APPENDIX 3
Memorandum from the World Development Movement
As a member of the Jubilee 2000 coalition we have not repeated
the overview of the problem which we know will be provided to
the committee by coalition partners. Our submission focuses on
solutions.
The World Development Movement (WDM) believes that no country
should have its developmental efforts thwarted due to debt repayments.
This is an issue of great importance to our members, and on which
we have campaigned for over 10 years. We believe the millennium
is an ideal time to provide a fresh start to millions of people
currently living under the shadow of debt. This will require the
cancellation of the backlog of unpayable debt of the poorest countries
by the year 2000. Unpayable debts are those which cannot be repaid
without damaging prospects of economic and human development.
The British Government has always played a key role on debt
issues. The WDM welcomes the Chancellor's Mauritius Mandate and
the Development White Paper's position on debt. However we believe
even more could, and should, be done.
An increasing proportion of debt is owed to the multilateral
institutions. Here the Government's task is to push the existing
Highly Indebted Poor Country (HIPC) proposal further, for example
by giving it priority at the G8 meeting in Birmingham. On bilateral
debt, the Government can lead by example by unilaterally cancelling
all the unpayable debts of the poorest countries.
MULTILATERAL DEBT
The Highly Indebted Poor Country initiative was a theoretical
triumph. After years of denial the World Bank and International
Monetary Fund finally accepted that they too had a responsibility
to reduce the burden of debt for the poorest countries. As such
it provides an invaluable starting point. The reality is rather
less rosy. Only three or four countries are likely to receive
any actual debt relief by the year 2000. The small number of countries
deemed eligible have a long and tortuous road to travel before
their debts are reduced.
Our concern is that the Chancellor and International Development
Secretary need to push hard for a better HIPC initiative which
provides more debt relief than currently planned. In doing so
they would be supported by many in the World Bank as well as NGOs.
In the past the UK has played a much more positive role than the
Germans or Japanese. However, we are concerned that officials
have not always given this issue sufficient priority in negotiations
and we feel more could be done. While we recognise that a gradual
approach may be more effective within the World Bank and IMF we
want to be clear on the ultimate objective of Government policy,
and suggest more ambitious targets are needed.
There are three areas where we feel more needs to be done:
the number of countries; the speed of implementation, and the
form of conditionality attached to debt relief.
THE NUMBER
OF COUNTRIES
The World Bank/IMF criteria for defining "sustainable
debt" are unrealistic, as they overestimate most countries'
ability to repay. The number of countries and the amount of debt
relief each country will receive has therefore been underestimated.
The HIPC initiative covers around 20 countries with unsustainable
debt problems. The cost is estimated at between US$4.8 and US$7.7
billion. Jubilee 2000 has made estimates based on more realistic
eligibility criteria, identifying around 50 countries with unsustainable
debt problems. About US$100 billion needs to be written off.
The Mauritius Mandate does not appear to make any reference
to increasing the number of countries eligible for debt relief
under the HIPC initiative.
THE SPEED
OF IMPLEMENTATION
As a Member of the Jubilee 2000 coalition our goal is to
see all countries with unsustainable debt burdens receiving debt
relief by the year 2000. We understand from German officials that
no more than six countries are likely to reach "completion
point" under the HIPC initiative by the Millennium. (These
would be Uganda, Bolivia, Guyana and Mozambique before 2000 and
Burkina Faso, Cote d'Ivoire in the year 2000.) Even this is probably
an over-optimistic prediction.
In the Mauritius Mandate the Chancellor was clear on the
need to speed up the existing HIPC initiative (and DFID has reiterated
this desire). However his proposal appears to go no further than
the HIPC initiative. He called for three-quarters of all eligible
countries to have "firm decisions on the amount and terms
of debt relief by 2000. Which point this actually refers to in
the HIPC process is not clear but it seems most plausible that
this means that they should have reached the "decision point"
under the HIPC initiative where a country's debt sustainability
is assessed and the amount and timing of debt relief agreed. Under
the HIPC initiative 17 of the 20 or so eligible countries were
anyway due to have reached the decision point by 2000.
Under HIPC, countries have first to get to decision point
and then implement another three years of a Structural Adjustment
Programme (SAPs) before getting any debt relief. The decision
to grant debt relief may change between decision point and completion
point if during these three years their debt indicators change,
for example if their export earnings increase.
Nicaragua and Tanzania were expected to get debt relief but
have recently been declared "off-track" in their SAPs.
They are renegotiating with the IMF and their prospects for debt
relief have been put on hold.
The process could move substantially faster if countries
did not have to adhere to six years of a SAP, a requirement which
is simply unfeasible for many of the poorest countries, whether
or not it is desirable. As a first step the period of conditionality
could at least be reduced to three years, with much more flexibility
in the assessment of adherence.
The speed with which debt relief is granted is now an issue
of political will rather than technical hurdles.
CONDITIONALITY
Debt relief is typically granted conditional on compliance
with a World Bank/IMF approved Structural Adjustment Programme.
In its report on the White Paper the International Development
Committee has already noted the concern expressed about SAPs.
The imposition of inappropriate and sometimes damaging macro-economic
conditions attached to debt relief is, in our view, at least as
problematic as the actual drain of resources due to debt repayments.
The challenge is to ensure that debt relief is spent wisely,
in the interests of the poor, without heaping yet more conditions
onto an already overburdened relationship between First and Third
World countries which is far from an equal partnership.
Current SAPs are harmful because they are based on an outdated
model which damages the poorest, without achieving substantial
economic growth. They fail because they are blanket approaches
which ignore the enormous differences between debtor countries,
and take little account of social and political contexts. They
flounder because the governments implementing them have no ownership,
and frequently do not have the political consensus necessary to
impose the austerity measures involved.
It is suggested in the Human Development Report 1997 that
"New forms of adjustment are needed that promote both
growth and poverty reduction. Adjustment through reallocation
and growth rather than adjustment through contraction is one option
to explore ".[39]WDM
supports the proposals made by the Secretary for State for International
Development that IMF conditions should be evaluated against their
contribution to meeting the DfID 2015 targets.
There is no single set of conditions which should replace
SAPs. Local ownership and specificity is part of the solution.
Arrangements which are based on a debtor government's own poverty
reduction plan are more likely to succeed. So too would conditions
which are based as far as possible on outcomes (such as a reduction
in infant and maternal mortality) rather than disputed methods
like monetarist economic policies. But perhaps most importantly,
we need the minds of the World Bank IMF and DFID staff to be set
to working out what kind of economic conditions will ensure "pro-poor"
growth. We are all agreed on the desirability of pro-poor growth,
but few of us are sure how to achieve it.
BILATERAL DEBT
On bilateral debt, the Government can lead by example rather
than being held up by other less enlightened Paris Club members.
The UK is the sixth largest bilateral creditor of the most indebted
countries, and is owed 4 per cent of their outstanding bilateral
debt.
The Secretary of State recently announced the cancellation
of up to £132 million Commonwealth country debts owed to
DFID. There seems little reason not to write off the other 47
per cent of DFID's debs owed by the poorest countries—both
Commonwealth and non-Commonwealth.
Almost all (95 per cent) of the poorest countries' debts
to the British Government are owed to the Export Credit Guarantee
Department (ECGD). The ECGD guarantees repayment to British companies
for certain sales to foreign buyers. If the foreign buyer—either
a company or government—defaults on its payment to a British
company then the ECGD pays off the British company. The debt is
then owed to the ECGD.
Working within the context of the Paris Club, the Government
can act unilaterally to increase the percentage of debt written
off (up to 100 per cent for those countries most in need). In
addition, at present only those debts accrued before the debtor
first appealed to the Paris Club are eligible for debt relief.
For some countries a substantial proportion of their debt can
therefore not be written off, however dire their need. It would
be a triumph for common sense if the government were also to look
at post "cut-off" date debt.
The WDM is particularly concerned that one third of all the
poorest countries' debts to the ECGD are as a result of arms sales.
The challenge here is not only to cancel all unpayable debts,
but also prevent the build up of future unpayable debt while maintaining
a system of export credits which enable Third World countries
to buy goods from the UK.
The Chancellor's unilateral two-year moratorium on export
credits for unproductive expenditure is an excellent start. We
obviously hope that this will serve to persuade other creditors
to follow suit, and that it will become permanent. An explanation
of what is meant by "unproductive" is needed, and environmental
and social impact assessments on all export credits would help
to ensure that they are used productively. This issue has been
a long running agenda item at the G7, but so far little has been
achieved. The summit in Birmingham this year will again provide
an excellent opportunity for decisive action.
WDM agrees with UNDP's analysis of what is needed. "More
effective debt relief-larger in scale, faster in operation. Many
proposals have been introduced over the past decade, but the levels
and rates of implementation are pathetic in relation to the problems
that debt poses for the severely indebted low-income countries.
Only with debt reduction can poverty be reduced in many of these
countries."[40]
Without substantial debt relief for the poorest countries DFID's
2015 targets for poverty reduction cannot possible be met.
World Development Movement
November 1997
39 UNDP Human Development Report 1997 (New York and
Oxford: Oxford University Press, 1997), p. 77. Back
40
UNDP Human Development Report 1997, op cit, p. 113. Back
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