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OPEN LETTER FROM EURODAD TO OUR MINISTERS AND REPRESENTATIVES IN THE BOARDS OF THE WORLD BANK AND IMF


This is an open letter from the members of EURODAD (the European Network
on Debt and Development), who have been working together on the debt
crisis over the past ten years, and who have been instrumental in setting
up and supporting Jubilee 2000 campaigns for debt cancellation across the
world.

The year 2000 is ending - but the burdens of external debt carried by the
poorest nations continue to deprive them of the resources needed to fight
poverty. The Jubilee 2000 movement continues to bring together new
alliances of groups and individuals, particularly in the South, united
around the common goal of reducing poverty. This letter sets out what we
think has been achieved and what remains to be done.

We recognise that some parts of the international community have made
significant efforts to lessen the burden of external debt. Overall, it is
estimated that the HIPC Initiative will now deliver roughly $50 billion of
debt reduction in nominal terms. And as the latest analyses show, the
first eleven countries that made it to the Decision Point of the enhanced
HIPC Initiative will, for example, pay on average one third less in debt
servicing in 2001-2003 than they did in 1998-9.

This is certainly something. But it is not enough. Consider the following
facts:

- The probable total of twenty-two countries that will reach Decision
Point by the end of the year represents 60% of the number of countries
that are eligible for the HIPC Initiative. But the total NPV debt
reduction that these countries will actually receive represents just 12%
of the total NPV debt burden of the 41 HIPCs.

- The total amount of debt service reduction delivered by the HIPC
Initiative since its inception in 1996 amounts to approximately US$1.1
billion.  In that time, the 41 HIPC countries have paid a total of over
US$ 35 billion in debt servicing . Thus, the HIPC Initiative has managed
to reduce the total debt servicing burden of the HIPCs by a grand total of
just over 3% during the past four and a half years.

- For eight out of a sample of twelve countries, spending on debt
servicing in the three years after reaching Decision Point will on average
be greater than current spending on either education or health

It is clear that much remains to be done. Governments and institutions
around the world have committed to ambitious national and international
development goals, including a halving of poverty, by 2015. Debt
cancellation alone will not ensure success. But these targets are
certainly out of reach if there is not a sustainable end to the debt
crisis. As we move forward into 2001, we urge you to bear in mind the
following points:

ˇ The enhanced HIPC Initiative is inadequate. The current debt reduction
scheme still defines debt ‘sustainability’ in an entirely arbitrary
fashion, and does not deliver sufficient debt service reduction. Yet the
need for new resources in the least developed countries is growing, not
diminishing. Witness, for example, the devastating impact of HIV/AIDS in
sub-Saharan Africa. It simply does not make sense that sub-Saharan Africa
should be fighting HIV/AIDS with new loans from the World Bank whilst
continuing to pay debt service on old loans.

The concept of debt sustainability, and the mechanism for delivering debt
reduction, must be rethought, and urgently. If debt reduction is to
contribute to poverty reduction, then levels of poverty must themselves be
part of the determination of the levels of debt servicing that a country
can sustain. Many NGOs and academics have called for a ‘bottom-up’, human
development approach to debt sustainability, which would deliver debt
reduction that is much deeper and directly linked to resource
requirements.  From this human development perspective, it is clear that
some countries have no capacity whatsoever to service debt, and that they
will need all of their debt cancelled. In our view, creditor constraints
in financing deeper debt reduction have been overstated. The only
remaining obstacles are in cancelling multilateral development bank debt,
where more innovative uses of the institutions’ own resources are needed.
The true obstacles to further debt reduction are political, not financial.

ˇ Moreover, the solution to the debt crisis must be a permanent and
realistic one: debt reduction efforts must not just deliver short-term
reductions in debt servicing, followed by a reversion to a rising trend.
For example, debt servicing for the first eleven countries to reach
Decision Point will jump by 20% on average in 2004-5, as compared to
2001-3.

This might be reasonable if economic output was also to increase by the
same amount. But, given current economic conditions, particularly in
commodity markets, this is very unlikely to happen. Debt reduction based
on unreasonable conjecture will once again fail to deliver a sustainable
solution.

At the same time, it must be remembered that the HIPC Initiative will
only free up resources for poverty reduction if countries continue to
borrow as much as they did before reaching Decision Point. Thus, debt
burdens are likely to start rising again after countries reach Completion
Point.  A sustainable end to the debt crisis must also consider the impact
of future borrowing trends, as well as bearing in mind that creditors
share co-responsibility for inappropriate past lending to corrupt
governments, where poor people derived no benefit, but still bear the
brunt of the repayment efforts.

ˇ Debt reduction must be additional to existing ODA flows. There is
concern that some bilateral donors are giving with one hand, but taking
away with the other, as existing ODA budgets are used to fund debt
cancellation commitments. This practice threatens to undermine the whole
premise of debt reduction, and must end.

ˇ The 41 HIPC countries are not the only ones where the constraints of
servicing external debt have profound implications for poverty. Many other
SILICs and SIMICs, such as Haiti and Nigeria, face similar debt problems.
Whilst some of these countries are able to benefit from some debt
reduction through traditional mechanisms, they also face severe poverty
problems. The impact of debt burdens on social sector spending must not be
forgotten, and coverage for future debt reduction schemes must be
extended.

ˇ Recipients of debt reduction also have responsibilities: any resources
freed up by debt reduction must be channelled to poverty reduction and
social sector expenditures. This has always been the raison d’tre of debt
reduction.

Country governments should be encouraged to devise ways of channelling
debt reduction resources for poverty reduction in ways that:
- Are effective and transparent (for example, additional to existing
social sector budgetary spending, so as to avoid problems of fungibility)
- Have positive impact on the lives of poor people
- Are monitorable, particularly by the poor themselves

Country innovation in developing these types of mechanisms, incorporating
a broad-based participation of civil society such as in Uganda’s Poverty
Action Fund, should be encouraged.

ˇ The I-PRSP linkage between the HIPC Initiative framework and
country-owned Poverty Reduction Strategies has proved inadequate. It has
actually drawn attention away from the need to ensure that debt reduction
proceeds flow to poverty reducing measures. A better solution would be to
make debt reduction initiatives and PRS processes parallel at this early
stage. Countries that develop explicit, suitable and monitorable debt
reduction spending plans would be immediately eligible for debt reduction;
continued IFI financing would be contingent on the basis of continued
progress in developing broader poverty reduction strategies, and
transparent budget processes  over the next 3-5 years. On this latter
point, we will be pushing hard to ensure that these new poverty reduction
strategies are country-owned and participatory in all aspects, and differ
from structural adjustment programmes of old by truly prioritising the
needs of the poor. Moreover, transparency is not a one-way street:
creditors themselves still have further to go in making available all
information on loans to, and programmes in, developing countries.

ˇ There is a need to remove other external constraints to poverty
reduction and sustainable development in low income countries. There is,
for example, an inextricable link between trade and debt. Many low income
countries, facing adverse terms of trade, have built up significant
current account deficits. These are financed externally - resulting in
greater debt burdens. Low-income countries must have unimpeded foreign
market access for their exports.

Our organisations will continue to lobby and campaign on these issues in
the months and years ahead. We will in particular focus on the upcoming G7
Summit in Genoa as an opportunity for the international community to at
last come up with a lasting solution to the ongoing debt crisis.

Yours sincerely,


Ted van Hees
EURODAD Co-ordinator


Endorsed by the following members of the European Network on Debt and
Development:


Jubilee 2000 Austria, Austria
OEFSE (Michael Obrovsky), Austria
11.11.11, Belgium
Broederlijk Delen, Belgium
IBIS, Denmark
KEPA, Finland
Agir Ici, France
Campagne “Par l’An 2000: annulons la dette”, France
WEED, Germany
Jesuits for Debt Relief and Development, Ireland
Cordaid, The Netherlands
WEMOS, The Netherlands
Intermon, Spain
Forum Syd, Sweden
Swiss Coalition of Development Organisations, Switzerland
CAFOD, UK
Christian Aid, UK
Save the Children Fund UK, UK
World Development Movement, UK

Also endorsed by Oxfam International as an affiliated network.

 


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