[stop-imf] ALERT: Push G7 to Replace HIPC Debt Program
Robert Weissman
rob@essential.org
Thu, 16 May 2002 14:12:17 -0700
From: "50 Years Is Enough Network" <list@50years.org>
ALERT: CONTRADICTIONS MOUNT TO DISCREDIT IMF/WB DEBT
MANAGEMENT SCHEME [HIPC]
Public Pressure Now Could Change
How the World Deals with Debt
In 1996, at the time the Jubilee 2000 campaigns for debt
cancellation were gathering steam, the IMF and World Bank
launched a “debt relief” program called the
Heavily Indebted
Poor Countries Initiative (HIPC). The 50 Years Is Enough
Network criticized the program, calling it a debt
management
program designed less to alleviate burdens on impoverished
countries than to prevent them from opting out of the
creditor-controlled global economic system altogether by
promising just enough relief to entice Finance Ministries
to
commit to several more years of structural adjustment
programs (and, of course, to paying that portion of their
debts determined by the institutions to be
“sustainable”).
We have pointed out the delays in getting benefits from
the
program, the meagre size of the benefits, the conditions
attached to them, the constricted list of eligible
countries, and the fact that the IMF and World Bank are
not
forced to take any loss but instead get paid
dollar-for-dollar out of donor-supplied trust funds.
We have also acknowledged that the relief that countries
do
get out of HIPC -- even if only four or five have received
anything in the six years since the program’s debut
--- can
make a positive difference. The argument we have made is
that measured against the medium and long term harm done
by
committing to further structural adjustment, in most
countries the population would be better off if their
governments resisted the temptations of HIPC. We continue
to
believe that when the scandalous facts of international
debt
are more widely understood, the governments and
institutions
which enforce the current system will be forced to step
back
and make changes in the outrageously discriminatory
structure of the global economic system.
We may now be coming closer to that day. At the April
meetings of the IMF and World Bank boards, the Bank issued
a
report which acknowledged the serious shortcomings of the
HIPC program, even as measured by its own standards. After
fulfilling a promise to get at least 20 countries into the
program by the end of 2000, the institutions are now
letting
the other proverbial shoe drop: they have declared at
least
nine of them “off track” on their existing IMF
programs, and
therefore ineligible for the interim relief that was added
to HIPC thorugh intense public pressure in 1999.
The reasons the IMF gives for this vary from country to
country. Some are not privatizing fast enough. Some have
“governance” (i.e. corruption) problems. Some
are not
meeting budget deficit targets. In the potentially most
scandalous instance, Malawi has been declared off-track on
governance grounds: the proceeds from the IMF-ordered sale
of their grain reserves have gone missing. In the
meantime,
the real scandal in Malawi is that the IMF ordered that
sale, and then prevented the government from replenishing
its stocks, sending food prices skyrocketing. Malawi is
now
facing a very serious famine, with some reports indicating
that up to 10,000 people may already have starved to
death.
In addition, the report finds that many of the HIPC
countries will not attain "sustainable" debt levels even
by the WB's own very constricted standards once they've
gone through the program. Uganda has now, for the second
time, seen its debt reach "unsustainability" because of
overly optimistic projects about the price of coffee.
Below are several items: 1. An alert issued by the Social
Justice Committee (Canada) which calls for people to
contact
their finance ministries (in the U.S., the Treasury
Department) and advocate that they agree to Canadian
Finance
Minister Paul Martin’s demand for an investigation
into how
HIPC is working at the meeting of G-7 Finance Ministers in
mid-June, ahead of the G-7 summit. These G-7 events are a
good opportunity to affect the debate on debt and the
global
economy, since the G-7 basically controls the IMF and
World
Bank. The summit of heads of government occurs at the end
of
June in Alberta. ***In the U.S., contact Treasury
Secretary
Paul O’Neill at: 1500 Pennsylvania Ave, N.W. -
Washington DC
20220. Telephone: 202/622-0190; fax: 202/622-0073.***
2. An article on Paul Martin’s initiative.
3. A summary of a report issued by Jubilee Plus (U.K.) on
the WB’s report on HIPC. It goes into more detail
and picks
out several of the most scandalous admissions (or
near-admissions) of the program’s inadequacy.
=============
Action alert on HIPC conditionalities - Social
Justice Committee (Canada)
Dear friends and colleagues,
The Canadian Finance Minister has called for a review of
HIPC, out of a frustration with delays and the inadequacy
of debt relief (see below). If there is sufficient
support, there may even be a push to get rid of SAP
conditions at the G7 meeting of Finance Ministers in
Canada 14-15 June. However, there is little support for
this in the G7, except perhaps Canada and the UK.
The Social Justice Committee urges you to contact G7
Finance Ministries, and push for the removal of
conditionalities from the HIPC Initiative. Please ask for
a
clear statement to that effect at the G7 meeting.
***In the U.S., contact Treasury Secretary Paul
O’Neill at: 1500 Pennsylvania Ave, N.W. - Washington
DC 20220. telephone: 202/622-0190; fax: 202/622-0073.***
You may wish to note in your communications that:
* only five countries have completed the HIPC program
since 1996.
* Interim relief at Decision Point provides perhaps 10%
what was promised.
* Debt relief at Completion Point is not adequate at best,
and is miserly given recent economic shocks.
* People of sub-Sahara Africa and Central America are
trying to cope with persistent drought and food crop
failure; millions are facing starvation in southern
Africa.
* The World Bank continues to refuse 100% cancellation;
about one-third of debt service to the World Bank is
interest payments to IBRD.
The G7 promised to provide "to enable Heavily Indebted
Poor
Countries to receive deeper, broader and faster debt
relief
in return for firm commitments to channel the benefits
into
improving the lives of all of their people." (Cologne,
1999)
HIPC countries have done this, but still have to follow
standard IMF/World Bank conditionalities: deregulate and
privatize, cut public spending and chop the public sector
if
they want the little the HIPC Initiative has to offer.
The coming G7 meeting of Finance Ministers give us a
chance to get rid of these conditions. I sincerely hope
you will
communicate this to G7 Finance Ministers. (This message is
going to many people who are not living in G7 countries.
Our
hope is that you too will speak up, and communicate your
thoughts to the G7.)
Derek MacCuish Social Justice Committee, Montreal
***In the U.S., contact Treasury Secretary Paul
O’Neill at: 1500 Pennsylvania Ave, N.W. - Washington
DC 20220. Telephone: 202/622-0190; fax:202/622-0073.***
***********
Ottawa, April 19, 2002 2002-032
Minister Martin Calls for HIPC Program Review
Finance Minister Paul Martin today called on G-7 countries
to launch an immediate review of the process that provides
debt relief to heavily indebted poor countries (HIPCs).
The Minister’s concern arises from a joint review by
the International Monetary Fund (IMF) and the World Bank,
which found that not enough poor countries taking part in
the HIPC process are achieving manageable levels of debt.
"HIPC has made good progress, but these findings underline
the need for an immediate review of the process," Minister
Martin said. "We need to know whether the HIPC Initiative
is indeed delivering debt sustainability and, if not, why
not."
Among the Minister’s concerns found in the IMF/World
Bank review are:
• the higher-than-anticipated cost of ensuring that
countries are sustainable when they get through the
process;
• the lack of realistic assumptions underlying the
debt
sustainability analysis;
• the failure of some bilaterals to participate in
the Initiative;
• there are cases where the claims of non-Paris Club
creditors were bought on the secondary market at a
discount by commercial creditors that have then sought
full payment through the courts; and
• the fact that debt management capacity in many
HIPCs should be enhanced.
The IMF and World Bank launched the HIPC Initiative in
September 1996. Its goal is to provide debt relief to some
of the world’s poorest countries, enabling
them to direct resources out of debt servicing and into
vital social areas, such as health, education and poverty
reduction.
Since the launch of the Initiative, Canada has been a
strong advocate of accelerating debt relief for the
world’s poorest countries. It is widely recognized
that the
debt burdens of low-income countries are a major barrier
to
development, growth and poverty reduction.
"If there are problems with the HIPC process, it is
critical that the G-7 countries take the lead in finding
the solutions," the Minister said.
===========
New World Bank Reports Confirm that the HIPC Initiative is
Failing By Romilly Greenhill, Jubilee Research 29th April
2002
[Excerpts only, full report at:
http://www.jubilee2000uk.org/analysis/articles/hipc290402.htm]
1. Introduction
In two new reports issued by the World Bank in time for
the
recent IMF and World Bank Spring Meetings, the World Bank
has admitted that its own Heavily Indebted Poor Countries
(HIPC) Initiative is failing.
The two reports from the World Bank show that:
* Of the 5 countries already at Completion Point, at least
2
of these do not have sustainable levels of debt according
to
the HIPC criteria.
* Of the 21 countries which are currently between Decision
Point and Completion Point under the Initiative, at least
8-10 countries will not have sustainable levels of debt at
Completion Point, according to the same criteria.
* Of the same group of countries, 9 have had their interim
relief from the IMF suspended due to failure to stay `on
track' with IMF supported Poverty Reduction and Growth
Facility (PRGF) programmes. These countries are supposed
to
receive interim relief on their debt service between
Decision Point and Completion Point.
* There have even been delays in providing interim debt
service relief for some countries which are entitled to
this
relief and are `on track' with IMF programmes.
In this paper, we examine the two World Bank reports in
detail, and provide an overall assessment of how the HIPC
initiative is measuring up to the Bank's own criteria. We
find that the World Bank's own assessment shows that 31
out
of the 42 countries within the HIPC initiative are being
failed by the process - even according to the World Bank
criteria.
2. Debt sustainability threatened.
Under the Heavily Indebted Poor Countries (HIPC)
initiative,
debt sustainability is measured for most countries by
comparing total debt in net present value terms to a
country's total exports. When the total stock of debt is
more than one and half times the value of exports, the
country is deemed to have an `unsustainable' level of
debt.
Under the HIPC initiative, debt relief is provided by both
multilateral and bilateral creditors to bring down the
total
stock of debt to within `sustainable' levels.
Jubilee Research and other NGOs have repeatedly charged
that
the export projections used by the World Bank and IMF to
calculate the amount of debt relief that will be needed
have
been overly optimistic, and that such optimism has been
used
by the creditors to limit their own contribution to the
initiative. For example, for the first 24 HIPCs to reach
Decision Point, the average growth in exports for 2001 was
projected to be 11.6%. This is an extremely high figure,
and
bears little resemblance to the historical trend of the
HIPC
countries. In fact, since 1965 annual export growth for
low
income countries has been less than one third of this
level.
It comes as no surprise, therefore, to learn that the
actual
export growth for these 24 countries during 2001 was less
than half the World Bank's projected level, at 5.1%.
As a result of this shortfall, the average ratio of debt
to
exports in 2001 for the 24 countries considered is now
estimated to have been a staggering 280%, almost twice the
levels deemed `sustainable' by the World Bank and IMF.
Even
the four countries which had already passed Completion
Point
are estimated to have an NPV of debt to export ratio of
156%. In total, 8 to 10 of the 20 countries which were
between Decision Point and Completion Point at the time of
writing can no longer expected to have a NPV of debt to
exports at Completion Point of less than 150% (Benin,
Burkina Faso, Chad, Ethiopia, The Gambia, Guinea-Bissau,
Malawi, Rwanda, Senegal, and Zambia.)
In their report, the World Bank almost admits that their
export projections were overly optimistic, noting that
`long
term economic forecasts.. depend critically on the
underlying assumptions especially on the future course of
government policies as well as external market
conditions.'
But they excuse their dramatic failure to provide accurate
projections on the grounds that the assumptions were
`based
on policy scenarios and thus predicated upon the
successful
implementation of a comprehensive set of economic and
structural reforms.' In other words, if the projections
fail, the country is itself to blame for not undertaking
sufficiently thorough `structural reforms.' ... this view
simply does not meet the reality.
Firstly, as the World Bank acknowledges, much of the
shortfall in exports has been caused by dramatic falls in
commodity prices over 2000-01, particularly for coffee and
cotton (which fell by 60% and 10% respectively.) For this
fact alone, the HIPCs can hardly be held responsible,
except
to the extent that under their IMF tutelage they have all
simultaneously been attempting to increase exports,
putting
downwards pressure on the price. Worse, protectionism in
the
North has severely worsened the volatility of commodity
prices. When prices are protected in the North under
agricultural agreements such as the Common Agricultural
Policy and similar US agreements, all the change in price
in
response to natural fluctuations in commodity prices must
be
borne by the poor countries - countries that are already
suffering markets which have been flooded by cheap
exports,
as a result of excess production in the North caused by
agricultural subsidies.
While the World Bank does concede as much, their response
is
that the HIPCs should do more to diversify their
production
and export base, and note that `the experience so far with
export diversification in low-income countries that are
primary commodity producers has been rather
disappointing.'
They list a host of reasons for this, including
`governance
concerns' (i.e. corruption), `limited protection of
property
rights' (i.e. not paying enough attention to the needs of
foreign investors and creditors), `structural impediments
to
private sector development' (i.e. protection for the poor,
small farmers and workers), and `limited availability of
entrepreneurial capital and technical skills' (i.e. blame
the poor for being ignorant.)
Unsurprisingly, what the World Bank does not concede is
that
the poor response to diversification programmes is the
result of their own policies of trade liberalisation. The
basic logic of trade liberalisation is that countries
become
more specialised in areas in which they have a so-called
`comparative advantage', and increase their reliance on
imports for goods in which they have a `comparative
disadvantage.' But the fact is that most of the HIPCs have
a
`comparative advantage' in pure, unprocessed primary
products. As they liberalise, and move further towards the
global `free trade' position (much further, indeed, than
their protected competitors in the North), they become
more
dependent on primary commodities, not less. ...
3. Delaying Interim Relief
During the recent World Bank and IMF Spring Meetings, debt
campaigners were shocked to learn that as many of 9 of the
20 countries between Decision Point and Completion Point
are
having their interim relief from the IMF suspended as a
result of so-called `policy slippages' on their IMF
programmes. Contrary to the Bank's assertion that `annual
debt relief received during the interim period between
decision and completion points is a substantial share of
the
annual debt relief after completion point.[therefore]
countries do not have to rush [to completion point] for
the
sake of increasing flows of debt relief', the reality
appears to be somewhat different. In fact, 9 of the 20
countries between Decision Point and Completion Point at
the
time the report was published have seen `slippages' on
their
IMF programmes. As the World Bank notes, when such
slippage
occurs, suspension of interim relief from the IMF is
`basically automatic.' Most of these so-called `slippages'
are for delays in meeting the IMF targets on privatisation
and liberalisation within HIPC economies, and many are for
very minor diversions from IMF programmes.
Even more worrying, the World Bank has also admitted that
some relief is being delayed because of `administrative
bottlenecks' and difficulties in reconciling data between
debtor and creditor countries. In the case of Zambia,
Decision Point was reached as far back as December 2000
but
interim relief has not yet been approved. The fact the
countries that have jumped through all the needed hoops
for
getting to Decision Point are being delayed interim relief
because of creditors failure to get organised is nothing
short of scandalous.
4. HIPC Reaches Judgement Day - and the World Bank finds
it
to be failing
NGOs such as Jubilee Research have long condemned the HIPC
initiative for failing to meet its stated objectives, for
being designed in the interests of creditors, and for
imposing structural adjustment type conditionalities on
poor
countries.
One of the criticisms often levelled at the HIPC
initiative
is that it uses criteria for assessing debt sustainability
which are purely based on simple macroeconomic aggregates,
such as exports, while disregarding the human development
needs of the HIPC countries, as set out in the Millennium
Development Goals. That being said, however, one would
expected that that World Bank's own initiative would meet
its own, narrow criteria for debt sustainability.
However, for the first time, the World Bank is now
admitting
that its own initiative is failing. Table 1 [in full
report
on web] summarises what the Bank says about each HIPC and
their progress towards reaching debt sustainability. As it
shows, 31 out of the 42 HIPC countries are being failed by
the initiative even according to the World Bank criteria.
With a success rate of 25%, one might expect that the
World
Bank would acknowledge the depth of failure of the HIPC
initiative and, like Jubilee Research and other NGOs, call
for a new process for debt cancellation, or `Jubilee
Framework.' Instead, the World Bank merely writes that: it
would be `unrealistic to expect that countries will always
stay below the HIPC debt sustainability thresholds.' The
Development Committee of the World Bank has even gone so
far
as to say that the HIPC initiative is making `sustained
progress' in their Communique following their 21st April
meeting in Washington. Such self-delusion is almost
unbelievable.
It is time to admit that creditors will have to provide
more
relief, and fast, to overcome the crushing debt burdens
which still engulf the poorest countries on earth. The
World
Bank should immediately review all the HIPC countries and
provide immediate further relief where required. While the
Bank and IMF have agreed that more relief may need to be
provided at Completion Point in some cases, and indeed
have
already done so in the case of Burkina Faso, this is not
enough. Their statement that `there should be no
presumption
on country eligibility for topping up or the amount of
additional HIPC relief at the completion point' is a clear
indication that they intend to wriggle out of providing
extra relief, even when this is justified by external
conditions. Moreover, there is no provision for any
further
relief beyond Completion Point.
We call on all creditors to accept their responsibilities
to
the poorest countries on earth and to cancel the
un-payable
debts of these countries under an independent process of
arbitration, or `Jubilee Framework.' It is time for an end
to the endless rounds of broken promises and weasel words
that constitute the HIPC initiative. When even the World
Bank admits that HIPC is failing, it is time to change.
The
Jubilee Framework can wait no longer.
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