APPENDIX 2
Memorandum submitted by Jubilee 2000 Coalition
INTRODUCTION
In 1992 Mozambique's brutal 16 year civil war
ended. There is now a democracy, and recently the economy has
started to look stronger, with upward growth in the last few years.
Last year, Mozambique was able to produce enough food to feed
its population.
The floods have washed away this hard-earned
progress. The costs of reconstruction have now been estimated
to be at least $250 million. Much of the infrastructure (including
roads, communications, and buildings) has been ruined, thousands
of hectares of crops destroyed, and over a million people severely
affected. Thousands have been drowned. Cholera and malaria are
sweeping the flood-drenched areas. The full extent of the damage
is as yet unknown.
There can be no hope of proper recovery without
addressing the country's disabling debt burden, which affects
both short-term rebuilding efforts and the long-term growth on
which the prosperity of Mozambique depends. Mozambique currently
spends $1.4 million a week on debt service. The President, Joaquim
Chissano, has called for total cancellation of Mozambique's debts,
a call echoed by Graca Machel, former First Lady of Mozambique.
Jubilee 2000 Coalition support this call.
Currently, Mozambique is expected to reach "decision
point" under the HIPC initiative in April. As presently planned,
this will not mean 100 per cent cancellation of Mozambique's debt.
100 per cent cancellation will only happen if creditors, including
the World Bank and IMF, agree to go beyond the agreement reached
in Cologne last year in the case of Mozambique.
1. BILATERAL
CANCELLATION
Jubilee 2000 Coalition welcomes the pledges
made by individual governments including the British Government
to cancel 100 per cent of bilateral debts owed by Mozambique and
hopes that they will use their influence on other creditors to
do likewise. However, there has been a lack of clarity about when
the various pledges will be implemented. If the creditors' intention
is not to collect any more money from Mozambique, then there is
no excuse for keeping the figures on the books. An immediate 100
per cent cancellation should take place now.
The Paris Club meeting on Wednesday 15 and
Thursday 16 March is a timely opportunity for creditors to put
their promises into practice, and to persuade countries like France,
one of Mozambique's biggest creditors, to follow suit. Jubilee
2000 Coalition is asking the British Government to use its leverage
at the Paris Club meeting to get other creditors to take concrete
action.
2. MULTILATERAL
CANCELLATION
Multilateral institutions must also provide
100 per cent debt cancellation for Mozambique. The IMF and World
Bank which together are owed one quarter of Mozambique's debt,
have made no moves towards cancellation. Their proposed plan to
accelerate new loans for Mozambique and postpone repayments for
a year is wholly inadequate and does nothing to relieve Mozambique's
debt burden. Creditor governments should be mindful of the situation
which arose after Hurricane Mitch, when the World Bank and IMF
refused to follow creditor countries who announced a moratorium
on debt repayments for Honduras and Nicaragua. As a result, in
1999 Nicaragua spend almost as much ($170 million) on debt service
as on reconstruction ($190 million).
Jubilee 2000 Coalition is urging individual
country creditors to put pressure on the multilateral institutions
to agree 100 per cent debt cancellation for Mozambique. The Secretary
of State for International Development can use her position on
the Board of Governors of the World Bank to influence its actions.
The Chancellor of the Exchequer can exercise influence over the
IMF position in his role as Chair of the Interim Committee.
3. MADAGASCAR
ALSO NEEDS
DEBT CANCELLATION
Cyclone Eline hit Madagascar on February 17,
and tropical storm Gloria struck on March 4, leaving 560,000 people
in dire hardship, including 10,000 homeless. The storms came on
top of a long-running cholera epidemic which has killed more than
1,000 people.
Madagascar is in the HIPC initiative but it
is not amongst those countries expected to reach decision point
in the initiative in the year 2000. On current reckoning it may
have to wait until 2003 or beyond before it receives full debt
relief, despite the fact that its debt to exports ratio is 369
per cent, far above the level considered sustainable in the HIPC
initiative.
Madagascar is also in urgent need of debt
cancellation. Even before the storms, its debt service was estimated
to be almost twice as much as combined spending on health and
education. There can be no hope of proper recovery without addressing
the country's disabling debt burden.
4. BACKGROUND
INFORMATION
(i) Mozambique's debt
Total debt owed in 1998: $6.4 billion (excluding
private debt)
| —Bilateral debt: |
$4.3 billion. |
| —Multilateral debt: | $2.1 billion.
|
The majority of the bilateral debt (78 per cent) is owed
to Paris Club creditors (some of the biggest are: Italy $504 million;
France $472 million; Germany $201 million. The UK is owed $150
million, the US $49 million, Japan $57 million). Russian and Brazil
are also non-OECD creditors.
Private debt is $2.2 billion.
(ii) Debt relief so far under the Heavily Indebted
Poor Countries initiative (HIPC)
The HIPC initiative was started in 1996 by the World Bank
and IMF, designed to address the enormity of the debt burden faced
by poor countries. In June 1999, Mozambique completed the HIPC
initiative and was granted debt relief of $1.7 billion in net
present value (NPV) or $3.7 billion in nominal terms. This
resulted in a reduction of actual payments from an average $112
million a year to $73 million a year.
At the Cologne Summit in June 1999, the HIPC initiative was
deemed inadequate, and the G7 extended the relief on offer, resulting
in a promise of extra debt relief for Mozambique. However, a new
condition was introduced by the IMF in response to criticisms
of the institution's lack of focus on poverty reduction. Governments
hoping to qualify for debt relief are required to produce a detailed
poverty reduction strategy plan. Mozambique's extra debt relief
was delayed until such a plan had been completed. However, Mozambique
had already proven it would spend the money on poverty reduction
(as well as jumping numerous economic and social hurdles) as a
condition for completing the HIPC process. Jubilee 2000 called
it a bureaucratic nonsense that they had to prove this again in
order to get the extra relief.
Clare Short, UK Secretary of State for Development, criticised
the way poverty reduction plans were being used to delay debt
relief. "What is happening in Washington is that there's
a delay in looking for the perfect poverty reduction strategy,
which means that the timetable for debt relief won't be kept.
If you ask for perfection, you'll be waiting for decades".
Mozambique is due to get this extra relief in March/April
2000. The extra relief will amount to approximately $250 million
(NPV), and will leave Mozambique with annual average payments
of $45 million, more than is spent on primary health and education
combined.
(iii) Debt service (source: IMF/World Bank paper,
Modifications to the HIPC Initiative)
— Before debt relief was granted, average debt service
paid by Mozambique in 1993-98 was $112 million.
— After the initial relief was granted (June 1999),
annual debt service due is an average of $73 million for 1999-2005
($1.4 million a week).
— When extra relief is granted in April, estimated
annual debt service due is $45 million ($0.9 million a week).
— According to Oxfam, the budget for primary healthcare
in Mozambique is $20 million a year; the budget for primary education
is $32 million a year.
(iv) Mozambique and bilateral debt cancellation
When Mozambique reaches decision point in the HIPC process
(scheduled, finally, for April 2000), bilateral debts for many
creditors will be reduced by 90 per cent. Creditors which have
gone further than this are:
UK: announced (29 February 2000) that it would take
no more debt repayments from Mozambique, following the floods,
and would be cancelling 100 per cent of Mozambique's debts in
April, at HIPC decision point.
Mozambique owes the UK £93 million (1999 figures: $150
million), and in the last financial year paid about £64,000
to the UK. Of the total owed, £90 million is owed to the
Export Credits Guarantee Department, and £3 million to the
Department for International Development (DFID debt is cancelled
as it becomes due).
Under HIPC agreements, this debt will be reduced to £10
million, and in line with Gordon Brown's 100 per cent announcement
just before Christmas, this last £10 million was due to be
written off in April, at the time that Mozambique gets extra relief
from the IMF.
US: on 7 March announced their intention to cancel
100 per cent of Mozambique's debts ($49 million). As with the
UK, this is just a confirmation of a position already decided.
In September 1999, Clinton promised to cancel 100 per cent of
debts as countries came through HIPC, which Mozambique is scheduled
to do in the next few months.
Finland and Germany have also formally announced
their intention to cancel 100 per cent of Mozambique's debts.
Italy: is due to cancel 100 per cent of Mozambique's
debts in April ($504 million), alongside the extra relief from
the IMF. Following a positive meeting on 23 February between Jubliee
2000's Ann Pettifor and Bono, the Italian premier Massimo D'Alema
promised to consider cancelling Mozambique's debt immediately.
Belgium and Spain have announced that they intend
to cancel all of Mozambique's concessional aid debts (about $0.4
million for Belgium, $30 million for Spain).
Portugal: announced an intention to cancel just 40
per cent of Mozambique's debt ($144 million of $364 million owed).
Jubilee 2000 considered this an inadequate response given that
Mozambique is a former Portuguese colony, and Portugal currently
holds the responsibility of the EU Presidency.
The World Bank and IMF have failed to respond. Under
increasing pressure, on 3 March they issued a release which said
the Boards were considering:
1. Accelerating loans to Mozambique; and
2. Frontloading debt relief so that Mozambique did not have
to make payments for about a year. The result of their suggestions
would be to simply delay payments postponing the problem, and
exacerbate the existing debt crisis by adding new loans.
(v) Madagascar's debt
Madagascar's total debt in 1998 was $4.1 billion. In 1980
Madagascar's debt was $1.25 billion, so it has more than tripled
since then. Fifty-three per cent of the (long-term) debt is bilateral,
45 per cent multilateral and 2 per cent private.
Debt service in 1998 was $233 million. The latest data on
education and health suggest that health spending is around $52
million and education $72 million. Debt service is therefore almost
twice combined spending on health and education.
The debt to exports ratio is 369 per cent, far above the
level considered sustainable by the IMF and World Bank.
In 1997 over 60 per cent of government revenue went in paying
debt service, yet this is a country where one in six children
do not reach their fifth birthday. Investment in infrastructure
is so low that many parts of the country are only accessible by
air during the rainy season.
Madagascar is a HIPC but it is not amongst those countries
expected to reach decision point in the initiative in the year
2000. On current reckoning it may have to wait until 2003 or beyond
before it receives full debt relief.
Jubilee 2000 Coalition
13 March 2000
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