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Mozambique debt update - June 1998 (fwd)
A very incisive analysis of IMF "debt relief," in one of the world's
poorest countries.
Robert Weissman
Essential Information | Internet: rob@essential.org
---------- Forwarded message ----------
Date: Wed, 03 Jun 1998 20:14:32 +0100
From: Joe Hanlon <J.Hanlon@open.ac.uk>
To: service.portugais@rfi.fr
Subject: Mozambique debt update - June 1998
New official data shows
-----------------------
MOZAMBIQUE GAINS
LITTLE OR NOTHING
FROM DEBT 'RELIEF
By Joseph Hanlon, 4 June 1998
New figures confirm that Mozambique gained little or nothing from the
highly publicised debt "relief" granted on 7 April 1998. The poorest
country in the world will continue to spend as much on debt service
payments as on health and education - with the result that high child
mortality will continue and primary education for all will be deferred
again.
Debt relief is surrounded by hype and secrecy; the World Bank and
International Monetary Fund (IMF) make exaggerated claims but refuse to
release details. In May the British Treasury finally released figures for
Mozambique. Responding to this and pressure from the Jubilee 2000
Coalition, the IMF then released figures of its own. The two sets of
figures do not agree, but both show how little Mozambique actually gained.
British Treasury figures show Mozambique gains nothing at all, while IMF
figures claim Mozambique gains 80 US cents (US$ 0.80, UK pounds 0.49) per
person per year - far below earlier claims.
The Bank and Fund were particularly proud of the debt "relief" granted to
Mozambique on 7 April under the Heavily Indebted Poor Countries (HIPC)
Initiative. In its press statement the World Bank said the deal would
"free budgetary resources and allow Mozambique to broaden the scope of its
development effort." Others have stressed that it would release vital
money for health, education and clean water. It is now clear that this is
completely false. But it has taken an extended campaign to force the Fund
to release data which confirm this. (This story is reported below; summary
figures are given at the end of this article.)
The World Bank calls Mozambique the poorest country in the world, and it
was seen as a test case for HIPC. The deal took more than a year of
intense negotiation; it was bitterly fought by Germany and was only
reached because Brazil and Britain each put in an extra $10 million. Now,
Mozambique provides clear evidence that the debt "relief" now on offer is
insufficient.
Speaking at the 1998 Southern Africa Economic Summit in Windhoek, Namibia,
on 17 May, Mozambique's President Joaquim Chissano said creditor nations
should cancel the debt of the poorest, most indebted countries; he called
for united African pressure for debt cancellation.
DEBT KILLS
The IMF says that Mozambique has been spending more on debt service than
it spent on health and education. Debt service during 1995-97 averaged
$7.45 per person per year; health and education spending was $5.04
according to the government or $6.76 according to the IMF.
After debt "relief", Mozambique will continue to spend as much on debt
service as on health and education combined. As we have seen, precise
figures are not available, but health and education spending should rise
to $5.57 (government) or $7.46 (IMF estimate) per person, while debt
service payments will be $6.02 (IMF estimate) or $6.82 (British Treasury
estimate).
If just half of the debt service payments were spent on health and
education, it would save the lives of more than 300 children each day; 16
fewer women a day would die in childbirth.
This is based on the following calculation. The United Nations Development
Programme "Human Development Report 1996" (page 113) says "A 1 percentage
point increase in average share of GDP invested in health and education is
estimated to reduce .. the child mortality rate by 24 percentage points."
In simple terms, increasing spending on health and education by 2.5% of
GDP halves child mortality. We assume a similar fall for material
mortality. Mozambique's debt service is over 6% of GDP, so turning half of
that to health and education would surely halve child and maternal
mortality. That would save the lives each year of 115,000 children and
6000 mothers giving birth.
Donor governments put much emphasis on the need for education. Yet
Mozambique has had to defer the introduction of primary education for all
until the year 2010, because, says the Ministry of Education, money is
being diverted away from teachers' salaries and toward debt service.
(Noticias, Maputo, 16 March 1998).
IMF SECRECY: KEEPING THEIR
OWN DIRECTORS IN THE DARK
The whole HIPC process is surrounded by secrecy and confusion. It is often
said that IMF and World Bank staff treat their directors like mushrooms -
keep them in the dark and cover them in rubbish. It took a month-long
campaign by the Jubilee 2000 Coalition to force the publication of useful
figures.
In a paper issued in January, the IMF's Anthony Boote says that "scheduled
debt service is a misleading indicator in countries like Mozambique ... A
more meaningful measure is the actual debt service paid." Incredibly, the
"Final HIPC Document" approved by Bank and Fund executive directors on 7
April did not contain a comparison of actual debt service payments before
and after HIPC, nor did it contain sufficient figures to allow directors
to calculate this. Bank and Fund executive directors were kept in the dark
about the "more meaningful measure"; they were only shown a confusing
graph and dazzled by large numbers for what Boote himself calls a
"misleading indicator". Executive directors approved the deal because
staff told them it was good; they had no way to make an informed
judgement.
Initially, the Bank and Fund refused to release figures, but the Jubilee
2000 Coalition was able to use other confidential IMF tables to estimate
debt service paid before and after HIPC. Publication of this estimate
triggered a month of correspondence. The IMF sent one set of figures to
the Jubilee 2000 Coalition on 1 May, but when it published a report on
these figures, Anthony Boote of the IMF wrote to the Jubilee 2000
Coalition that it was "confused" because it had assumed that what Boote
listed as "debt service paid" actually meant "debt service paid".
In mid-May, two further and conflicting sets of figures were released. On
12 May the British Treasury released figures on debt service to be paid,
which were similar to the first IMF figures and which showed that
post-HIPC debt service payments were identical to the pre-HIPC ones,
averaging $113 million per year. Two days later the IMF took the
unprecedented step of putting a different set of figures on its web site -
because, it said, "various commentators have criticized the assistance to
be provided under the HIPC Initiative to Mozambique". The IMF figures show
a fall from $113 million per year pre-HIPC to $100 million per year
post-HIPC. The IMF made great play that actual debt service will be $70
million less than scheduled debt service - exactly the comparison which
its own Anthony Boote said was "misleading".
The Jubilee 2000 Coalition considers both the British Treasury and the IMF
figures to be "official" figures, and both are used in its calculations.
CRUEL HOAX
Mozambique shows that the entire HIPC exercise is a cruel hoax on the
poorest. It has been hugely promoted as an "exit" from the debt trap,
which it is not.
Instead, HIPC is a very elaborate accounting exercise. Poor countries have
been paying only a small portion of the debt service (interest and
repayments) actually due. HIPC is designed to cancel that part of the debt
which is not being paid and never would be, and to ensure the debtors pay
promptly on the rest. Substantial amounts of debt have been cancelled - in
Mozambique's case an estimated $1.4 billion under HIPC - but this is a
meaningless number, because these debts would never have been paid.
Mozambique would have more chance of sending a football team to France for
the World Cup than paying those debts. So numbers for cancelled debts are
like the number of goals Mozambique might have scored in France this year.
As the IMF's own Anthony Boote wrote: "Scheduled debt service is a
misleading indicator".
HIPC is based on a concept of "sustainability" which is defined as the
level that a country can pay without defaulting. In practice, this is the
level that the country has already been paying - so it is not surprising
that Mozambicans gain little or nothing.
The official definition of "sustainable" has no link to what the country
needs for development. Instead, the World Bank says that debt service is
"sustainable" if it is between 20% and 25% of exports. For Mozambique, the
IMF predicts that debt service post-HIPC will fall to 11% of exports in
the year 2001.That seems a good deal until two points are considered:
+ First, the IMF assumes Mozambique's exports will double by 2001.
Mozambican officials think this highly unlikely; they actually predict a
short term fall in export earnings because of falling commodity prices.
The real debt service will surely be above 16% of exports.
+ Second, this ratio should be compared to debt relief given to Germany
after World War II. The allies demanded a 10% debt-service-to-export-ratio
(half the HIPC level), but German negotiators used development and
reconstruction criteria to argue 10% was unsustainable. In the final
London Agreement of 1953, the debt service ratio was set at 3.5%.
The wisdom of massive debt relief is clear - it formed one basis of the
German economic miracle. Yet Germany has consistently been the strongest
opponent of improving on the present level of debt relief. At the G8
meeting in Birmingham, England, on 16 May, it blocked attempts to improve
on HIPC. In negotiations over Mozambique, it refused to go the last step;
Britain and Brazil were forced to provide an extra $10 million each, which
was effectively aid to Germany (not to Mozambique). Yet Germany was
objecting to Mozambique's debt service payments being brought down to ONLY
four times what Germany paid after the London agreement.
Mozambique is also a post-war country, which suffered $20 billion damage
at the hands of an apartheid South Africa which had been backed by German
banks and companies. Despite being repeatedly questioned on the subject,
the German government refuses to explain if it was wrong 45 years ago to
say that 10% was unsustainable, and if not, why it considers Mozambique to
be so different from itself.
=========
SUMMARY OF THREE
DIFFERENT SETS OF
OFFICIAL FIGURES
FOR DEBT SERVICE PAID
[More detailed figures will available after 6 June on the Jubilee 2000 web
site: http://www.oneworld.org/jubilee2000.
The IMF's figures are on their web site:
http://www.imf.org]
----> The table below will line up correctly if you put it in a typewriter
font that is NOT variable spaced, such as Courier, Monaco, or TTY.
BEFORE HIPC:
-----------
Year (1) (2) (4)
1995 111.7 112 111.7
1996 131.2 131 131.2
1997 96.7 97 96.7
average 113.2 113.3 113.2
AFTER HIPC:
-----------
Year (1) (3) (5)
1998 124.1 124 108.5
1999 148.6 147 95.7
2000 96.9 97 96.9
2001 100.9 101 100.9
2002 96.6 97 96.6
average 113.4 113.2 99.7
SOURCES:
(1) "Debt service paid" in an IMF e-mail to the Jubilee 2000 Coalition on
1 May 1998. (A subsequent letter said that "debt service paid" did not
actually mean "debt service paid" for some years!)
(2) "Debt service paid" in a 12 May 1998 British Treasury answer to a
parliamentary question.
(3) "Debt service that Mozambique will have to pay after receiving debt
releif under ... HIPC" in a 12 May 1998 British Treasury answer to a
parliamentary question.
(4) "Debt service paid before HIPC" in a table put on the IMF web site on
14 May 1998.
(5) "Debt service payable after HIPC" in a table put on the IMF web site
on 14 May 1998.
Health and education spending figures come from "Mozambique: Spending on
debt service, health and education", IMF, January 1998.
By Joseph Hanlon, 4 June 1998
Dr Joseph Hanlon is policy officer of the Jubilee 2000 Coalition, author
of "Peace without profit: How the IMF blocks rebuilding in Mozambique",
and a visiting senior research fellow at the Open University, Milton
Keynes, England.
Contact:
j.hanlon@open.ac.uk
or
jhanlon@jubilee2000uk.org