Canadian Debt Initiative (fwd)

[Robert Weissman <rob@essential.org>]

More good analysis from 50 Years is Enough on governmental debt
initiatives.

Robert Weissman
Essential Information			|   Internet:	rob@essential.org

Subject: 50 Years Update: Canadian Debt Initiative

50 Years Is Enough: U.S. Network for Global Economic Justice
1247 E Street, S.E. - Washington, DC 20003 USA
202/IMF-BANK - fax 202/544-9359 - wb50years@igc.org
<mailto:wb50years@igc.org>

Update: Canadian Debt Initiative

Last week we sent out an analysis of the various debt initiatives being
offered by G-7 countries in advance of this June's Cologne G-7 Summit.  In
it we discussed proposals from the U.S., the U.K., Germany, and France, as
well as some initiatives in the U.S. Congress.

Now a fifth country, Canada, has entered the fray.  Prime Minister Chretien
announced his plan on Thursday, March 25, in Winnipeg.  Following the trend,
its proposal is a little more detailed and progressive than the previous one
(in this case, the U.S.'s).  But while there are some good points, there is
also a more explicit endorsement of the IMF's structural adjustment programs
than is present even in the plan announced earlier this month by President
Clinton.

So far each of the initiatives, except for France's, has proposed reforms of
the IMF/World Bank Heavily Indebted Poor Countries Debt Initiative (HIPC).
(The French suggestion was simply to cancel all interest payments on poor
country debt for 30 years.)  The Canadian proposal follows this model.
There are some interesting facets, however:

1.  As Jubilee 2000 U.K. is emphasizing in its reaction, the Canadians are
the first to say that they will act on their pledges on bilateral debt
relief regardless of whether other G-7 countries do so or not.  Their
bilateral debt relief pledges are also more far-reaching than those in the
other proposals.  They include 100% write-downs for all countries expected
to qualify for HIPC (presumably by the new, looser standards outlined
elsewhere in the Canadian proposal).  The proposal also specifically
mentions Honduras as a country that should be eligible for HIPC, despite
earlier analyses, on the grounds of the damage inflicted by Hurricane Mitch,
and therefore also for 100% bilateral forgiveness.  It is these countries --
plus Bangladesh (reason not provided) -- that the Canadian plan says it will
accord 100% cancellation too regardless of other countries' plans.

2. The Canadian proposal would also accord 100% write-offs (it's not clear
if they mean to suggest a distinction between "write-offs" and
"write-downs") to "countries that can use resources productively and are
practicing good governance," apparently regardless of their HIPC status.
The countries mentioned as belonging in this category are "Madagascar,
Tanzania, Honduras, Bangladesh and possibly Zambia."

3.  The proposal also talks about a "debt conversion initiative" for
countries not currently meeting democratizing criteria, or still in the
throes of conflict.  The countries mentioned specifically are "Ethiopia,
Liberia, Rwanda and the Democratic Republic of Congo and possibly Sudan."
This initiative "would involve converting all debt service payments into
local currencies to support development projects in priority sectors such as
addressing basic human needs, good governance and human security."

4. In terms of HIPC reforms, the Canadian plan, like several others, would
reduce the waiting period for relief from six to three years (which is spent
adhering to and IMF structural adjustment program).  It would also reduce
the debt-to-export ratio target from 200-250% to 150%.  This is the level
contemplated by the Leach Bill recently introduced in the U.S. Congress, and
could very well be what the Clinton proposal, if it ever gets fleshed out,
would suggest.  The proposal would also expand the HIPC program's
eligibility to include Honduras, Haiti, Malawi, and, when political
circumstances permit, Afghanistan.

5.   The Canadian proposal calls for the sale of IMF gold (up to 10 million
ounces) to finance the new debt relief, as did the U.S. proposal.  The
wording of this section of the plan -- to "help finance the IMF's
participation in the HIPC Initiative and its regular programs for the
poorest countries" -- leaves open the possibility that proceeds from gold
sales would finance the IMF's Enhanced Structural Adjustment Facility
(ESAF).  Another part of the Canadian plan explicitly advocates increasing
ESAF funding, and states "Canada will loan more than C$400 million to
augment ESAF loan resources in order to assist the IMF in providing support
to HIPCs."  This is very unfortunate, as ESAF is used exclusively for
support of structural adjustment programs, which have devastated economies
around the world and contradict entirely the goals of debt relief.  This
provision also strongly suggests that the Canadian government does not
envision de-linking HIPC debt relief from structural adjustment conditions.