November 3, 2000
The IMF and World Bank are still struggling to find a solution to Zambia's debt crisis, which sees one of the poorest countries in Africa paying more on debt service after qualifying for the international Heavily Indebted Poor Countries (HIPC) initiative.
Zambia has rejected recent IMF proposals to improve their position because they "fall short of conclusively resolving Zambia's debt burden" – the job that HIPC was designed to do. The country has fulfilled its side of the HIPC deal, implementing harsh structural reforms which have brought down inflation, but seen an increase in the poverty gap. At recent meetings in Prague, the IMF promised to review Zambia's predicament when their own figures - publicised by Oxfam - showed payments rising by $70 million a year to $200 million after Zambia qualifies for HIPC in December. The rise is due to old IMF loans becoming due, and raises fundamental questions about the HIPC formula.
Gordon Brown, chair of the IMFC admitted "in certain cases, such as the case of Zambia where we see the figures, we recognise that there has got to be something done; in other words, that the debt payments have got to be looked at given the way their flow is going to come over a number of years." But one month on, with the December deadline looming, the IMF is still searching. Zambian finance minister Katele Kalumba, who called for a "creative, visionary and intelligent resolution of Zambia's case" has been disappointed with the response from creditors who designed the flawed HIPC scheme. The IMF have proposed four options, none of which, says Mr Kalumba in a letter to the institution seen by Jubilee 2000, will make a difference, because they do not significantly reduce the amount of money to be paid. Instead, the four proposals involve rescheduling or refinancing (through a mixture of grants and new loans), "smoothing" debt service obligations rather than reducing them.
The case of Zambia presents real difficulties for creditors, who have been trumpeting the HIPC scheme. As Mr Kalumba points out "the HIPC Initiative should release resources to support comprehensive development and long-term economic growth in Zambia. Failure of the HIPC Initiative to respond to this challenge in Zambia's case will negate all the work that has gone into this effort, and raise serious questions about the credibility of the HIPC Initiatives in general." Unless HIPC can provide outright cancellation to reduce the overall debt, Mr Kalumba pleads that it will not be enough.
But for Zambia it is vital that creditors take a bold step. Mr Kalumba said that only total debt cancellation for Zambia would ensure that her high levels of poverty could be addressed. "We must not forget the urgency and desperation of Zambia's present economic status" writes Mr Kalumba, "... in short, well over four fifths of Zambia's population lives on less than a dollar a day." He identifies poverty, disease – particularly AIDS - and debt as interlocking forces which prevent development in Zambia, but makes it clear which determines the others: "the critical link in this vicious circle is debt, because its pervasive effect strangles all other efforts to make meaningful investment in strategies to counter the deprivation and disease."
Zambia is the most vivid illustration of HIPC's flaws, but other countries have not done much better, even though their payments have fallen rather than the other way round. Tanzania saw barely any reduction in repayments after qualifying, Mali received just a 13% cut, and Senegal nineteen percent. On average, countries have been getting their annual payments reduced by just one third.
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