Global Policy Forum

By Linus Atarah

As the first year of the millennium draws to an end one prominent issue that is likely to capture great deal of attention is whether poor indebted countries have been relieved of their debt overhang - an issue that was at the centre of a global campaign effort. Participants attending a conference of European Network on Debt and Development (EURODAD) here recently took stock of the debt issue and were unanimous that very little had been achieved by way of reducing the developing countries' debt.

"They have missed an important opportunity," said Adrian Lovett of Jubilee 2000 United Kingdom. "The Jubilee 2000 campaign in the UK, along with other countries, has always been fixed on this millennium year as the big opportunity when the world's decision- makers could take action to cancel the debt but it is clear that we are going to reach the end of this year with no great likelihood that enough debt will have been canceled," he said. But debt campaigners said the issue of developing countries will not be allowed to go off the international agenda after the year 2000. As a concrete action to replace the Highly Indebted Poor Country (HIPC) initiative they have called for fair debt arbitration structure, a forum that would bring together debtors and creditors to the negotiating table overseen by an independent arbitrator.

"What is needed is a much more substantial package to go beyond the HIPC initiative and bringing more debtor countries into the debt cancellation process," said Lovett "For a better debt management," said Jurgen Kaiser of the German Jubilee 2000, "there has to be a change in procedural reforms, what is needed is a fair and transparent arbitration process as an alternative platform for debtor countries to negotiate their external debt".

Debt cancellation campaigners said they are targeting the coming G8 summit in Genoa, Italy in July next year to include such an arbitration process on the agenda. All is not lost yet, said Lovett, "next summer will be a summit of the G8 in Genoa Italy, the first proper summit of the new millennium, a last opportunity for the world's leaders to catch that millennium moment". The host country Italy is interested in deeper debt cancellation and he hopes that they will put forward a new initiative which really takes on board the kind of concerns they have been putting across. However, in order to succeed, Kaiser recognised the importance of winning over a number of influential G7 countries on the issue.

Others also pointed out that debtor countries might be afraid of abandoning the HIPC initiative and embrace a new process since they already have some debt relief to gain under the existing scheme. But taking on a new system would be like leaping in the dark. In spite of the perceived obstacles, what needs to be done is to cultivate an atmosphere of political will between debtors and creditors in order to create such a forum, said Kaiser. One strategy towards that end is to highlight on specific country cases for creditors to realise their plight.

"In order to foster a debate for procedural reforms, simply lobbying creditors may not be useful, in terms of concessional rescheduling," said Kaiser Participants justified their calls for a debt arbitration forum by pointing out some of the major flaws of the HIPC initiative that was set up in 1996 by creditor countries and institutions to relieve the poor countries of their debt burden. As Adrian Lovett pointed out: "Everyday that HIPC fails to deliver, even on its own promise of delivering a real exit from the debt crisis, and decreasing results for poverty reduction is another day when the initiative is discredited. "We are not attached to a particular initiative what we want is a real debt cancellation with a chance to really reduce poverty and meet the interests of justice, in the end it doesn't matter what you call it".

In spite of the pledge made by leaders of G8 summit last year in Cologne to provide "broader, deeper and faster" debt relief under an Enhanced HIPC initiative, campaigners for debt cancellation said that HIPC has not delivered on its promise. Only Uganda has received debt cancellation under the HIPC initiative since the G8 meeting in Cologne. Yet Uganda which is being trumpeted as a success case provides mixed results at best, said participants. Uganda is receiving only a partial debt cut of about 40 per cent, which came only after implementing a long list of International Monetary Fund (IMF) structural programmes. "All of that pain has been for not a great deal of gain," said Lovett. Also the definition of debt sustainability under HIPC is set too high so that a country may be deemed to have a sustainable debt when, in actual fact, it spends two or three times more on paying debt than on health care, they said.

The net of HIPC has also not been cast wide enough, they said. Instances were cited of Indonesia, Pakistan, Nigeria and other so- called middle income countries that have an enormous debt overhang and yet are left out of the HICP scheme. Other extremes are poor countries such as Haiti, considered the poorest country in the Western Hemisphere but which does not qualify for HIPC debt relief. A study conducted by the United States General Accounting Office (GAO) for the US Congress and reported at the conference also pointed out other flaws in the HIPC architecture. A major finding of the study is that HIPC debt relief only frees up resources for poverty reduction if countries continue to borrow at the same level and at the same concessional rate before the coming into being of HIPC.

It is a major point of disagreement for most people, including the IMF and the World Bank, the central architects of HIPC, said Cheryl Goodman from GAO who reported on the findings. The reason behind this apparent paradox, she said, is that countries were borrowing before they received HIPC for various purposes but they were also borrowing just to repay debt. The other point emphasised in the GAO study is that in order for HIPC to succeed countries must realise strong and sustained economic growth and that is based on some of the assumptions of the IMF and the World Bank that are just not realistic.

For instance, the study says, they assume that poor and indebted countries would register nine per cent economic growth for 20 years and continue to receive concessional loans. But if, for instance, Tanzania achieves two per cent less growth than the assumption then it finds itself with a very high debt ratio that it cannot pay. It is also assumed that Tanzania receives a lot of grants that cannot be guaranteed, she said. The GAO study also says that linking debt relief with poverty reduction creates a tension between quick debt relief and comprehensive strategies. Under the HIPC initiative, debtor countries must prepare poverty reduction papers (PRSPs) in order to secure debt relief and other concessional lending from under the new Poverty and Reduction and Growth Facility (PRGF) of the Bank and the IMF.

World Bank President, James Wolfenson, admitted last year that such a process has caused delays in disbursing funds for debt relief. The conference ended by unanimously adopting a declaration calling for a 100 per cent cancellation of Zambia's debt by the International Monetary Fund. Zambia, the conference noted, provides one of the glaring cases of the adequacy of the HIPC initiative to resolve its debt crisis. It has been presented with an agreement under the HIPC initiative whereby debt payments will increase, not decrease, after the agreement is implemented.

"Under this agreement, annual debt payments will increase from 150 million US dollars 222 million in two years. Even with the IMF's solution, Zambia is likely to pay around 150 million on debt service in 2001, almost one-third of its entire budget. "This is more than the entire 123 million health budget in a country where HIV/AIDS has left nearly 13 per cent of children orphaned - the highest rate in the world," said the declaration. Zambia is one of the poorest countries in the world, with an average life expectancy of 44 years, lower than even in countries under civil war, said Chrispin Mphuka of Jesuit Centre for Theological Reflection. Therefore, the conference "calls on the Managing Director, Governors and Executive Directors of the IMF to go beyond the terms of the HIPC initiative and agree the immediate cancellation of 100 per cent of the debts owed by Zambia to the IMF, as the only genuine and sustainable way to solve Zambia's IMF debt problem - a problem largely of the IMF's own making".

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