Africa: Leaders Call For Faster Policy On Debt Relief

by Lewis Machipisa

Addis Ababa, May 11 -- When senior African policy makers recently met to review current efforts by creditor nations to reduce Africa's 350-billion-US-Dollar debt, the tone of discussion was not particularly diplomatic.

'Half-hearted and far from adequate', a 'choice between the devil and the deep blue sea', were some of the strong words used during the May 6-8 conference of African policy makers held in the Ethiopian capital of Addis Ababa.

Under review was the World Bank and the International Monetary Fund-led Highly Indebted Poor Countries (HIPC) initiative.

Acknowledging that HIPC is a step toward addressing the Africa's massive debt problem, Ethiopian Prime minister Meles Zenawi, said "practice has shown that the steps envisaged by the initiative are half-hearted and far from adequate."

According to Zenawi, the HIPC initiative is being used as a whip to enforce the 'Washington Consensus' policy.

"What I find most objectionable about this initiative and most of the other debt reduction initiatives, is that they are being used as the whip to enforce unquestioning acceptance of the economic orthodoxy - the so-called Washington consensus - that is being promoted by some international financial institutions," says Zenawi.

He says the failure of the policy in Africa over the past decade and half, and the recent crisis in Asia clearly suggests that it can and must be questioned.

"The choice which we are left under HIPC is thus to either abandon all independent and rational thinking in economic policy making or wallow in the quagmire of unsustainable debt," he says.

"It is a choice between the devil and deep blue sea. To use the whip of the debt over-hang to enforce this orthodoxy in debt- ridden countries, is in some ways tantamount to blackmail and is therefore both unviable and immoral," says Zenawi.

In 1996, the World Bank, IMF and major creditor nations recognised the seriousness of the debt crisis by launching HIPC. The initiative was a significant step that recognised the impossibility of resolving the crisis by just postponing payments or rescheduling. It was acknowledged that debt would have to be cancelled, including debt owed to multilateral themselves.

The current HIPC initiative, while an important instrument for delivering debt relief, African Finance ministers and those responsible for Economic and Social Development and Planning who met in Addis Ababa last week, complained that HIPC is too restrictive in its eligibility criteria and its technical basis for determining such eligibility.

When the HIPC was launched, the international financial institutions imposed rigid economic adjustment programmes as a condition for participation in HIPC. By September 1998, only eight countries, including five in Africa had qualified for debt relief adding up to 6.5 billion US Dollars. Uganda had some 650 million dollars in debt cancelled.

At the end of the conference, organised by the UN Economic Commission for Africa (ECA), on 'The Challenges of Financing Development in Africa', the ministers said in a statement that HIPC should be restructured to provide deeper, broader and faster relief with greatly relaxed eligibility criteria, greatly shortened period required to benefit under the initiative.

As a proportion of gross domestic product (GDP) and of export earnings, Africa's debt of 350 billion U.S. dollars in 1998 is the highest of any developing region.

According to the ECA, any credible solution to Africa's debt problems must entail substantial debt cancellation besides better debt management by Africa.

Said the statement: "What Africa needs is the release of more resources from debt servicing. Given the negative effects of debt burden on African economies and the need to release resources, the issue of debt should be discussed more fundamentally from a political dimension and the perspectives of Africa's development."

What particularly gives Africa the strength and moral ground to demand debt cancellation is the manner in which creditor nations dealt with other debtors in the past. In the 1960s Western countries capped Indonesia's repayments at six percent to reward the Surhato regime for the overthrow of its leftist predecessor.

After the 1991 Gulf War, the U.S. forgave seven billion dollars in military debts owed by Egypt. It is with this in mind African policy makers say it can be done.

James Shinn, the head of the American Observer Delegation at Addis Ababa conference, said his government now supports complete forgiveness of bilateral concessional loans, rather than rescheduling as is done at present; forgiveness of bilateral non- concessional loans up to 90 percent and in exceptional cases on a broader base of debt.

"We will seek international commitment to provide at least 90 percent of new development assistance to HIPC countries on a grant basis... There might be a deeper debt reduction in exceptional circumstances to those countries where it can make a real difference," said Shinn, who is also the U.S. ambassador to Ethiopia.

But "of course, no amount of debt relief can, by itself, generate sustained economic growth. It is up to each country to adopt the policies needed to create a climate attractive for investment and conducive to vibrant and sustained economic growth," Shinn said.

While the Netherlands said it agrees to deeper and faster debt relief, "the problem has been over the last years, who actually pays for debt relief?" asked Eveline Herfkens, Dutch minister for Development Cooperation.

"We have been listening the last few months with a lot of interest to all the speeches now being made by G-7 members (US, Germany, Italy, Canada, France, Japan, Britain) about the need for deeper faster, broader relief. Yes, we agree. But: where does the money to finance these initiatives come from ?" questioned Herfkins, whose country is the single largest donor to almost every multilateral trust funds.

Though many creditors, particularly multilateral institutions, are extremely sensitive about the idea of debt cancellation, a new initiative by G-7 creditor countries could result in a substantial debt cancellation for Africa,

Five variants of enhanced debt relief proposals have been put forward for consideration at the forthcoming G-7 meeting in June in Cologne, Germany. The proposals are aimed first and foremost at strengthening and accelerating the implementation of the HIPC initiative with a view to enabling as many countries as possible to make the necessary adjustments and receive debt relief quickly.

"The interim period up to debt relief should be shortened so that the countries qualifying for inclusion can benefit from debt cancellation as early as possible," said Wiltrup Holik, the German ambassador to Ethiopia.

In a way, the proposals represent a shift in the official position of the industrialised creditor countries, which hitherto rallied behind the existing mechanisms and terms of the HIPC, without entertaining pleas for their revision.

If adopted, the proposals could significantly reduce the waiting period before active debt relief is granted. For example, the German proposal would reduce it from six to three years and result in more countries becoming eligible for debt relief in contrast with the current HIPC process. (IPS)

The above article by the Inter Press Service appeared in the South-North Development Monitor(SUNS).

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