Political Background

A former French colony, Ivory Coast gained independence in 1960. During the first decades after independence, the country was ruled by a paternalistic, authoritarian government headed by Houphouet-Boigny as president, which provided political stability. As a major producer of cocoa, coffee, rubber and diamond, Ivory Cost was able to attract international investors and enjoyed growth rates between 8 and 10 percent in the period from 1966 to 1976. However, the country’s economy got into trouble in the eighties, as agricultural exports fell strongly and half of the country’s industries closed down. Unemployment rates increased to 45% and foreign debt also rose strongly.

In 1990, a multiparty system was installed and presidential elections were held. Houphouet-Boigny was re-elected as president with 81% of the vote. He died in 1993 and was replaced by the leader of the National Assembly. A year later, after the country agreed to a 100% devaluation of the CFA, half of Ivory Coast’s debts with the Paris Club were cancelled. However, the country continued to have the highest per capita foreign debt in the world.

In 1999 the first-ever military coup in Ivory Coast overthrew the government. Military reign did not last for long as elections were held in 2000. Laurent Gbagbo became the country’s new president after an electoral campaign, which was marked by violence sparked by the exclusion of the opposition leader.

In September 2002, an uprising by mutinous soldiers destabilized the country and inflamed the hatred between Christians and Muslims. By the time of writing, the future evolution of the mutiny was not clear, but observers feared that Ivory Coast was heading towards civil war.[1]

Economic Background

Ivory Coast’s GDP per capita was estimated to amount to $1,600 in 2000. The country is among the world’s largest producers and exporters of coffee, cocoa beans and palm oil. Its economy is therefore highly sensitive to fluctuations of international prices for these products and weather conditions. The majority of the population (68%) depends on agriculture for its livelihood. In the period from 1996 to 1999 the country’s GDP grew by 5%, but in 2000 there was a contraction because of low commodity prices and political instability. The uprising in 2002 could imperil growth further.

Ivory Coast is ranked 156 out of 173 in the UNDP’s 2002 Human Development Index. Life expectancy at birth is 48 years and the adult literacy rate is 47%. With 12% of the population affected, Ivory Coast has the highest prevalence rate of AIDS/HIV in West Africa.[2]

Ivory Coast and the HIPC initiative

The Latest

Cote d’Ivoire reached Decision Point under the original HIPC initiative in March 1998, but has since experienced political disturbance and so has not yet reached Decision Point under the enhanced HIPC initiative. Moreover, even when Cote d’Ivoire reaches Decision Point, it will not receive enough debt cancellation to enable it to meet the MDGs. In fact, our analysis shows that Cote d’Ivoire will need total debt cancellation, plus significant increases in aid, if it is to have any hope of meeting the MDGs.

In July 2003, a French-brokered peace deal put an end to the civil war that devastated the country for more than nine months. Following the coup in 1999, the country experienced escalating political and ethnical violence.

Despite recent improvements, the situation in the country is still unstable and Cote d’Ivoire will have to start reconstruction and peace building. The economy has been in despair, but Cote d’Ivoire could benefit from the recent high cocoa prices and start recovering soon even though it has already experienced the risks of being so dependant on cocoa. Following pressure from the World Bank and the IMF, the country liberalised the cocoa market in 1999. Liberalisation coincided with the weakening of cocoa prices on the international market greatly impacting the income of cocoa farms in the country, most of which are small, family farms.

Despite the pressure from the international community in 2000, the Government decided to resume its role in the cocoa market and in agreement with other cocoa producers (Ghana, Nigeria, and Cameroon) formed a cartel to control the prices of cocoa beans. Surprisingly enough the cocoa price, that had been steadily declining, rose 100 per cent between 2000 and 2002.[3]

In 1998 the World Bank and the IMF decided to support a debt reduction package for Ivory Coast under the original HIPC initiative. The country’s total external debt burden was to be reduced by $345m in Net Present Value terms[4] and it was assumed that Ivory Coast would reach completion point by March 2001, contingent on satisfactory macroeconomic performance and the implementation of IMF and World Bank supported programmes.[5]

Yet, completion point under the original framework was not reached, because Ivory Coast could not fulfill the conditions set out by the IMF and the World Bank in 1998. However, in March 2002, the two institutions published a preliminary document[6], which examined whether Ivory Coast could be eligible for relief under the enhanced HIPC initiative. According to this report, Ivory Coast’s NPV of debt-to-exports ratio stood at an estimated 145% at the end of 2000 and was therefore below the eligibility threshold of 150%. However, the country could qualify for enhanced HIPC relief under the fiscal and openness criterion[7], as the NPV of debt-to revenue ratio after traditional debt relief stood at an estimated 397% at the end of 2000, above the 250% threshold.[8]

Ivory Coast’s total debt is estimated to have been $6.92bn in NPV terms at the end of 2000. In order to reduce this amount to sustainable levels, i.e. to bring the ratio of debts to revenues under 250%, the report proposes relief amounting to as much as $2,669m, which is considerably higher than the $345m committed under the original framework.

The report includes three different scenarios predicting the future evolution of Ivory Coast’s debts. Under the first scenario, GDP is projected to grow by 5.7% over the period from 2002 to 2020. The second scenario assumes growth to be two percentage points less than this and a third scenario leaves growth unchanged, but assumes a decline in export prices by 25%. Under all scenarios, the envisaged debt relief would make Ivory Coast’s debt sustainable under the debt-to-exports ratio criterion as well as under the debt-to-revenue criterion. According to the report, the main risk to the country’s debt sustainability would be reduced government’s ability to collect taxes – as happened during political turmoil in 1999.

The report suggests, that Ivory Coast could reach decision point in September 2002. However, due to the military uprising and the current instability in the country, this date seems rather unlikely. For the poor of Ivory Coast, this could be additional bad news, as the proposed debt reduction would bring rather a large amount of relief to the country.

Millennium Development Goals Sustainability Analysis

We use a ‘human development’ definition of debt sustainability. Under this approach, debts are only considered ‘sustainable’ when the debt service burden leaves the HIPCs with sufficient funds to meet their human rights obligations under the internationally agreed Millennium Development Goals (MDGs).

This definition of debt sustainability has gained wide acceptance - not only in the non-governmental community, but also in the United Nations, amongst African governments, HIPC Finance Ministers, and even creditor governments. The Irish Government has formally come out in favour of an MDG-based DSA for poor countries. The latest Human Development Report produced by the United Nations Development Programme (UNDP), for example, argues that ‘debt servicing capacity should be assessed relative to the country’s needs for achieving the Goals.’ For many countries this will require full debt cancellation. The HIPC debt-export measure of debt sustainability has little to do with the needs of poor people.’

Therefore we present some calculations.  For full details on the calculations and the methodology behind it please see the “Real Progress Report on HIPC” published in September 2003.

Analysis	2000	2001	2002	2003	2004	2005	2006
MDG Spending	1,515	1,558	1,583	1,619	1,656	1,694	1,733
Total Spending	2,578	2,632	2,755	2,768	2,781	2,796	2,812
Projected Revenues	1,073	1,107	1,231	1,229	1,226	1,223	1,219
Overseas Dev. Assistance	368	225	253	280	308	336	363
Total Income	1,441	1,332	1,484	1,509	1,534	1,558	1,582
Available for Debt Service	-1,136	-1,301	-1,272	-1,259	-1,247	-1,238	-1,230
Actual Debt Service	1,020	346	414	419	446	362	417