IMF, World Bank admit critics are right – HIPC will not cut debt service payments

Jubilee 2000 Coalition

“Scheduled debt service paments after receiving HIPC assistance are not dramatically different from actual debt service paid for the period prior to the decision point,” admit the IMF and World Bank in a report to their boards of directors.

Of the first seven countries to reach the decision point, “amounts of debt service owed by Burkina Faso and Mali are expected to increase”; only Guyana “shows a noticeable decline”, the report says. “In absolute terms the Inititaitve may not be significantly reducing debt service from current levels paid.”

This confirms complaints made by critics of HIPC, including Jubilee 2000, that the World Bank was wrong when it said that HIPC would release new resources for development.

The report goes on to note that bilateral creditors will actually profit from HIPC. It stresses “there may be an increase in debt-service payments to bilateral creditors after the completion point” because, up to now, the World Bank and IMF have been preferential creditors and have been paid first. The poorest countries thus have been failing to pay what they owe to “donor” governments and built up large arrears. Under HIPC, some World Bank and IMF debt will be cancelled, which will release money to be paid to governments (who constitute the “Paris Club” of bilateral creditors).

The report also makes clear how slow the process is. HIPC began in 1996 and so far only two countries, Uganda and Bolivia, have actually received debt relief. Two more – Mozambique and Guyana  might received debt relief this year and two – Mali and Burkina Faso – next year.

Thus, by the end of the year 2000, only six countries will have received debt cancellation; total debt service payments will be reduced by only $200 million per year. This is exactly 1 per cent of the debt service paid each year by the 93 poorest and most indebted countries.

The report also notes that in 1996 and 1997, the HIPC countries paid more in debt service than they received in new loans. New lending has remained constant, but debt service payments have increased sharply. This means aid is increasingly diverted to repay loans just at a time when aid is falling dramatically. Net transfers to the HIPC countires have fallen by one-third in just four years.

In 1994, HIPC countries received $8.3 in new loans but repaid $7 billion, so they gained $1.3 billion – in addition to aid grants of $10 billion.

By contrast, in 1996, HIPC countries received $8.2 billion in new loans but they paid $8.3 billion in principal and interest payments, which means $100 million was taken from aid of only $8.7 bn to repay debts. In 1997, the position was worse, with $8 bn in new loans and $8.2 bn in repayments, with a net loss of $200 million to be taken from aid of $7.6 billion.

Thus, in 1994 HIPC countries gained $11.3 billion in new money; in 1997 they gained only $7.4 billion in new money.

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Meanwhile, the crisis is clearly getting worse. A report issued by the World Trade Organisation on 22 April says that commodity prices in January 1999 were only 75% of their value in mid-1997; Africa's exports fell by 16 per cent in 1998.

The World Bank and IMF in a separate report say that commodity prices have fallen so much that the “sustainable” debt level of HIPC countries, presently measured against export earnings, has dropped dramatically. Compared to estimates made in August 1998 – just nine months ago – sustainable levels of debt have fallen so much that the World Bank and IMF estimate that the amount of debt that must be cancelled even under the present rules has increased by 29%.

Whereas nine months ago the Bank and Fund estimated that 23 of the 41 HIPC countries would actually quality for debt reduction under present rules, it is now estimated that 29 will qualify.

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