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G8 Leaders Commit a further $1bn in Debt Relief for the HIPC Countries Tuesday July 2nd, 2002 At the start of the G8 summit in Canada, the world's leaders announced that they would be providing an additional $1bn of debt relief for selected Heavily Indebted Poor Countries (HIPCs). The money will be put into the HIPC Trust Fund, which finances the contributions of the international financial institutions - including the IMF and World Bank - for debt relief under the HIPC initiative. The rationale for the additional relief is that many of the HIPCs which are between Decision Point and Completion Point under the HIPC process - that is, countries which have qualified for debt relief but have yet to receive any write-off of debts - are no longer expected to have a sustainable debt burden at Completion Point. This is because the annual export growth of these countries has been slower than expected at Decision Point, due to falling commodity prices and the global economic slowdown. Jubilee Research welcomes the admission by the G8 countries that the levels of debt cancellation committed at Decision Point will not be sufficient to bring HIPC debt down to sustainable levels. As early as September 2001, we cautioned that many of the export projections used by the World Bank and IMF when preparing Decision Point documents were overly optimistic[1]. However, Jubilee Research believes that the additional $1bn debt cancellation offered will fall far short of the levels of debt cancellation needed if the HIPC countries are to meet the Millennium Development Goals[2]. Moreover, the $1bn offered will not even be sufficient to bring all countries which are likely to have an unsustainable debt burden at Completion Point, back to within the 150% debt-to-export target included within the HIPC framework. In a recent report[3], the World Bank provided updated projections of debt to export ratios at Completion Point for the HIPC countries, based on the most recent export data. The report showed that 12 of the HIPCs that are between Decision Point and Completion Point under HIPC (so-called 'interim HIPC') can no longer expect to have a debt to export ratio of less than 150% when they reach Completion Point. If we calculate the additional debt cancellation, in net present value terms, that will be needed to bring these 12 countries to within the HIPC sustainability threshold, we get a total of $2.1bn in net present value terms[4]. In nominal terms, this figure would be even higher. Furthermore, the G8 proposal does not provide for any further debt relief for countries which are already beyond Completion Point. As the World Bank have themselves shown, at least two of the six countries which are already passed Completion Point no longer have a sustainable level of debt. In the case of Uganda, the catastrophic fall in coffee prices over the past two years has meant that her debt will remain at around 250% of her exports until at least 2004. If we include the additional debt cancellation that would be needed to bring Uganda and Bolivia back to debt sustainability, the total figure required rises to $2.8bn in net present value terms. Furthermore, Jubilee Research believes that the World Bank and IMF should not rely on bilateral donors to bail them out when their export projections turn out to be wrong. In effect, G8 countries will be contributing to the HIPC Trust Fund through their bilateral aid budgets, thus denying other poor countries, and the HIPCs themselves, additional aid. Instead, Jubilee Research believes that multilateral creditors, including the World Bank and IMF, should take more losses themselves -through, for example, reducing the level of their reserves, or through the sale of IMF gold as advocated by, for example, Nancy Birdsall of the Centre for Global Development[5]. Jubilee Research believes that only when multilateral creditors start taking losses for themselves will they start ensuring that their economic projections meet the reality faced by the HIPC countries. For the full text of the G7 statement, click here. For a full analysis of the World Bank report on the HIPC initiative released in April 2002,
click
here. [1] See ‘HIPC – flogging a dead process’ by Jubilee Plus (which was the earlier name for Jubilee Research.) [2] For more information, see ‘The Unbreakable Link – Debt Relief and the Millennium Development Goals’ by Jubilee Research at NEF, February 2002. [3] See ‘The Enhanced HIPC Initiative and the Achievement of Long Term External Debt Sustainability’ by the World Bank, March 27th 2002. [4] This figure was calculated by providing an updated figure for average exports for the 3 years up to Completion Point based on the updated World Bank export projections. The target level of debt, at 150% of 3 year average exports, was calculated. This was subtracted from actual NPV of debt expected at Completion Point. [5] See ‘Delivering on Debt Relief: From IMF Gold to a New Aid Architecture’ by Nancy Birdsall and John Williamson
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