DEBT RELIEF FOR HEAVILY INDEBTED POOR
COUNTRIES
(20660)
12303/99
COM(99) 518
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Commission Communication on a Community participation in the debt relief initiative for heavily indebted poor countries.
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| Legal base: |
— |
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| Document originated:
| 26 October 1999 |
| Forwarded to the Council:
| 28 October 1999 |
| Deposited in Parliament:
| 19 November 1999 |
| Department: |
International Development |
| Basis of consideration:
| EM of 1 December and Minister's letter of 14 December 1999
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| Previous Committee Report:
| None |
| Discussed in Council:
| ACP-EU Council of 8-9 December
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| Committee's assessment:
| Politically important |
| Committee's decision:
| Not cleared; referred to the International Development Committee for its opinion
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Background
6.1 In 1996, the boards of the International
Monetary Fund (IMF) and World Bank launched the Heavily Indebted
Poor Countries (HIPC) Initiative. This is a mechanism for providing
multilateral debt relief for those countries whose debt levels
are deemed to be unsustainable after all other debt relief measures
have been applied. Before that date, debt relief was provided
through meetings of creditors at the "Paris Club", established
in the 1950s to provide a forum for bilateral debt relief negotiations.
In 1996, it was recognised that the rescheduling or reduction
of official bilateral debts was not sufficient to reduce the debt
burdens of the HIPCs to a sustainable level, as they owed an average
of 22% of their external debts to multilateral institutions, such
as the IMF, the World Bank and regional development banks. On
24 June 1998, we cleared an amended draft Decision[30]
on providing Community support for the Initiative.
The Commission Communication
6.2 At their summit meeting in Cologne in
June 1999, the G8[31]
agreed to "an expanded initiative that will provide faster,
deeper and broader debt relief". In its Communication
which we consider here, the Commission says that, as a result,
the total costs of the Initiative are now expected to more than
double. The IMF and World Bank have been "put at the heart
of a set of more coherent, effective and co-ordinated development
instruments" which stress the connection between poverty
alleviation strategies, structural adjustment programmes and debt
relief. They will prepare new Poverty Reduction Strategy papers,
but additional financing will be required. Despite significant
contributions by multilateral and bilateral creditors to the HIPC
Initiative, the level of bilateral contributions to its Trust
Fund is still not sufficient.
6.3 The Communication draws attention to
the very low US contribution to bilateral debt alleviation within
the enhanced HIPC framework, noting that this had still not secured
the agreement of the US Congress, at the time of writing.
6.4 The proposal which the Commission puts
forward in its Communication is for the Community to contribute
about 1 billion euro (£632,500,000) to provide debt relief
for those African, Caribbean and Pacific (ACP) countries that
are classified as HIPCs. It proposes that the contribution should
be taken from the unallocated resources in the Eighth and earlier
European Development Funds (EDF) and should consist of three elements:
- debt relief against the Community's own lending
as a creditor, via the European Investment Bank (EIB), to ACPs:
550 million euro (£347,875,000);
- additional structural adjustment (budgetary)
support: 150 million euro (£94,875,000); and
- a contribution to the HIPC Trust Fund: 200-300
million euro (£126,500,000 - £189,750,000).
The Government's view
6.5 In her EM of 1 December, the Secretary
of State for International Development (The Rt. Hon. Clare Short)
says:
"The Government strongly
supports the European Community's participation in the HIPC initiative.
The proposal that the European Community goes beyond its obligations
by making a contribution to the international costs of the revised
HIPC initiative came from UK Ministers. However, this Commission
proposal was not acceptable to the UK or other Member States.
The estimate of 550 million euro to provide relief from ACP debt
to the EC is considered excessive, as many of the listed countries
are unlikely to qualify for HIPC relief in the next few years.
The revisions to the HIPC initiative agreed at the IBRD/IMF Annual
Meetings in September this year mean that debt relief is provided
to countries once they have reached their initial decision point
on HIPC qualification, so the justification for the structural
adjustment funds is slight. Furthermore, it is estimated that
an EC contribution to the HIPC Trust Fund of at least $700 million
(around 700 million euro at current rates) is required. The Commission
have now submitted draft revised proposals, which go most of the
way to meeting our concerns."
6.6 The Minister says that the proposal
would be financed from the large surplus of unallocated EDF funds
and that the UK's share would be drawn against DFID's budget as
funds were disbursed. This means, she says, that DFID would pay
more to the EDF in the short term but, as the funds had already
been pledged, there were no new financial commitments.
6.7 She goes on to say that the Commission's
original proposal has been superseded.
The Minister's letter
6.8 In her letter of 13 December, the Minister
says that the Government argued successfully that the Community
should make a substantially larger share of the 1 billion euro
available for the international costs of debt relief by providing
a greater contribution to the Heavily Indebted Poor Countries
(HIPC) Trust Fund. She supports the 1 billion euro figure, but
feels that the detail of the Commission's proposal is not as advantageous
to heavily-indebted poor countries as it should be. The General
Affairs Council, on 6 December, agreed the following revised breakdown:
- contribution to the HIPC Trust Fund: 680 million
euro (£430 million);
- debt relief against the Community's own lending
via the EIB to ACPs: 320 million euro (£202,400,000).
6.9 In addition to this total of 1 billion
euro, 250 million euro (£158 million) would be made available
from the EDF for structural adjustment (budgetary) support.
6.10 This package was put to the ACP-EU
Council of Ministers on 8 December and approved.
Scrutiny
6.11 The Minister regrets that there was
no opportunity to consult us about this new package. She explains
that the proposal was not finalised until a meeting of EU Permanent
Representatives (COREPER) on 1 December. Under normal circumstances,
she says, the Government would have volunteered details for scrutiny,
before discussion at Council, but the only opportunity within
the next few months for the ACP-EU Council of Ministers to approve
the proposal was at its meeting on 8 and 9 December. Prior to
that, the proposal needed to be considered by the EU General Affairs
Council. She adds:
"In view of the speed
that the proposal was submitted to Council, there was no possibility
of referring back to your Committee about the provision of a reserve.
Thus, I felt we had to approve the proposal at the General Affairs
Council on 6 December".
6.12 The Minister undertakes to submit a
Supplementary Explanatory Memorandum on the final document.
Conclusion
6.13 In June, the International Development
Committee, in its Report Debt Relief and the Cologne G8 Summit[32],
made a number of recommendations. We understand that it is expecting
to update its Report early next year and consider that this document,
the Explanatory Memorandum and the Minister's letter would make
a useful contribution to that Report.
6.14 We do not, therefore, clear the
document, but now ask the International Development Committee
for its opinion on it.
30 (19073) 7783/98; see HC 155-xxxi (1997-98), paragraph
12 (24 June 1998). Back
31 Also
known as the G7, depending on whether you count Russia, which
has observer status. Back
32 Fourth
Report from the International Development Committee, HC 470 (199899). Back
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