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Note: This document is from the archive of the Africa Policy E-Journal, published by the Africa Policy Information Center (APIC) from 1995 to 2001 and by Africa Action from 2001 to 2003. APIC was merged into Africa Action in 2001. Please note that many outdated links in this archived document may not work.


Africa: Debt Update

Africa: Debt Update
Date distributed (ymd): 000712
Document reposted by APIC

+++++++++++++++++++++Document Profile+++++++++++++++++++++

Region: Continent-Wide
Issue Areas: +economy/development+
Summary Contents:
This posting contains a listing of events for the Africa day of action on debt (July 15, 2000), provided by Jubilee 2000 in London. The actions precede the opening of the G-7 Summit in Okinawa, Japan, on July 21-23. Debt cancellation campaigners around the world are calling on the G-7 leaders to cancel the debt, but there are serious doubts whether the creditor countries will even fulfill the commitments made at their summit in Germany last year.

The Wall Street Journal, on July 10, reported that "the effort is in danger of collapsing because Congress hasn't paid the U.S. share of the tab." The House and the Senate are currently discussing budgetary allocations of between $69 million and $75 million for fiscal year 2001, far less than the $435 million requested by President Clinton. (For suggested actions see http://www.africafocus.org/docs00/debt0006.php> and
http://www.j2000usa.org/action/july.html

The official web site for the summit is at: http://www.g8kyushu-okinawa.go.jp/e

In a latter to the summit leaders released on July 11, UN Secretary-General Kofi Annan called for cancellation of the debts of all highly indebted poor countries in return for demonstrable commitment to poverty reduction. He noted that only five countries had so far qualified for relief, and only 35% of their debts had been cancelled. Yet 40% of Africa's government revenues were directed towards servicing a total debt of $350 billion.

You can add your voice to demands that the debt be cancelled, by sending an e-mail message to the summit leaders, at g7leaders@dropthedebt.org. For more background see http://www.dropthedebt.org

This posting also contains the abstract of a new paper on the Heavily Indebted Poor Countries (HIPC) debt relief initiate, prepared by the U.S. Government Accounting Office, as well as a summary of that same paper by the European Network on Debt and Development (Eurodad). The report concludes that current initiatives are "not likely to provide recipients with a lasting exit from their debt problems, unless they achieve strong, sustained economic growth." It also notes that both bilateral and multilateral creditors are "having difficulty securing their share of the necessary financing" for existing commitments.

+++++++++++++++++end profile++++++++++++++++++++++++++++++

Africa holds a day of action on debt, 15 July 2000
Jubilee2000 UK
http://www.jubilee2000uk.org

Take part and support the campaign actions across Africa. Send a message of solidarity.

UGANDA Debt Rally and procession through Kampala. Exhibition covering the Ugandan debt experience (Kampala). (contact Ann Kamya, Uganda Debt Network. Tel: 256 41 543 972 email: udn@infocom.co.ug)

NIGERIA Drop the Debt Concert at Lekke Beach, Lagos . Starts at 1pm. This concert will feature the king of Juju music, King Sunny Ade and an array of stars including; Sonny Okosun, Onyeka Onwemni, Oliver De Coque, reggae icon, Daddy Shokey, and Dele Taiwo.

There will be speakers from Pro democracy and civil society organisations and cultural groups from all over the country. The event will be broadcast live on NTA television and Rhythm FM, Lagos. There will be phone link to the Bangladeshi Debt concert in London. (see London)

For more information, see Nigeria press and TV or contact Skidd Ikemefuna tel/fax 014932641 ext. 1039 email skidd@rcl.nig.com )

Jubilee 2000 Nigeria Coalition will be picketing embassies of the G8 in Lagos on 13 July. Contact National Secretariat, Jubilee 2000 Nigeria Coalition for more details. Tel 234 1 52 258748 email. Aneej@rcl.nig.com

SOUTH AFRICA Press statement by Jubilee 2000 South Africa (contact Neville Gabriel tel; 27 21 685 1565 Fax: 27 21 685 1645 email: aidc@iafrica.com)

CAMEROON Press statement by Jubilee 2000 Cameroon. (contact Georgine Kegne Djeutane, tel: 237 31 20 05 fax: 237 31 20 06 email: peace.humanus@camnet.cm )

CONGO KINSHASA Press Statement (contact Madame Chirume, e-mail: caid_kivu@compuserve.com)

GHANA Debt concert by the Indigenafrika Youth Ensemble and Nii Noi's African Jazz Project at the National Theatre in Accra. (For more information, contact Afari, Director, National Theatre on 23321663449 and Yao Graham, Third World Network, tel 23321 1511189 email: twnafrica@ghana.com)

There will also be a World Christian Council Debt Conference in Accra from 23 July to 29 July. Delegates from 36 African countries are scheduled to attend. (for more information contact Modeste Mfashawanyo. Email: wscf@insightkenya.com )

MALAWI Malawi Jubilee 2000 Debt Coalition is organising the following post action day events; 21 July - Debt Music Concert at Lilongwe on 21 July 22 July - Round Table conference at Ryalis Hotel, Blantyre City. 22 July - Press conference and round table discussion in Chimezwe. (contact Francis Ng'ambi, Jubilee 2000, Malawi . Tel: 265 743 591 Fax: 265 743 606 email: fngambi@hotmail.com)

MALI Launch of the Debt cassette by Jah Issouh at Islamic Centre, Bamako Demonstrations will also be held at the embassies of the G7 in Bamako on 22 July. (for more information contact Sekou Diarra Tel: 223 21 59 49 Fax: 223 21 55 78 email: aidchrist@malinet.ml)

KENYA Campaign manifestations in six towns including Lari, Muranya and Laikipia. There will be drama performances, prayer meetings and music. 14 July - Human chain around Nairobi, starting from Machakos Bus stop and procession. (contact Margaret Githrndu, The Greenbelt Movement and Inter Faith Debt Committee. tel 254 2 571523 email: gbm@iconnect.co.ke)

MADAGASCAR Launch of Jubilee 2000 and campaigners Conference (contact Hemsing Hurrynag, DION, Tel: 230 433 0107 fax: 230 670 0170 email: dionet@intnet.mu )

SENEGAL Press statement by Dakar 2000 (contact Demba Dembele, Dakar 2000 Tel 221 825 65 73 Fax: 221 824 44 13 )

ZAMBIA Press statement by Jubilee 2000 Zambia (contact Chrispin Mphuka, Jubilee 2000 Zambia tel: 260 1 290 410; fax: 260 1 290 759 email: debtjctr@zamnet.org.zm)

LONDON Bangladeshi Link Debt Network Concert at SCALA, Kings Cross. This concert features Rizwan Mauzzam Qawali (Real World Records), State of Bengal, and T-power & Soto, with a Special Guest appearance by Sanjeev Bhaskar (Goodness gracious Me). Kings Cross, 275 Pentonville Road, London, N1. Doors open 9pm. (contact Scala Hotline 0207 833 2022, Purple Banana Infoline 07930 869895)

There are also the following talks;

The Debt crisis in Africa, by Kwesi Owusu of Jubilee 2000 Africa Initiative on 11 July at Institute For African Alternatives, Lindhurst Hall, Warden Road, London, NW5 4RE. Time: 6pm-8pm (contact Dr Mohammed Sulliman, Tel: 0207 482 4660 , fax: 0207 482 4662, e-mail: ifaanet@gn.apc.org)

Debt Management and poverty alleviation in Africa; issues and perspectives, with Kwesi Owusu, Dr. Machiko Nissanke, School of African and Oriental Studies and Karl Ziegler, Centre for Accountability and Debt Relief. 12 July, at The Africa Centre, 38 King Street, Covent Garden, London, WC2E 8JT. Time:7 pm, (contact Astrid Sagebiel, Tel: 0207 836 1973, Fax: 0207 836 1975)


Developing Countries: Debt Relief Initiative for Poor Countries Faces Challenges (Chapter Report, 06/29/2000, GAO/NSIAD-00-161). (full text available, in PDF, at http://www.gao.gov)

Pursuant to a congressional request, GAO: (1) assessed whether the enhanced Heavily Indebted Poor Countries Initiative (HIPC) is likely to free up resources for poverty reduction and achieve the goal of debt sustainability; (2) described the strategy to strengthen the link between debt relief and poverty reduction and how this strategy is to be implemented; and (3) described the challenges creditors face in fully funding the enhanced initiative.

GAO noted that:

(1) the enhanced HIPC initiative will provide debt relief to recipient countries;

(2) however, given the continued fragility of these countries, the initiative is not likely to provide recipients with a lasting exit from their debt problems, unless they achieve strong, sustained economic growth;

(3) the decline in debt service will only free up resources for additional poverty reduction if countries continue to borrow at the same level and concessional terms as in the years just prior to their qualifying for debt relief;

(4) this occurs because countries previously borrowed for several reasons including debt payments, and they will need to continue borrowing after receiving debt relief in order to meet their remaining debt payments and to increase spending on poverty reduction;

(5) debt relief under the initiative is linked to recipient countries' preparation of a poverty reduction strategy;

(6) linking debt relief and poverty reduction creates tension between quick debt relief and preparing such strategies;

(7) many actions are required to prepare and implement a strategy, including gaining the support of key stakeholders, such as political leaders with the power to affect change, and collecting and analyzing necessary data, such as data on the extent and major causes of poverty;

(8) however, weaknesses in countries' ability to collect and analyze these data and other challenges may limit these efforts;

(9) the desire to receive debt relief quickly may cause some countries to quickly prepare the strategies, which could diminish the strategies' quality, or the level of civil society participation;

(10) the World Bank, the International Monetary Fund, and the U.S. Treasury said that these concerns are mitigated because some countries do not have to prepare a full strategy in order to qualify for debt relief;

(11) financing the initiative has proven to be a challenge for many creditors, with some multilateral and smaller bilateral creditors reporting that they are facing difficulties in providing their full share of debt relief and need external funding;

(12) for multilateral and smaller bilateral creditors, difficulties in financing their shares stem from legal, technical, and financial restrictions; and

(13) difficulties in fully financing the initiative could undermine the success of the initiative, since debt relief is supposed to be additional to the assistance that donors and creditors would otherwise provide to low-income countries.


European Network on Debt and Development
http://www.oneworld.org/eurodad
info@eurodad.ngonet.be

GAO report on the HIPC Initiative

July 3, 2000

The US General Accounting Office has just released a report analysing the enhanced HIPC Initiative, commissioned by the US Congress. "Developing Countries - Debt Relief Initiative for Poor Countries Faces Challenges". The report number is GAO/NSIAD-00-161 and can be found at www.gao.gov. You will need Adobe Acrobat to read it.

As part of the US civil service machinery, the GAO's report is impartial and objective. Due to the highly politicised nature of the topics covered, however, the report falls short of making explicit policy recommendations. Nonetheless, it does make several important assessments on each of three topics:

  1. Whether the enhanced HIPC is likely to free up resources for poverty reduction
  2. The linkages between debt relief and poverty reduction, through the PRSP (Poverty Reduction Strategy Paper)
  3. The problems in financing the initiative
  4. Enhanced HIPC Initiative and resources for poverty reduction

The main observation made is that the enhanced HIPC Initiative is unlikely to provide recipients with a lasting exit from their debt problems, unless they achieve strong and sustained economic growth.

The basis for this observation is that the assumption that countries will, after having received HIPC debt relief, continue to borrow in the same fashion as beforehand, in order to allow the 'freed up' resource from debt relief to be used for poverty reduction efforts.

Continuing with existing borrowing patterns implies, however, a future build up of debt. Countries will only be able to pay off these future liabilities - and thus permanently exit their debt problems - if they achieve consistently strong economic growth.

But the report then suggests that World Bank and IMF projections of strong sustained economic growth for the HIPCs may be optimistic, given vulnerability to external shocks, such as volatility in commodity prices. For example, the Bank and Fund projections for Honduras, Nicaragua, Tanzania and Uganda are for export earnings growth of at least 9.1% per year on average for over twenty years. The GAO report suggests that sustaining such growth levels consistently over 20 years may be difficult.

If this is the case, the report then concludes, then the amount of revenue generated through economic growth will be reduced.

This could have one of several impacts. Countries may then require further loans to help pay off old loans, further debt cancellation, or may fall into arrears.

Another alternative would be to adjust to the lower level of export earnings by reducing imports, lowering domestic spending, and raising tax revenues (or a combination of these); however, the report points out that these action in their own right would probably further reduce economic growth rates and further poverty reduction expenditures.

Eurodad Comment: this analysis is neither new nor controversial, but it does throw put the spotlight onto a subject that has hitherto received little attention: that HIPCs will only be able to 'free up' resources for poverty is they continue to borrow at the same rate as they have in the past. If a country chose to reduce its volume of net borrowing by the same amount as debt relief received through the HIPC Initiative, then no resources would be freed up.

There are essentially four factors that determine what the 'poverty dividend' from the HIPC Initiative will be for any country. These are:

(1) the amount of debt relief granted

(2) the future economic growth rate

(3) the future level of borrowing

(4) future government policies (e.g. levels of expenditure on poverty reduction)

Currently, the Bank and Fund assume that future economic growth rate and future level of borrowing will remain as predicted. As a result, future levels of government expenditure on poverty reduction can be increased by the same amount as the reduction in debt servicing levels following debt relief.

But other scenarios are possible. As the GAO report points out, if economic

growth rate is not maintained at the high rates predicted (and, for example, recent projections of the incremental economic impact of AIDS in Africa might be one of several reasons), then there would be fewer revenues for future debt servicing. One option then is to increase the level of future borrowing. Another is to maintain borrowing at the same rate, but to cut expenditure on poverty reduction and other government programmes, or to raise tax rates.

Of course, the obvious other scenario is the one that the GAO report was not allowed to detail: deeper debt relief. If more HIPC debt is cancelled, then more of the income generated from future economic growth can be spent on poverty reducing expenditures, or avoiding further borrowing if economic growth rates falter. Deeper debt relief is the unwritten conclusion of the first section of the report.

2. Linkage between debt relief and poverty reduction

The conclusion from this section is simpler, as there are fewer economic variables to conjure with. The report points out that many actions are needed to reduce poverty, given its high incidence and its numerous and diverse causes. As a result, a successful poverty strategy has to include many factors: good economic policies, good governance, participation, measures targeted at the specific causes of poverty and so forth. Preparing poverty strategy is as a result time-consuming and resource-heavy. There is thus a tension between the time taken to draw up a successful PRSP and the desire for rapid debt relief. The report summarises some of the arguments on both sides for whether or not the interim PRSP is an adequate solution to this problem, but concludes that as long the HIPC Initiative links debt relief to PRSPs, this tension is likely to continue.

This conclusion thus adds a degree of backing to those who question the current umbilical linkage between the HIPC Initiative and the PRSP.

3. Problems in financing the initiative

This section of the report simply points out that many multilaterals and smaller bilateral creditors are having problems financing their contributions to the HIPC Initiative. It notes that the larger bilateral creditors are key to the success of the Initiative, but that they too face challenges in ensuring that debt relief is additional to debt relief (see previous Eurodad mailing), and in making contributions to help multilaterals. It concludes by saying that these difficulties could undermine the success of the Initiative, as debt relief is supposed to be additional to other development assistance.

The report also has useful sections summarising how G-7 countries account and report for their debt relief, including examples of how the economic value of old loans is calculated.

(ends)


This material is being reposted for wider distribution by the Africa Policy Information Center (APIC). APIC provides accessible information and analysis in order to promote U.S. and international policies toward Africa that advance economic, political and social justice and the full spectrum of human rights.

URL for this file: http://www.africafocus.org/docs00/debt0007.php