Global Policy Forum

Susanna Mitchell

At the recent IMF and World Bank meetings in Washington, HIPC Ministers expressed concern about the behaviour of creditors who were refusing to provide their share of relief under the HIPC initiative, and pointed out that some of them had even resorted to suing HIPC countries for debt repayment. Guyana is one instance of this kind of treatment, but in her case the plaintiff is a commercial rather than a bilateral creditor, and the company concerned has applied to the Centre for the Settlement of Investment Disputes (ICSID) for arbitration. This is particularly ironic because although ICSID is autonomous, it is also part of and financed by the World Bank, the very organisation that demands creditor comparability as a condition for entry to HIPC.

The claimant bringing this case is Booker plc, the parent company of Booker-Tate Ltd. the biggest international sugar-specialist in the world, who have recently been taken over by the UK corporation Iceland Group plc. Their claim concerns the non-settlement of an alleged debt incurred in 1976, when Guyana's publicly held sugar company GuySucCo, then part-owned by Booker Sugar Estates Ltd., was nationalised. At that time, compensation to Booker was set at a sum of £13,079,606, to be repaid at an interest rate of 6% over a period of 20 years. From 1976 to 1988, Guyana unfailingly serviced its debt obligations under this arrangement, but in 1989 Booker agreed to a deferral of repayment of the remaining promissory notes on condition that GuySuCo appointed Booker-Tate as managers while working towards re-privatisation of the industry. Since then no payments have been made, but due to political change in Guyana the sugar industry has remained in public hands, and Booker's hopes of regaining the ownership of the company have been disappointed.

Guyana is one of the world's low income countries, with a GNI per capita of $760, and over the last decade her economy has been subject to a series of external and internal shocks, including drought caused by the El Nino, falling commodity export prices, and political unrest. In the early 1990s she applied for entry to HIPC, and in 1999 the IMF agreed that her debt was unsustainable, and offered a measure of relief. However, this agreement still left the country's total external debt stock standing at $1.5bn in nominal terms, nearly two and a half times her tiny GDP of $650m. Such a debt involved a service burden of $105m, almost half her government revenue of $218, and since this remained unsupportable, the government applied for additional assistance under the Enhanced HIPC initiative which had been set up in 1999. Guyana came to decision point under this initiative in November 2000, and although she is currently deemed to be ‘off track' with her IMF programme, and interim relief from the Fund has been suspended, she is hoping to reach a delayed completion point in the first quarter of 2003.

Both now and during the negotiation period, it has been impossible for Guyana to settle her debts with Booker without contravening the Paris Club's comparability clause, which is a condition of entry into the initiative. The Paris Club is an exceedingly powerful but informal group, comprised of most of the larger creditor nations, and their members have agreed to offer a debt write-off of 90% at net present value to countries entering the Enhanced HIPC scheme. At the same time they stipulate that debtor countries commit themselves to negotiating debt reduction on comparable terms with all their remaining external creditors – that is, with sovereign governments outside the Paris Club, and with all categories of commercial creditors. Guyana has perforce agreed to this stipulation, and her agreement constitutes a legally binding agreement between the UK as a member of the Paris Club, and their own government. This means Guyana cannot accede to Booker's demands for repayment of debt without prejudicing its application for relief under Enhanced HIPC. Indeed, as Jubilee Research has recently pointed out in a letter to the Bank's president, James Wolfensohn, if Booker is successful in its proposed ICSID arbitration, Guyana will effectively be forced to break an already existing agreement with another World Bank institution.

Unfortunately this dilemma is of no concern to Booker, who assert that because their debt is nationalisation debt, they cannot be considered commercial creditors in the normal sense of the word, and have no obligation to honour the Paris Club's comparability clause. Instead, after long and fruitless negotiations with the Government of Guyana, they have filed a request for recovery with ICSID. Their claim now covers the outstanding debt principle of £6,777,893, together with a demand for penalty interest, currently standing at £5,228,877 . They are also demanding a full award of costs and expenses incurred in their attempts to recover the debt, including those arising from the arbitration process itself.

Jubilee Research has frequently pointed out that the HIPC initiative is a failure, not only because of the glacial pace at which it operates (only six of the 42 countries accepted as eligible have so far qualified for full debt relief), but because it simply reschedules debt service, rather than cancels debt stock, and thus cannot create long-term debt sustainability for many of the countries it claims to serve. (At present, even according to the narrow definitions of the World Bank and IMF, HIPC only appears to be working for between 7 and 10 countries out of the 42 included in the initiative). The case of Guyana, however, highlights another integral flaw in the process, for it shows that if entry into HIPC depends upon successful rescheduling of bilateral and commercial debt under Paris Club rules, and commercial creditors refuse to agree with the ‘comparability' clause (Article III.i) that forms part of that agreement, the whole process is thrown into confusion and its purpose undermined.

Moreover, since it is in the nature of commercial creditors to protect their investments at all costs, any excuse to avoid taking a loss will clearly be better than none. The distinction Booker draws between nationalisation and other commercial debt is a prime example of this kind of red herring, especially since the initial moratorium on debt repayment was agreed by them on the risky assumption that they would gain by a privatisation that failed to materialise. The fact that such a case can be considered suitable for arbitration at ICSID plainly constitutes an unacceptable paradox within the Bank's own operations.

This makes it all the more imperative that the whole creditor-controlled process of HIPC be replaced by the kind of neutral and impartial sovereign bankruptcy court at present advocated by UNCTAD and Jubilee Research. Until decisions about sovereign debt are removed from the jurisdiction of their creditors, it seems highly unlikely that speed, justice or even simple efficiency will characterise a process that most urgently calls for a fast and fair resolution.

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