32 Assistance to the Democratic Republic
of Congo
| (24685)
10920/03
COM(03) 367
| Draft Council Decision on the reallocation to cooperation operations in the Democratic Republic of Congo (DRC) of payments made by the DRC in respect of special loans and of the proceeds and income from risk capital operations in the DRC under the 2nd, 3rd, 4th, 5th and 6th EDFs.
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| Legal base | Article 7(1) of the Internal Agreement under the Financial Protocol of the Cotonou Agreement; unanimity
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| Document originated | 23 June 2003
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| Deposited in Parliament | 1 July 2003
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| Department | International Development
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| Basis of consideration | EM of 10 September 2003
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| Previous Committee Report | None
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| To be discussed in Council | No date set
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| Committee's assessment | Politically important
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| Committee's decision | Cleared
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Background
32.1 Following several years of conflict, the Democratic Republic
of Congo (DRC) has, since 2001, made considerable progress towards
the establishment of peace and economic stability. New macro-economic
programmes have been agreed with the international community.
The country now needs to return to sustainable growth and address
the poverty that affects more than 80% of the population.
32.2 The DRC's external debt burden is significant,
amounting at 31 December 2001 to US$ 13,729 billion, of which
US$10 billion was accumulated arrears. In 2002, the DRC's principal
creditors, namely the International Monetary Fund, the World Bank,
the African Development Bank (AfDB) and members of the Paris Club,
agreed to reduce significantly or write-off these arrears. This
enabled the international financial institutions to renew assistance
to the DRC and to allow it to be considered for 'fast-track' access
to the Heavily Indebted Poor Countries (HIPC) Initiative, which
is crucial to the country's continued economic recovery.
32.3 In order not to undermine the DRC's qualification
for HIPC assistance, arrears on European Development Fund (EDF)
loans financed from EDF resources, estimated to be 105 million,
needed to be addressed. In exploring options, the European Commission
was mindful of the need to safeguard the Community's preferred
creditor status, which would be affected if the loans were cancelled
or rescheduled. Following discussions, the DRC Government asked
the Commission to use €105 million from its allocation under
the 9th replenishment of the EDF to meet these arrears.
This has, however, dramatically reduced funding available for
other planned priority activities supporting the process of political
transition, including the holding of elections, demobilization
of the army and reform of the civil service.
32.4 The Cotonou Agreement, governing the operation
of the EDF, does not permit increases in country allocations
until a mid-term review covering all African, Caribbean and Pacific
(ACP) countries, scheduled for late 2004/mid-2005, has been undertaken.
Therefore, the Commission proposes to finance these other priority
activities by retaining the arrears paid on the debt rather than
returning it back to Member States as would normally occur.
The draft Decision
32.5 The then Secretary of State for International
Development (Baroness Amos) comments in her Explanatory Memorandum
of 10 September that the Government supports the proposal as a
major contribution to peace and stability in the region in line
with UK objectives. Clearance of the DRC's arrears will enable
it to benefit from access to the HIPC relief at an early stage.
She says that the Government believes it is equally important
to support the process of political transition in the country.
32.6 The Commission has confirmed that this is an
exceptional proposal and, as such, does not establish a precedent.
32.7 The Minister says that the UK's share of the
arrears is €15.3 million. She adds that the Treasury and
the Foreign and Commonwealth Office have been consulted on the
position to be taken by the UK on the proposal.
Conclusion
32.8 We report on this proposal as it is exceptional,
and to record that the Commission has confirmed that it does not
establish a precedent.
32.9 We clear the document, but ask to be informed
if any substantial amendments are made to the proposal before
it is adopted.
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