BRIEFING NOTE

 

December 21, 1999

GORDON BROWN'S PROMISE TO CANCEL 100% OF BILATERAL DEBTS OWED TO BRITAIN BY SOME OF THE POOREST COUNTRIES: BEHIND THE HEADLINES

Today, at a meeting of faith leaders and Jubilee 2000 Coalition members with Gordon Brown and Clare Short, the Chancellor announced that he would cancel 100% of bilateral debts owed to Britain by some of the world's poorest countries. The announcement came in response to a targeted campaign by the Jubilee 2000 Coalition, who immediately praised the Chancellor for his vision and leadership on the debt issue.

The details of the 100% promise

Countries which will benefit from Brown's announcement are those included in the Heavily Indebted Poor Countries initiative (HIPC) - the international vehicle for debt rescheduling and cancellation, managed by the International Monetary Fund/World Bank. 41 of the world's poorest countries qualify for HIPC as being in need of debt cancellation, but to actually get it, they have to prove their ability to meet stringent economic conditions. In addition, the Chancellor has spearheaded changes to the IMF's traditional programs to ensure that decisions about debt cancellation are more transparent and that benefiting countries give commitments that resources from debt relief are dedicated to poverty reduction.

This means that it will take some time for countries to progress through the initiative. The Treasury estimates that at least 25 of the 41 will be far enough through to receive some multilateral cancellation by the end of 2000, and it is these 25 which will also get their debts to Britain cancelled.

The first four of the 25 are those at the front of the HIPC process, Uganda, Mozambique, Mauritania and Bolivia. These countries have already met conditions laid down by the IMF and World Bank. It looks like they should now move through by the end of January when they will receive some multilateral debt relief; and at this point will now also get their debts to Britain cancelled.

An additional 6 will qualify by the end of April. These will probably be out of Benin, Senegal, Burkina Faso, Tanzania, Mali, Côte d'Ivoire and Guyana.

Brown says that debts will only be cancelled on the condition that the resources released will be spent on poverty alleviation measures, such as education, health and basic sanitation. Jubilee 2000 have consistently argued that this must be the case if debt cancellation is to benefit the poor, the people who need it most.

What is the cost to Britain ?

Potentially all of the debt owed to the British government by the 41 HIPCs will be cancelled: this is a total of £2 billion. 96% of this is owed to the Export Credits Guarantee Department (ECGD). The Department for International Development (DFID) is owed only £82 million.

Given that as part of the Cologne Agreement (June 1999), Britain had already pledged to cancel up to £1.6 billion of these debts, the Treasury estimates that the extra cost to Britain of today's announcement will be £300 million. It is understood that this will be spread over 20-23 years, and during this time the cost to is likely to rise to £640 million.

The Treasury estimates that Britain has now pledged a £5 billion debt relief package overall. The Treasury says this is made up of:

• £2 billion just announced for bilateral debt
• £3 billion from: British contributions to the World Bank HIPC Trust Fund ($385 million); British contributions to the IMF for debt relief; various aid debts written off ( from 1979 onwards).

What does the announcement mean?

By itself, Brown's promise does not actually deliver a great deal in terms of finance. The 41 HIPC countries owe Britain £2 billion out of their total debts of £132 billion.

So the real significance of Brown's promise is that it puts pressure on the other G7 creditors to also cancel 100% of their bilateral debts. If all the bilateral creditors were to do this for HIPC countries, about 40% of the total debts owed would be written off. Now that Britain has joined the US and Canada, that leaves Germany, Italy, France and Japan to follow. These remaining countries are owed the bulk of the debt (see table below) so it is crucially important that the domino effect, given a boost by Brown, continues.

Owed by 41 HIPCs	$billion		Owed by 41 HIPCs	$billion
France	11.7		UK	2.7
Japan	10.5		USA	6.0
Germany	6.1		Canada	0.7
Italy	2.7

Jubilee 2000's position

We have been campaigning for Britain to cancel 100% of their bilateral debts, and are delighted that the government has responded. There are a few points to note.

• Many poor countries left out

  Jubilee 2000 has identified 52 countries as being in urgent need of debt cancellation. The Chancellor's promise will only potentially benefit 41 of these; and of those 41 only 25 are likely to benefit before the end of 2000. Jubilee 2000 argues that other countries such as Nigeria, Haiti and Peru should be included in the official HIPC debt cancellation process, thereby qualifying for Brown's Millennium gesture.

• Other creditors must follow UK, US and Canada

  Brown has stated that he is expecting similar announcements from other European creditor governments. Jubilee 2000 will be targeting the other G7 countries to make their own commitment to 100 per cent bilateral debt cancellation, and believe that the UK government's move will provide leverage. Jubilee 2000 is already campaigning in France, Italy, Germany and Japan for unilateral action by those governments. We are targeting France, Japan and Germany over the next three months and will begin rolling embassy protests outside Japanese embassies around the world from the start of January 2000.

• Don't let the process stall

  The Chancellor's commitment is dependent on countries coming through the HIPC initiative. This initiative was started in 1996, but since then only 4 countries, out of the 41 who qualify, have seen actual reductions in their debt repayments. The HIPC initiative continues to be subject to stalling by certain creditors and arguments about funding. Jubilee 2000 will be monitoring the process carefully to ensure the promise is translated quickly into money for the poorest people.

• Tough conditions but not imposed from above
  Jubilee 2000 feels strongly that tough conditions must be imposed – particularly on undemocratic governments, to guarantee:

1. that there is transparency about funds released by debt cancellation; in other words, that the public in those countries is made aware that their government is a beneficiary;
2. that any resources released should be prioritised for poverty reduction and economic recovery;
3. that this should be achieved through democratic participation of civil society in those countries. We have always been sceptical that traditional IMF economic conditions benefit the poor – on the contrary, we believe they harm the poor.

 

 

 

Countries who could reach decision point in the HIPC process and therefore qualify for UK 100% debt relief in the next 12 months

By January 2000

Country	Debt to UK (£ million)	Debt service to UK (£ thousand)
Uganda	6	0
Mozambique	93	0
Bolivia	12	0
Mauritania	7	322
Total	117	322

 

Probably by the end of April 2000 (IMF/World Bank Spring meetings

Country	Debt to UK (£ million)	Debt service to UK (£ thousand)
Benin (February)	3	216
Senegal (February)	2	20
Burkina Faso (March)	1	80
Tanzania (March)	117	9731
Mali (April)	4	263
Côte d'Ivoire	34	3845
Guyana	74	3498
Total	234	17653

The IMF and World Bank have signalled that there is a risk that both Côte d'Ivoire and Guyana are “off track”, i.e. not meeting the necessary conditions for HIPC debt relief.

 

Possibly by the end of 2000

(NB. This list is less easy to predict, given the uncertainty of how fast these countries will move through the HIPC process)

Country	Debt to UK (£ million)	Debt service to UK (£ thousand)
Chad	0	0
Ethiopia	13	563
Ghana	12	1518
Guinea	5	154
Guinea Bissau	0	0
Honduras	2	0
Laos	0	0
Malawi	4	842
Nicaragua	1	39
Niger	11	103
Togo	14	161
Vietnam	10	850
Yemen	3	3490
Zambia	229	2010
Total	305	9730

If these 25 countries do get far enough through the HIPC process by the end of 2000, the UK will have written off £656 million in bilateral debts.