will and relatively small sums of money, this
injustice could be erased. That remains the belief of our coalition
today. ...

*********************************************************

The death of HIPC

The one common factor in all the debt cancellation deals announced
between the Birmingham Summit in 1998 and the puny $1bn offered by
the G8 in 2002 was the linkage with the HIPC initiative. Despite
campaigners' concerns that HIPC was measuring debt cancellation in
the wrong way, for too few countries and with the wrong set of
conditions, leaders of the major creditor countries continued to
maintain their faith in HIPC as an appropriate mechanism for
providing debt cancellation.

Five years on from Birmingham, however, HIPC's track record could
scarcely be worse:

* It is much too slow, with only eight countries having received
substantial debt write-off under the initiative to date.

* In order to get debt relief, countries are still required to
follow IMF 'structural adjustment' conditionalities. ...

* HIPC is failing to restore countries to 'debt sustainability',
even according to its own, narrow criteria. ,,,

Delays in debt cancellation would be understandable if such delays
were caused by corruption, human rights abuses or the failure of
governments to account for the money saved from relief. Delays
might also be justified if the government needed more time to
consult civil society about the use to which funds freed up by debt
cancellation should be put. But mostly, the reasons for delays have
not been benign. Instead, they have been due to failure of
countries to privatise at the rapid pace demanded by the IMF. ...

Moreover, HIPC is not providing enough relief to bring down debts
to 'sustainable' levels, even according to the narrow definitions
used within the HIPC initiative. ,,, By April 2002, the World Bank
and IMF had admitted that their export projections had in fact been
grossly inaccurate and that up to half the countries that were
expecting to reach Completion Point in the next few years would not
achieve the HIPC debt sustainability targets. ,,,

Stocking up

So, the debt cancellation commitments which came directly and
indirectly out of the Birmingham Summit seem to have cut the debt
stocks of the 53 Jubilee 2000 countries (the 'J2k 53') by around
$36bn, or roughly 10%.

But this does not mean that debt stocks are that much lower. For in
the meantime, the loan pushers of the World Bank and IMF have
continued to bear down on African countries offering gilded loans
with - conveniently enough for governments without a long life
expectancy - a 10 year grace period. Despite the growing
international attention being paid to the problems of long run debt
sustainability, the loan pushers just keep on pushing. The World
Bank alone has lent Uganda the first HIPC country to reach
Completion Point and an oftquoted 'success story' of the initiative
$850m since the year 2000, against total debt cancellation under
HIPC of around $2bn. Congo DR, a war-ravaged country with a
colossal $12bn foreign debt and in desperate need of the kind of
grants given to Germany in 1953, has instead received almost $1bn
in loans from the World Bank between June and August 2001 alone.
This new lending adds to her burden and undermines any hope that
she will reach long term debt sustainability. ,,,

*******************************************************

A framework of justice for resolving international debt crises

The Jubilee 2000 petition, signed by the end of 2000 by 24 million
people, called for 'cancellation by the year 2000 of the unpayable
debt owed by the world's poorest countries under a fair and
transparent process.' ... the experience of the last few years
suggests that the need for a 'fair and transparent process' has
never been more apparent.

Take the Millennium Development Goals, for example. The argument
that debt sustainability should be linked to the MDGs has gained
international currency, from African governments to the United
Nations, from Southern NGOs to creditor countries such as Ireland
and Sweden. This proposal, first made by UK aid agencies belonging
to the Jubilee 2000 network, argues that judgements about the level
of debts countries can afford to 'sustain' or repay, must be judged
from the revenue remaining after governments have financed their
poverty reduction programmes or MDG targets. Many in official
circles accept that if the MDGs (to which almost all countries have
committed themselves) are to be met, total debt cancellation will
be needed. Even the World Bank and IMF have admitted this. In a
recent report, they noted that such an approach 'would likely be
complete debt cancellation plus increased foreign assistance.'

How can creditors get away with making such statements without
comprehending the logical consequences? How is it that HIPC can
perform so badly? Why are creditors reneging on their promises?

The short answer is that all current frameworks for providing debt
relief are 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 not the debtor's
currency; determine whether to re-schedule or not; 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 the 'sinner' and has to have debts 'forgiven', while the
creditor is perceived, on the whole, as blameless, capable of
'forgiving'. Jubilee Debt Campaign, like many sister organisations
in both the North and South, argues that a new procedure must be
created which fully embodies the principles of fairness,
transparency and independence, and which places human development
needs at its core.

In particular, Jubilee Research and CAFOD favour the model of
Chapter 9 of the US Legal Code which provides a bankruptcy
framework for governmental (municipal) organisations. The new
framework would be transparent, independent and accountable to
global taxpayers, North and South. Furthermore, such a framework
would not require an international treaty or an amendment to the
articles of the IMF. Instead, ad-hoc panels could be appointed,
almost immediately, in countries like Argentina. Just as in
international arbitration between corporations and sovereign
countries, the debt arbitration panel could consist of just three
people. One nominated by the sovereign debtor, another nominated by
creditors and the third appointed by the first two. This method of
appointing the panel would give sufficient authority to proceed
with debt restructuring. Most importantly, the panel's work would
have to be transparent and accountable particularly to parliaments
and civil society in the debtor nation but also to those in the
lending nation.

The work of the debt arbitration panel would be guided by three
fundamental principles. First, the application of justice and
reason. Secondly, as in any domestic bankruptcy process, any debt
re-structuring would ensure the protection of the human rights and
the human dignity of the debtor nation and its people. This means
that no debtor country should be forced to make debt repayments if
such payments are undermining her ability to meet the Millennium
Development Goals. Finally, the process should be open and
transparent. It should ensure that citizens affected by a debt
crisis have a legal right to have their voices heard in the
resolution of that crisis, both in the creditor and in the debtor
nation. Freedom of information, transparency of process and
accountability to the public would be central to the resolution of
debt crises. ...

The process of obtaining debt relief could be initiated by any
debtor government which considers that their ability to meet the
MDGs is being undermined by the requirement to make debt service
payments. Once the debtor enters into the framework, she would
automatically be granted protection from her creditors for the
duration of the programme. This would prevent 'rogue' creditors
from litigating against the debtor country in order to receive the
full value of their claims.

The Secretary General of the UN would have responsibility for
ensuring that the entire process is conducted in a way that is
transparent, independent and fair in particular by monitoring
progress and making the panel's reports public, particularly in the
debtor nation itself.

Only through the application of justice and reason to the
resolution of debt crises, do we believe that debts could be made
truly 'sustainable.' Only through such a framework of justice will
debtor countries genuinely be given a 'fresh start.' Only through
such a framework will we achieve the international economic justice
demanded by 70,000 people that day in Birmingham and later, by 24
million people worldwide.

+++++++++++++++++++++Document Profile+++++++++++++++++++++

Date distributed (ymd): 030521
Region: Continent-Wide
Issue Areas: +economy/development+

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