 Special Report100 % Debt Cancellation for Poorest Countries Affordable News FeaturesAIDS Undermining Rural Development San Education Comes Under Spotlight
DocumentsGAD Exchange Issue No. 24 - June 2001 CURRENT ISSUE
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100 % Debt Cancellation for Poorest Countries Affordable 20 June 2001 by Hugh McCullum An embarrassing, but little
publicized report from the World Bank and International Monetary Fund casts a
dark shadow over the Heavily Indebted Poor Countries (HIPC) initiative, showing
little confidence that the controversial debt relief package will provide an
end to the debt crisis for the 22 countries involved so far. The paper “The Challenge of
Maintaining Long-Term External Debt Sustainability” has finally emerged after a
number of rewrites, confirming debt campaigners’ concerns that HIPC does not reduce
debt to a low enough level. Even countries now receiving debt
reductions under the HIPC, which include Malawi, Mozambique and Tanzania in
southern Africa, remain “extremely vulnerable” to adverse economic conditions
including reductions in export earnings or development assistance from the
optimistic levels projected under the earlier HIPC sustainability analyses. According to Salih Booker, director
of Africa Action, the data from the creditors’ own reports shows that the case
for further debt reduction is irrefutable. Africa Action calls for 100 percent
cancellation of the debts owed by African and other poor countries to the World
Bank and IMF, as a first step towards reducing the outward flow of financial
resources that are desperately needed within Africa. The debt campaigners cite many and
varied reasons for the cancellation including:
African leaders met in Abuja earlier
this year, adopting a target of 15 percent of national budgets to HIV/AIDS and
other public health needs, an increase averaging six percent. In order to
achieve this relatively modest target given the enormity of the AIDS pandemic,
governments will have to find the political will. Civil society will apply
pressure and effective administration will be needed. Fundamental to this, however, say
African Action and Drop the Debt campaigners, is stopping completely the drain
of debt payments to the rich financial institutions immediately. The April meetings of the World Bank
and IMF saw no such action. The next test will be the July meeting in Genoa,
Italy of G-7 industrialized nations. Debt campaigners have long argued
that the 150 percent debt-to-exports level underpinning the HIPC is based on
dubious projection of export growth. For the 22 countries now getting HIPC,
export growth of more than six to seven percent are predicted. The recent “Challenges” report admits
for the first time that export growth predictions were “overly optimistic”; a
more realistic figure might have been 4.2 percent in line with 1990-99 levels.
Shockingly, even at these more modest levels, the declared “sustainability
threshold” of debt levels will have risen to 160 percent by 2005 and around 180
percent by 2015. Three countries, Bolivia, Malawi and
Niger will not reach the 150 percent threshold in the first place because of
export growth rate volatility. Three other countries, Burkina Faso,
Rwanda and Tanzania, are not predicted to reach the 150 percent level until the
medium term because of anticipated new borrowing. Even for those countries that do
reach the 150 percent, the Bank and IMF acknowledge finally that the HIV/AIDS
emergency in many African HIPCs will mean that debt levels can only rise. In fact,
only one of the 22 countries receiving HIPC, Uganda, has had actual debt
relief, the rest are simply reducing debt servicing charges by just
one-quarter, leaving countries spending far more on debt than they currently
spend on health. “Longer-term growth prospects can be
undermined by natural disasters, war, or health threats such as the AIDS
epidemic, in such cases external indebtedness may need to rise to accommodate
the financing of reconstruction and rehabilitation,” says the Challenges
report. Despite all this evidence from their
own officials, the lending institutions do not consider further debt
cancellation. Instead they focus only on standard solutions through economic
growth and policy reforms, while examining future financing patterns. While these are critical to long-term
debt sustainability, Drop the Debt emphasizes that the starting point must be
to make debt repayments affordable now. “The bad news is that the HIPC
initiative is yet again failing to meet its stated objectives. The good news is
that the IMF, World Bank and their shareholders have the resources to cancel
100 percent of the debts these institutions are owed by the poorest countries.
HIV/AIDS is compounding the failures of HIPC and making delay more costly and
inexcusable. It seems the World Bank and the IMF are more interested in saving
cash than saving lives, ” says Drop the Debt, a coalition of NGOs, anti-debt
campaigners and churches.
“We take no satisfaction from the
revelation in the World Bank’s assessment that campaigners were right all
along. The HIPC does not deliver a sustainable level of debt,” says Adrian
Lovett, director of Drop the Debt. “Their internal report fails to draw
the logical conclusion, however, that the first step to real debt
sustainability lies in getting existing debt down to a truly affordable level. “That means,” he continued, “the
World Bank and IMF must do what the G-7 has said and cancel 100 percent of the
debts they are owed by the poorest countries. Independent research has shown they can afford to do this without jeopardizing their ability to function. The G-7 finance minister must give deeper debt cancellation for the poorer countries their urgent attention at their meetings.” (SARDC)
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