Washington, DC — Saturday's decision by a key policy-making panel of the International Monetary Fund (IMF), directing the institution to come up with a new approach for tackling the debt crisis affecting many poor nations, especially those in Africa, has been welcomed by the continent's financial officials.
The initiative comes against a background of growing dissatisfaction with the slow pace of relief promised by the Heavily Indebted Poor Countries (HIPC) initiative that was launched in 1996.
The panel directed the Fund to develop a "concrete proposal" that will allow heavily indebted countries to, in effect, declare bankruptcy. An international bankruptcy court is under consideration. So-called "collective action clauses" in bonds issued by one government to another, detailing what should be done in the case of defaults is also being considered.
Under the existing HIPC structure, if debt-burdened poor nations commit to IMF and World Bank poverty alleviation strategies, a two-stage debt reduction process is initiated. The first stage, called "Decision Point" commits the Bretton Woods institutions to designing a specific program of debt reduction. The second stage, called "Completion Point," is reached after three years of structural adjustment programs. At this stage, countries actually receive some debt relief aimed at making debt payments "sustainable".
HIPC debt relief definitely helps, African finance ministers say. "We reduced the service of debt from US$171 million per year to around US$56 million per year, and we had room to develop our strategic plans in education and health, roads, order supplies and so on," said Luis Dias Diogo, finance minister of Mozambique. But Mozambique is one of only five African nations that have reached Completion Point.
African nations owe around US$300 billion in external debt. Almost of half of this -- US$149 billion -- is owed by the 34 African HIPCs. And even HIPC's African "star" -- Uganda, the first to reach completion point -- is finding sustaining its debt almost impossible because of the dramatic drop in coffee prices.
African finance ministers say that debt relief has increasingly seemed yet another promise only partially met and that the equally critical issue of subsidies has not been sufficiently addressed. At this year's Washington meetings, pointing to Africa's own reforms -- and commitment to even more reform under the newly launched Nepad (the New Economic Program for Africa's Development), African officials have spoken more forcefully about their concerns, both within official Bretton Woods forums and outside of them.
Friday, Finance Ministers from 28 HIPCs met senior officials of the IMF and World Bank for discussions on the slow pace of HIPC implementation and the long term inability of HIPCs to sustain debt. They sought a number of changes, including: reduction of conditionalities -- the fiscal policies required before debt relief becomes available; more analysis of the impact of conditionalities on social conditions; inclusion of Millennium Development Goal financing needs in HIPC papers; and HIPC provisions for external shocks such as sharp, sudden drops in commodity prices.
"We're not after extra money, " says Niger Minister of Finance Ali Badjo Gamatie. "What we want is the quality of what they already committed themselves to. We're saying we've done our share of the bargain, now do your share."
Although the HIPC Trust Fund is almost US$1 billion short of its intended financing, "that's not the problem," said Gamatie. "You know that there are 26 countries that have reached the decision point, but only 6 that have reached completion point. <i>That's</i> my worry! It doesn't do me any good to focus on this billion -- whether it's there or not there -- while you have so many conditionalities and you don't qualify for it. My worry is to get to the completion point -- and what are the conditionalities between the decision point and the completion point?"
Poverty has been worsening across Africa. According to the United Nations 2002 Human Development Report, the number of people living in extreme poverty in sub-Saharan Africa grew from 242 million to 300 million during the 1990s. African leaders pushed with uncertain results for a linkage of debt relief to Millennium Development Goals and poverty reduction.
In particular, African governments want short-term debt service payments limited to a proportion of fiscal revenues such as income taxes, rather than to hard currency export revenue.
Speaking at the close of the meetings, World Bank President James Wolfensohn proposed a long list of international responses to poverty and development needs, including: ending agricultural subsidies that amount to US$1 billion a day in rich nations; removing trade barriers; better coordination of development programs and policies; and even greater accountability and transparency of the Bank.
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Ministers from African nations as well as those from other developing nations, however, are leaving the meetings with little that's concrete to show on these issues. On subsidies, acknowledged Niger's Gamatie, he frankly didn't expect much to change. "As long as rich countries can afford to subsidize framers, they will do it." G-8 nations are vague on additional contributions to the trust fund, and a tough fight with large banks on new bankruptcy rules lies ahead.
Nonetheless, Wolfensohn and IMF Managing Director Horst Köhler, proclaimed the meeting as successfully reflecting a new comittment for better approaches to poverty reduction. "Although we have been a leader in measuring the results of our projects and programs, we must measure our results more rigorously and, with others, we must be held accountable against broader country goals and the Millennium Development Goals," said Wolfensohn.
