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Date: Mon, 20 Nov 2000 20:51:22 -0500
From: APIC <[log in to unmask]>
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Subject: Africa: UN Debt Inquiry Call
Africa: UN Debl Inquiry Call
Date distributed (ymd): 001120
Document reposted by APIC
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APIC/Africa Fund/American Committee on Africa
Joint Africa Action Fund
See November 18 letter from Salih Booker, interim executive
director of the three organizations, on joint action for Africa
against global apartheid: http://www.africapolicy.org/join.htm
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+++++++++++++++++++++Document Profile+++++++++++++++++++++
Region: Continent-Wide
Issue Areas: +economy/development+
Summary Contents:
This posting contains excerpts from a so-far little publicized
report at the end of September, in which UN Secretary General
Kofi Annan called for "an independent panel of experts not unduly
influenced by creditor interests" to reassess the debt burden of
developing countries and the international measures taken to date
to deal with them. The report notes that the HIPC (Heavily Indebted
Poor Countries) initiative has proved inadequate even for the
countries included, and that there are many debt-burdened countries
not included in the initiative. The report also calls for "an
immediate suspension" of debt-service payments of all HIPC's and of
other countries to be identified by the panel. The full report is
available, in pdf format, at
http://www.un.org/documents/ga/docs/55/a55422.pdf
+++++++++++++++++end profile++++++++++++++++++++++++++++++
UN A/55/422 General Assembly 26 September 2000
Macroeconomic policy questions: external debt crisis and
development Recent developments in the debt situation of developing
countries
Report of the Secretary-General
I. Introduction
2. An analysis of key debt indicators shows that external debt and
debt-servicing problems are most severe and persistent in the
heavily indebted poor countries (HIPCs), the target group of the
HIPC Initiative. However, a number of other developing countries
and countries in transition are also in a vulnerable position. ...
3. Various strategies have been adopted to tackle the debt problems
of these countries. In this respect, the attention of the
international community has over the recent past largely focused on
the HIPC Initiative; but progress has been much slower than
expected and the initiative is suffering from problems of
underfunding, excessive conditionality, restrictions over
eligibility, inadequate debt relief and cumbersome procedures.
Steps have been taken to speed up the HIPC process and there is now
a commitment to doubling the number of countries for which debt
reduction is agreed from 10 in September 2000 to 20 by December
2000. While such an acceleration is welcome, the current approach
is not likely to succeed in removing the debt overhang of the
world's poorest countries.
For this purpose ... one approach, while the existing processes are
under way, would be to establish an independent panel of experts
that would assess or reassess debt sustainability, eligibility for
debt reduction, the amount of debt reduction needed, conditionality
and financing (including the provision of necessary funds for the
multilateral financial institutions affected) for all HIPC
countries including those that have already benefited and those
that are set to benefit from debt reduction in the coming months
under the existing initiative. The latter two groups should benefit
from additional debt relief if the panel determines that the debt
reduction provided under the HIPC Initiative is inadequate. The
design of the modalities for such an approach could be expected to
draw on experience of domestic insolvency procedures in major
industrialized countries as well as that of insolvency procedures
in private international law.
The approach should not be limited to HIPCs but should incorporate
a broader spectrum of countries in need of special measures to
overcome their official debt problems. Simultaneously there should
be agreement on the suspension of debt-service payments by all
HIPCs, with no additional consequent interest obligations being
incurred, until the panel had made its recommendations and
agreement had been reached on the reduction of their debts. This
suspension could also be extended to non-HIPC countries declared
eligible for relief by the panel during the period required for
eventual agreement on debt reduction in their case. ...
A. The Heavily Indebted Poor Countries (HIPC) Initiative
9. The HIPCs in general are characterized by extreme poverty, poor
social development indicators and human resources, poorly
diversified economies, a high concentration of export earnings in
a few primary commodities, and dependence on official aid as well
as high debt overhang. The last-mentioned is reflected in high
levels of debt in relation to national income, high ratios of debt
service to exports, large payments arrears, and high ratios of debt
service to government revenue. By the end of 1999, little
assistance had been delivered under the HIPC Initiative, with only
a negligible impact on the aggregate debt stocks and indicators of
the HIPCs. ... There are currently 41 countries on the list of
HIPCs. Thirty-three of them are in sub-Saharan Africa, and 30 are
classified as least developed countries.
10. Following the Cologne Summit in June 1999, a number of specific
modifications to the HIPC Initiative aiming to provide 'deeper,
broader and faster' debt relief were endorsed at the International
Monetary Fund (IMF) and World Bank Annual Meetings in September
1999. Deeper and broader relief is expected to be achieved through
a lowering of debt sustainability targets, resulting in an increase
in the number of countries to become eligible for HIPC assistance.
The new scheme retains the basic framework of a two-stage process
requiring an established track record of policy implementation
before the delivery of relief. ...
11. A main innovation under the enhanced HIPC framework is the
explicit link to poverty reduction. HIPCs are now required to
present Poverty Reduction Strategy Papers (PRSPs) as part of the
debt-relief process. A country aspiring to assistance under the
initiative would normally be expected to have in place a
comprehensive and participatory poverty reduction strategy before
the decision point. In practice, interim strategies have served as
a basis for the decision points for most countries now being
processed under the new framework. Finalization of the PRSPs and
satisfactory initial progress in implementation are expected from
countries before delivery of relief at the completion point; early
experience indicates that reaching this point may take one or two
years. This link to poverty alleviation and the need to reach
agreement on PRSPs through processes involving participation of the
civil society render the HIPC process even more complex than
before.
12. Up to the end of July 2000, nine countries had reached their
decision points under the enhanced scheme. Bolivia, Mauritania and
Uganda were declared eligible for additional relief in February
2000, Mozambique and the United Republic of Tanzania followed in
April 2000, Senegal in June 2000 and Benin, Burkina Faso and
Honduras in July 2000. In all, these nine countries are estimated
to receive more than $15 billion in nominal terms in additional
debt relief, representing an average reduction in the present value
(PV) of debt stocks of close to 45 per cent on top of traditional
relief mechanisms. The objective is to have 20 HIPCs reach their
respective decision points under the new framework by the end of
2000.
13. Uganda became the first HIPC country to achieve the completion
point under the enhanced HIPC Initiative in early May 2000. Bolivia
was expected to reach this point during the second half of 2000, to
be followed by Benin, Burkina Faso, Mozambique, Senegal and the
United Republic of Tanzania in 2001, and Honduras and Mauritania in
2002. In these first cases under the enhanced framework (six
reassessments taking into account the revised debt sustainability
targets and three new cases), the countries have to a large extent
been able to draw on pre-existing national poverty action plans and
strategies for the preparation of the PRSPs that are to be
presented to the Bretton Woods institutions. ...
15. An important development in late 1999 and early 2000 has been
the commitment by an increasing number of creditor countries to
granting even deeper debt relief than under the Cologne terms. In
this regard, a breakthrough made towards full cancellation of
(bilateral) claims was the pledge by the President of the United
States of America in September 1999, in connection with the IMF and
World Bank Annual Meetings, to forgive 100 per cent of debts within
the context of the HIPC Initiative. Other creditor countries,
notably all Group of Seven (G-7) countries, have followed with
similar declarations. In April 2000, G-7 finance ministers and
central bank governors meeting in Washington, D. C., collectively
committed themselves to increasing debt reduction to 100 per cent
of non-official development assistance (ODA) claims treated within
the Paris Club framework, a commitment reaffirmed by G-7 leaders
at the Okinawa Summit of July 2000.
16. However, the above should not be interpreted to mean that HIPCs
can henceforth expect rapid or across-the-board cancellation of
their bilateral debts: cancellation would in principle be limited
to countries going through the initiative, and would be dependent
on their progress in economic policy reform and poverty reduction.
Country coverage, the timing of relief and the coverage of debts,
for example, post-cutoff date debt, may also vary from creditor to
creditor. Relief also depends on legislative authorization for the
release of funds. ...
18. The G-8 meeting in Okinawa, however, did not advance any major
new initiative on debt similar to the Cologne debt initiative a
year earlier. ...
19. As of July 2000, only a small number of countries were well
advanced in the HIPC process, while others have as yet to meet the
requirements for entering the process; that is to say, they have
not embarked on IMF and World Bank-supported programmes and have
not entered into Paris Club negotiations for concessional
rescheduling. ...
20. Overall progress is affected by the laborious resource
mobilization for the initiative, which is funded essentially
through voluntary contributions. Agreement on the use of IMF gold
holdings to help finance the Fund's participation was reached at
the Annual Meetings of the Bretton Woods institutions in September
1999. Subsequently, a series of off-market transactions were
conducted and completed by early April 2000, raising about $3
billion which has been invested to generate income for the
initiative. Pledges of substantial new bilateral contributions to
IMF and World Bank HIPC trust funds have also been made. Yet full
financing of the initiative is not yet assured. ...
23. More generally, if resource shortfalls persist, if seeking
assurance on the participation of all creditors before the
finalization of debt-relief packages continues to be a lengthy and
difficult process, and if country cases in consequence cannot be
brought forward to the decision point, then the initiative risks
slowing down to a halt. ..
27. It cannot yet be judged precisely from the early cases whether
HIPC assistance will actually succeed in lowering debt burdens to
agreed targets or in maintaining debt at sustainable levels.
Achievement of debt sustainability is a function not only of the
amount of debt relief delivered, but also of the growth of export
earnings and government revenue. A standard assumption in Enhanced
Structural Adjustment Facility (ESAF)/ PRGF projections, reflected
in the debt sustainability analysis (DSA) papers prepared for the
HIPC Initiative, is of steady robust export growth. However, the
experience of the first set of HIPC countries shows that this is
not always realistic. For instance, export growth in the order of
6 to 7 per cent was originally projected for Uganda for 1999/00,
but recent figures indicate that exports actually fell, by around
one fifth, during this period. ...
28. While the enhanced HIPC/ PRSP initiative recognizes the
importance of 'ownership' by debtor Governments for its success,
its design is not consistent with this objective. The poverty
reduction objective has been added by creditors and donors without
appropriate consultations with the debtors concerned. They also
largely set the PRSP policy agenda and prescribe the modalities to
be followed, leaving little autonomy to debtor countries. Creditors
set the terms and conditions for debt relief, which tend to depend
as much on their willingness to provide resources as on the needs
of the debtor countries. The ultimate judgement on whether and when
poor countries qualify for such relief is in the hands of the
Bretton Woods institutions. The enhanced HIPC scheme adds a further
layer of conditionality, which risks overwhelming the capacities of
the debtor country administrations concerned and may effectively
dilute "ownership" and autonomous policy-making. ...
29. Overall, HIPC is a cumbersome and costly process requiring
extensive preparations from the debtors concerned. ...
B. Non-HIPC debtors
30. There are 18 least developed countries that are not included in
the HIPC category, and some of them are considered severely or
moderately indebted according to the World Bank classification. ...
31. Most of the debt-distressed African countries are either among
the group of HIPCs or among the group of least developed countries.
However, there are notable exceptions such as Algeria and Morocco
in North Africa (which are classified as moderately indebted
middle-income countries); Gabon and Nigeria (both severely
indebted); and Zimbabwe (a moderately indebted low-income country).
A discussion of African debt problems thus cannot be confined to
the HIPC Initiative or special measures adopted in favour of least
developed countries alone. ...
III. International policy conclusions
69. The analysis above shows that there are serious shortcomings in
the international approach to the debt problems of developing
countries and economies in transition. Overcoming these
difficulties would call for action on three fronts: the HIPC
Initiative, the official debt of non-HIPC countries, and commercial
debt.
70. The HIPC Initiative has received considerable support in the
international community as a comprehensive and coordinated approach
based on a recognition of the need to reach a sustainable debt
position for the countries concerned in the context of growth and
development. However, so far it has progressed only in incremental
steps, and even with the acceleration up to the end of 2000 in the
number of countries benefiting from agreed debt reduction, the
initiative is unlikely to reach the objectives set. The problems
associated with its design and implementation suggest that even the
enhanced HIPC Initiative does not provide an adequate response to
HIPCs' debt problems. A bolder approach will have to be taken to
remove the debt overhang of the world's poorest nations.
71. This new approach might take the form of an objective and
comprehensive assessment by an independent panel of experts not
unduly influenced by creditor interests, while the existing
processes are under way. ...
72. There should also be an immediate suspension of the debt-
service payments of all HIPCs, with no consequent additional
interest obligations being incurred until the panel has made its
recommendations and agreement has been reached on reduction of
their debts. This suspension should also be extended to nonHIPC
countries declared eligible for debt relief by the panel during the
period until agreements on the debt reduction in their case are
reached.
73. It is notable that a recent independent commission of experts
from different schools of thought appointed by the United States
Congress, the Meltzer Commission, has made proposals that go well
beyond the scope of the HIPC Initiative. The Commission agreed
unanimously on the desirability of writing off all multilateral
claims against HIPCs that had implemented an effective development
strategy. It also recommended that bilateral creditors should
similarly write off these countries debts, and that grants rather
than loan-based funding should be used in the majority of
programmes. These specific recommendations should not be ignored in
the controversy over the Meltzer Commission's other proposals.
74. The point is not, of course, to see full and swift debt relief
as a panacea for the deep-seated policy challenges facing these
countries. It would, however, be one less problem for their policy
makers to deal with. Many of these countries are unable to meet
their external debt-servicing obligations, and for them debt relief
will simply formally acknowledge a situation that already exists
and stop the accumulation of arrears that are unlikely ever to be
paid.
75. Reform of the international strategy regarding the official
debt of poor countries should also address the problems of debt-
distressed low-income countries that are not currently eligible for
the special treatment accorded to the HIPCs. ...
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