HIPC Heresies and the flat earth response

 

By Joseph Hanlon
Jubilee 2000 Coalition

Summary and key points

HIPC may be the single most important step toward resolving the debt crisis of the 1980s and 1990s. Its fundamental contribution is the acceptance, for the first time, of three concepts that were once absolute heresies to traditional financial doctrine:

1) that any long term resolution of the problem requires debt CANCELLATION and that all lenders, including the multilaterals, must participate.

2) that there must be an exit from debt bondage;

3) that the end of debt bondage means a reduction in conditionality and a significant loss of power over developing countries.

It takes time for any radical shift in dogma to be understood and accepted, and there is always a backlash by the old guard. This has happened with HIPC. In the two years since HIPC was launched, there has been resistance by an old guard in the IMF, World Bank and finance ministries of many of the industrialised countries.

By making HIPC unworkable, the reactionaries are trying to kill it – and they may succeed. Secretive negotiations and unworkable criteria now provide too little debt relief too late. Uganda gained debt relief a year later than predicted; it will pay the same in debt service after the HIPC completion point as it paid before. After a year of infighting among creditors, a deal has been reached for Mozambique to pay more after HIPC completion than it does now; it will defer the implementation of universal primary education because money must be diverted to debt service – after HIPC.

This is not a solution to the debt crisis; it does not provide an exit. "Sustainability" has been defined in terms of how much a country can pay, rather than in terms of how much it needs to develop. After the Second World War, the victorious allies granted Germany deep debt relief. It was agreed that "sustainable" debt service for Germany was one-sixth the level set under HIPC, based on the need for reconstruction and development rather than simply how much Germany could pay. The remarkable success of Western Europe in the past 50 years proves the wisdom of that decision. But we have failed to learn that lesson, and now we demand much larger payments from the poorest countries that will prevent their development.

The HIPC Heresies have been accepted; it is too late to deny the need for deep debt cancellation and for exit from debt bondage. The Jubilee 2000 Coalition calls for a recognition of the real implications of HIPC. This requires four changes:

1) Development sustainability: Begin the discussion with a level of debt "sustainability" based on development rather than narrow accounting criteria.

2) Openness: Use criteria that can be applied openly rather than in secret negotiations, and use case-by-case considerations only to take into account special circumstances, such as post-war reconstruction or odious debt.

3) Haste: Speed up the process.

4) Debtor voice: Involve the debtor government and its democratic institutions; "sustainability" is not just a question for the creditors.

HIPC represents a fundamental break with the past, and points a way forward. The challenge now is to accept the implications of HIPC and to quickly grant deep debt relief based on genuine debtor participation and on development instead of accounting criteria. Only that will fulfil the promise of exit and development.

Jubilee 2000 Coalition, POBox 100, London SE1 7RT, England
10 April 1998

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