Norwegian debt relief plan

 

Extract from a speech by
the Minister of Human Rights and Development,
Hilde Frafjord Johnsen, to the Parliament, May 1998

A successful development policy requires a reduction in the poorest countries' burden of debt. Non-manageable debt destroys the potential for a national development policy, and reduces the effect of foreign aid to far less than could otherwise be achieved. For countries emerging from crises, disasters and war, debt can also undermine the possibility of achieving stability and reconstruction.

In the 1990s, we have therefore invested considerable efforts in reaching multilateral debt relief agreements for the poorest and most indebted developing countries. Here we have made considerable headway. By means of today's debt relief schemes through the Paris Club and under the auspices of the World Bank and the IMF - known as the HIPC initiative - we have at last been given a framework that can help the poorest countries to extract themselves from the debt crisis. For developing countries, the most important role is played by the multilateral debt agreements. The implementation of the HIPC initiative according to the plan will be a decisive factor for the poorest and most indebted countries in reducing their burden of debt to a manageable level.

However, there is a need for further improvements. Owing, among other reasons, to the caution shown by some industrialized countries, the work involved in achieving this is taking its time. Meanwhile, interest and compound interest on old debts continue to accumulate so that, for many countries, the debts continue to grow.

Churches and NGOs, as well as the management of the World Bank and the IMF, have called on us, the creditor countries, to show the necessary leadership to solve the debt problem. It is we who hold the key, both in our capacity as creditors and as co-owners of the IMF and the World Bank.

This is the background for the Government's proposal of a debt relief plan that it hopes will form the basis of Norwegian policy in this area in the future. The plan, which will be submitted in its entirety to the Storting in the 1999 fiscal budget, describes what Norway can do to improve the international debt mechanisms. A solution to the debt problems of the developing countries presupposes binding international cooperation in which major creditor countries must take part.

The plan will also deal with our own claims against the developing countries, and specify how these claims should be handled so as to contribute catalytically to achieving a swifter solution to the debt problems of the poorest countries. The plan contains specific proposals for what Norway can do for 22 selected countries. These are poor countries that either are in debt to Norway or have priority as partners in development cooperation.

The debt to Norway that is dealt with by the plan derives from old export credits, and falls within what is referred to as the old portfolio of the Guarantee Institute for Export Credit (GIEK). A large part of this debt is a consequence of the ship export campaign that was started in the 1970s. It is long since Norwegian companies were compensated for their losses. By means of this plan, the Government will now ease the burden of debt for developing countries.

One of the conditions for debt relief is that it is carried out in such a way that it benefits the country concerned and its inhabitants, and not its creditors. If debt relief is to have a positive effect it is also necessary that the countries affected pursue a social and economic policy conducive to sound economic development.

The debt relief plan includes the following main elements:

1. Improvement of multilateral schemes

• A main goal of the debt relief plan is to strengthen the current multilateral debt relief schemes in the Paris Club and the HIPC scheme under the auspices of the World Bank and the IMF.
• Norway will work to ensure that the HIPC scheme provides a sensible degree of flexibility so that debt relief is granted to the countries that really need it. There must be a reasonable form of burden-sharing between the creditors, and we must form alliances with other countries to ensure that the scheme is effectively implemented according to the intentions. On the boards of the World Bank and the IMF, we will work for continued close Nordic cooperation to maximize Nordic influence on the debt issue as well.
• To ensure the financing of the HIPC initiative, it is not least important that the G7 countries contribute a reasonable share. As regards the question of how the IMF is to contribute from its own resources, Norway supports, on certain conditions, the sale of a small part of the IMF's gold reserves as partial financing.

• In the Paris Club, Norway will work for a solution whereby debt relief for the poorest countries is increased from 67 to 80 per cent, and from 80 to 90 per cent for those under the HIPC scheme. We will take the initiative to strengthen Nordic cooperation in the Paris Club and make better use of our consensus with other like-minded countries.
• We will work for the establishment of a multilateral debt-swapping mechanism. This means agreements between creditor countries and the developing country concerned, by which debt relief is linked with environmental and other development-promoting measures implemented by the country itself.

2. Assistance to ease the developing countries' burden of debt

Through the HIPC scheme, the Government will increase its efforts to ease the poorest countries' burden of debt to multilateral institutions. The Government will also support other debt relief measures in priority countries, such as national debt funds in developing countries. Norway will also offer technical assistance for debt control to the countries that need it. These measures will continue to be covered within the development assistance budget.

3. Additional measures to write off debt to Norway

• Norway is prepared to write off further debt to Norway in addition to and on top of the debt relief that has been negotiated internationally. The decision concerning such debt relief will be made when a reliable multilateral debt relief agreement has been reached. As a main rule, this will be a final HIPC agreement. Such extended debt relief is, not least, important for making the result of multilateral debt relief operations as good as possible for the countries it applies to, so that as many resources as possible can be channelled to development measures rather than debt servicing. Norway will therefore work to gain the support of other creditors for allowing unilateral Norwegian debt relief to result in an increase of the total debt relief in excess of the amount required by the multilateral agreements. The additional Norwegian relief must not benefit other creditors.
• Following a special assessment, the Government is also prepared to rapidly write off the old debt that Benin and Ghana have to Norway, on the basis of assurances that the debt relief will benefit these countries and their inhabitants. The Government will also consider writing off insignificant debt that some countries, such as Angola and Somalia, have to Norway.
• We will work to persuade other countries also to write off debt in addition to the debt relief provided for by multilateral agreements. Both the United Kingdom and Switzerland are planning unilateral debt relief for certain countries, and are therefore of interest as partners.
• We will continuously assess possibilities for Norway to write off debt to countries to which the HIPC scheme will apply, but which have not yet finalized the agreement. Such debt relief by Norway will be carefully arranged to prevent other creditors from benefiting by "speculating" in such Norwegian debt write-off.

The above are the main points of the Government's proposal for a debt relief plan. As regards the writing off of debt to Norway associated with old export credit guarantees (GIEK's old portfolio), large amounts have already been allocated from the Foreign Ministry's budget, including development assistance, to cover payment of compensation.

If, in order to manage the "old" portfolio, the GIEK needs further allocations in excess of those previously granted plus the GIEK's own income, this will be ascertained and submitted to the Storting in connection with the presentation of the debt relief plan in the fiscal budget in the autumn.

According to the calculations made by the GIEK itself, there will be no need for such additional allocations.

As far as I can see at the moment, the appropriate debt relief measures that apply to the GIEK's old export credit guarantees may therefore be carried out without further allocations from the Foreign Ministry, including the development assistance budget.