----- Original Message -----
From: "Andy Mensah" <[log in to unmask]>
To: <[log in to unmask]>
Sent: Monday, November 10, 2003 9:18 PM
Subject: [unioNews] Dakar meeting to set African position on external debt


Monday, Nonember 10, 2003
<H3>Dakar meeting to set African position on external debt</H3>
By Anaclet Rwegayura
PANA Correspondent

Addis Ababa, Ethiopia (PANA) -  A common African position on the
region's growing external debt burden is expected to be forged at
a two-day expert group meeting opening next Monday in Dakar,
under the auspices of the Senegalese government and the Economic
Commission for Africa (ECA).

The ECA announced here Monday that African Ministers of Finance,
Planning and Economic Development would endorse the same stance
at their next meeting in May 2004 and put it forward to
development partners.

At their annual conference in Addis Ababa in June 2003, the
ministers issued a statement calling on the ECA to convene an
expert group meeting on Africa's external debt, apparently in
support of a suggestion made by Senegalese President Abdoulaye
Wade.

The ministers expressed concern that since the G8 summit in
Cologne in 1999, at which the Jubilee 2000 Campaign won a
commitment from rich nations to cancel $100 billion of debt for
42 of the world's poorest nations, only eight African countries
had reached their completion points under the enhanced Heavily
Indebted Poor Countries (HIPC) initiative.

In the meantime, the economic assumptions on which debt relief
was based have considerably worsened and many countries,
including those few that received debt relief from the HIPC
initiative, "are sinking back into unsustainable debt," the ECA
noted.

Shortcomings in debt sustainability analysis, inadequacies of
financial resources made available for debt relief and
development, and the recurrent commodity price shocks that push
African countries deeper into debt were largely responsible for
this outcome.

ECA Executive Secretary K.Y. Amoako, NEPAD Steering Committee
chairman Wiseman Nkhulu, African Union Commission Chairperson
Alpha Omar Konare, and President Wade will address the opening
session of the expert group meeting at Le Méridien Président
Hotel in Dakar.

The experts will discuss legal aspects of external debt
management, a potentially important factor in reducing the debt
burden of African countries.

Many African countries, for instance, are servicing debts
incurred by rulers who borrowed without the people's consent and
used the funds either to repress the people or for personal gain.

<B>The legal doctrine of odious debt holds that successor
governments should not be liable for debts. This doctrine
originated in 1898 after the Spanish-American War, when the
United States argued that neither it nor Cuba should be held
responsible for the debt the colonial rulers incurred without the
consent of the Cuban people.</B>

But, how relevant is the legal doctrine of odious debt today?
What mechanisms can be put in place to prevent odious debt from
being incurred in the future?

Proper attention to the legal details involved in entering into
debt contract, such as the appropriate contracting party for
government debt, the equitable division of losses from state-
guaranteed private commercial debt, and the invalidation of
contracts following corrupt practices, among others, can play an
important role in encouraging greater transparency and
accountability by contracting parties and ultimately a lower debt
burden for African countries.

The way in which debt sustainability is defined and how the
definition is applied in practice is at the heart of all the
proposals that have been put forward to deal with the external
debt of low-income countries, the ECA explained.

The International Monetary Fund defines sustainable debt as "a
situation in which a country has the capacity to meet its present
and future debt-service obligations without requiring a major
correction in its balance of income and expenditure."

However, the HIPC initiative incorporates a definition of debt
sustainability based on the Net Present Value (NPV) of external
debt-to-exports ratio as the primary indicator and on threshold
levels that are uniformly applied across all countries.

These indicators have been questioned on several grounds. Are
they the correct choice of indicators of sustainability? Is the
definition of threshold values realistic? Is the design of stress
tests and of tools to deal with the uncertainty regarding the
timing and magnitude of economic shocks adequate?

Hence, the long debate over the most appropriate criteria to use
to judge whether the debt of developing countries is sustainable
is still not resolved.

The Dakar meeting will examine various proposals on debt
sustainability and come up with the most appropriate criteria to
judge whether the debt of African countries is sustainable.

Any consideration of Africa's financing requirements and
prospects for debt relief needs to be put in the wider context of
financing for development.

This is because debt relief on its own will be woefully
insufficient to allow African countries to finance the Millennium
Development Goals (MDGs) and achieve long-term debt
sustainability.

Overall, a working target of US$50 billion seems necessary if the
MDGs are to be realised. This raises the issue of additional
transfers needed, and how such extra support may be found and
absorbed.

Concerns persist about the terms on which support should be
transferred, including the role of conditionality, quality of aid
and the balance between grants and loans.

The meeting is, therefore, expected to come up with concrete
proposals on how to increase the quantity and quality of
development financing, in particular on options available to
multilateral institutions to increase financing for debt relief.

Many African countries depend on a few primary commodities for
their export earnings. These commodities, however, are subject to
extreme price volatility.

Unstable export earnings caused by export price volatility and
deteriorated terms of trade, in turn, lead to instability of
government revenues and debt sustainability.

Such price fluctuations are considered to be at the heart of many
African countries' failure to exit the debt trap.

Over the past half century, the international community has
introduced several stabilisation and compensatory mechanisms to
minimise the impact of price fluctuations. But these initiatives
have either not been able to provide adequate assistance or
simply proved financially unsustainable.

As a result, rapid and proportionate support to affected
countries has diminished over time, and there is now little
effective protection.

Hence, the need to find ways to minimise the impact of commodity
price shocks remains as great as ever today. The experts should
come up with proposals for African countries to mitigate impacts
of commodity shocks.

Copyright © 2003 PANA



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