African Unification Front
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Review of the debt outcomes at the LDC III Conference
Even though it had been agreed that the Third Conference on the Least Developed Countries, hosted in Brussels on the 14 to 20 of May, 2001, was to be focused on producing 'deliverables', the participant governments failed to commit to any significant breakthrough on the alleviation of LDCs debt burdens.
The following is the full text of what has been agreed at the conference on debt issues (to be found in the draft programme of action):
"(a) Effectively implementing the enhanced HIPC Initiative and providing adequate financial resources expeditiously for the speedy and full implementation of the enhanced HIPC Initiative and provide new and additional resources necessary to fulfil the future financial requirements of the enhanced HIPC Initiative, on the basis of fair and equitable burden-sharing;
(b) Encouraging Non-Paris Club official creditors to participate in debt relief measures to assist LDCs;
(c) Making expeditious progress towards full cancellation, in the context of enhanced HIPC, of outstanding official bilateral debt owed by HIPC LDCs;
(d) Implementing the enhanced programme of debt relief for the heavily indebted poor countries without further delay and agreeing to cancel all official bilateral debts of those countries in return for their making demonstrable commitments to poverty eradication;
(e) Writing off multilateral debt in the context of the enhanced HIPC for LDCs that are HIPCs should be a high priority and mobilising sufficient resources for this purpose;
(f) Considering on a case by case basis debt relief measures for LDCs which are not HIPCs as an integral part of development processes;
(g) Providing debt relief to post conflict countries under the enhanced HIPC as soon as possible, within the flexibility provided under the HIPC framework;
(h) Encouraging creditors in a position to do so to consider a moratorium on debt service payments for LDCs in exceptional cases.
(i)Reviewing and continuing to monitor LDCs’ debt sustainability in the appropriate fora on the basis of objective criteria and transparent analysis".
These commitments have been summarised in a "draft declaration of action", where a paragraph has focused on debt issues:
"We are concerned with the external debt overhang that affects most LDCs and remains a main obstacle to their development. We affirm the commitment to provide the full financing and the speedy and effective implementation of the enhanced HIPC Initiative, which is essential for freeing domestic budgetary resources for poverty reduction. We undertake to make expeditious progress towards full cancellation of outstanding official bilateral debt within the context of the enhanced HIPC Initiative. We also undertake to provide debt relief to post conflict countries within the flexibility provided under the HIPC framework. The debt sustainability of LDCs, including non-HIPC LDCs, will continue to be subject to review, and consideration may be given to granting a moratorium on debt service payments in exceptional cases".
The full text version of these documents can be found online at : http://www.un.org/events/ldc3/conference/
The following are Eurodad's comments on the lack of progress made at the conference:
No commitment to move beyond the HIPC framework
The demand from the NGO community to cancel full LDC debt was rejected. The draft declaration of action stipulated instead that participants "undertake to make expeditious progress towards full cancellation of outstanding official bilateral debt within the context of the enhanced HIPC Initiative." This sentence is ambiguous, because the current HIPC Initiative commits creditors to cancel 90% of eligible Paris Club debt. Thus, encouragement of "full bilateral cancellation" would be a small step forward beyond the current HIPC Initiative. However, there is again a predominant emphasis that debt reduction should be undertaken within the context of the HIPC Initiative.
Meanwhile, on the issue of multilateral debt, nothing new has been proposed.
One area where there is a possibility of progress is on expanding the coverage of debt reduction efforts. The draft programme of action stresses that "action should be undertaken in considering on a case by case basis debt relief measures for LDCs which are not HIPCs as an integral part of development processes." However, at the moment, non-HIPC IDA countries are eligible for Paris Club debt rescheduling (67% reduction of eligible debt in NPV terms). It is unclear whether the text implies going beyond this.
This lack of progress is clearly disappointing. As Eurodad has argued in its paper 'Debt Reduction for Poverty Eradication in the LDCs', the HIPC Initiative is not likely to reach its goal, and the debt reduction on offer probably is too small for HIPC-LDCs. It is also argued in the paper that many LDCs, which are considered to have unsustainable debt under a sustainable development approach to debt sustainability, are not part of the HIPC initiative and should be included (see Eurodad article below).
A more crucial problem regarding countries that are victims of exceptional circumstances (such as post-conflict countries) is the fact that most post-conflict countries have to wait much too long before receiving debt relief. The main problem is that most countries cannot receive 'normal' support, as both the Bank and the Fund cannot issue new loans to countries that are in arrears. A solution in this respect would be for instance to cancel those arrears. But here again, nothing concrete has been proposed to solve the problem. A sentence in the draft programme of action makes clear that there is currently no willingness to move beyond the HIPC framework in this regard: "Action should be made in providing debt relief to post conflict countries under the enhanced HIPC as soon as possible, within the flexibility provided under the HIPC framework."
A decision to grant a moratorium on debt service in 'exceptional cases'
Much noise was made about the decision to grant a moratorium on debt service payments in exceptional cases (for countries plagued by civil wars, floods and natural disasters). The draft declaration of action mentions that the debt sustainability of LDCs, including non-HIPC LDCs, will continue to be subject to review, and consideration may be given to granting a moratorium on debt service payments in exceptional cases. However, there is nothing really new in this commitment. Countries such as Honduras and Nicaragua have already been granted a limited moratorium on their bilateral debt following Hurricane Mitch in late 1998. What is needed is a quicker and more comprehensive debt relief moratorium mechanism, including multilateral debt, as soon as countries are the victims of such natural disasters. This is the quickest and most efficient way to release much-needed resources to devastated economies.
One concrete (albeit minor) proposal: the 80 million euro debt cancellation by the EU
The EU announced at the conference that it will forgive all outstanding LDC obligations arising from special loans provided under earlier Lomé conventions. But this new initiative will cancel debts with a nominal value of only 80 million euro. Some policy makers, such as Romano Prodi, attempted to conflate this small gesture with last year's decision by members states to donate nearly 1 billion euro of undisbursed EDF funds to the World Bank HIPC Trust Fund. This however was a separate decision that had already been approved the previous year.
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printable version
