Memorandum submitted by the Department
for International Development
DEBT RELIEF (Third Report 1997-98, Fourth
Report 1998-99, and Fourth Report 1999-2000
Progress on the Heavily Indebted Poor Countries
The Government welcomes the renewed effort by the
World Bank and IMF to implement the enhanced HIPC Initiative more
quickly. Provided that there is a reasonable level of confidence
that debt relief will benefit the poor, the Government has argued
that eligable countries should receive their debt relief. By mid
September 2000, ten countries had reached Decision Point under
the enhanced HIPC initiative, and one, Uganda, had reached Completion
Point. These are:
Debt Relief Agreed by Mid-September 2000
($ million, net present value)
The World Bank and IMF have established a Joint
Implementation Committee (JIC) to oversee the HIPC initiative.
Two countries, Ghana and Laos, have decided not to seek debt relief
under the HIPC initiative. The JIC has identified a further 14
countries that could qualify for debt relief before the end of
2000. These countries are:
Cameroon, Chad, Ethiopia, Gambia, Guinea, Guinea
Bissau, Guyana, Madagascar, Malawi, Nicaragua, Niger, Rwanda,
Sao Tome and Principe, Zambia.
Many of these countries do not have the three-year
track record of implementing economic reform programmes normally
required under the HIPC initiative for Decision Point. In some
cases this is because of the country's previous involvement in
conflict. The Government has pressed for the track record requirements
to be interpreted flexibly, and for conditionality to be focussed
only on those policy action which are critical for tackling poverty;
the World Bank and IMF Boards have shown a willingness to do this.
The JIC have also begun work to look at how debt
relief savings are being spent in country. In many cases, governments
will need to make greater progress in establishing accountable
and transparent public finances, and demonstrate that they have
the will to tackle corruption rigorously.
Of the remaining HIPC countries, many are unable
to qualify for debt relief because of their involvement in conflict.
In July 2000, at the G8 Summit in Okinawa, the UK pressed for
further efforts to be made with these HIPC countries. The G7 agreed,
and officials are discussing the steps that could be taken. The
purpose of this action would be to encourage progress towards
a lasting peace, as a necessary first step to poverty reduction,
and where feasible to discuss a possible roadmap to gaining HIPC
relief. There are ten countries that are classified by the World
Bank as affected by (current or recent) conflict and that are
unable to qualify for debt relief in 2000; these are Burundi,
Central African Republic, Congo, Democratic Republic of Congo,
Ethiopia, Liberia, Myanmar, Sierra Leone, Somalia, and Sudan.
In addition the civil strife in Cote d'Ivoire is one of the factors
delaying their qualification for debt relief. The UK has proposed
that it should lead this initiative in Sierra Leone and Ethiopia,
where there is now a cessation of hostilities with Eritrea.
There is no immediate prospect of Sudan, Somalia
or Liberia entering HIPC. Sudan has successfully implemented
a Staff Monitored Programme for the last two years, but the continuing
conflict and the level of its arrears remain significant hurdles.
Provided there is peace, a 'best case' scenario recently produced
by the IMF sees Sudan beginning a Rights Accumulation Process
in 2001, which could lead to the clearing of arrears. This would
provide the necessary track record on economic reform, and provided
that the Government also produced a poverty reduction strategy,
HIPC Decision Point could be reached in 2004.
No substantive progress on debt relief for Somalia
can be made until it has some form of internationally recognised
national government. The Djibouti Peace Conference in August this
year has made progress, but there is more to do. They would need
to follow a similar track to Sudan to qualify for their debt relief.
In Liberia, corruption and economic mis-management remain
rife, although the IMF began a Staff Monitored Programme in January
2000. President Taylor is suspected of facilitating the conflict
in Sierra Leone. Entering HIPC remains a distant prospect.
Considerable progress has been made in securing the
necessary financing for HIPC. The World Bank's need for
resources was discussed during the IDA mid-term review, and it
has been agreed that the need to replenish the HIPC Trust Fund
will be formally reviewed back-to-back with the discussions on
IDA resources. For the Latin American multilaterals, a working
group chaired by the US, has agreed the delivery mechanism for
Inter-American Development Bank's debt relief and its financing.
The Finns chaired a similar working group for the African Development
Bank (AfDB). The Government was pleased that substantial frontloading
of debt relief was agreed for AfDB, but disappointed that this
was not mirrored in the Latin American case.
Substantial bilateral contributions have been pledged
to the HIPC Trust Fund, and there is no immediate need to identify
additional resources. However US Congressional approval for the
$600 million promised by President Clinton remains essential,
not least because some of the bilateral pledges are conditional
on this. Congress also need to approve the use of the remaining
proceeds of the IMF gold sales. The first tranche of the funds
from the EC was paid in July 2000.
No recent work has been carried out on commercial
debt, which is small for HIPC countries. DFID commissioned
work on domestic debt, which was finalised earlier this
year. One of the outputs is guidance for developing countries
to use in formulating their debt strategies. DFID continues to
raise domestic debt issues with specific governments that have
large domestic debt burdens. In Ghana, for example, DFID has been
funding technical assistance to the Debt Management Unit, and
has helped formulate Ghana's Debt Reduction Strategy. The European
Commission has also been doing some work in this area and have
provided budget support specifically tied to reducing domestic
debt. DFID does not provide assistance in the same way; however
DFID contributes directly to the budget in some countries, and
governments may use some of their resources to reduce domestic
debt. This is appropriate when the reduction of domestic debt
will lower interest rates, which at high levels contain investment
and expenditure on poverty reduction.
Poverty Reduction Strategies (PRS)
Many countries are now preparing their interim or
full poverty reduction strategies. By the beginning of August,
15 countries had presented these to the Boards of the World Bank
and the IMF. DFID is closely involved in the discussions in countries
where we have a programme, and in some cases has funded projects
to support civil society involvement. For example, we provided
funds for a training course for Southern African NGOs on understanding
government budgets; in Nicaragua, we are working with UNDP and
the Government to deepen and broaden civil society involvement
at all levels in the PRS process; in Uganda, we are funding the
Participatory Poverty Assessment.
In recognition of the central role which civil society
plays in PRS processes, DFID's Civil Society Challenge Fund will
give preference in the next funding round (2001/02) to initiatives
aimed at building the capacity of civil society in developing
countries to engage in national policy processes, including Poverty
Reduction Strategy Papers. In preparation for this, work has been
commissioned into the role which Northern NGOs and other civil
society groups can play in supporting Southern partners in these
processes. In addition, DFID hosted a conference in Glasgow in
May which considered ways in which official donors can support
the closer engagement of governments and civil society in pro-poor
Commonwealth Debt Initiative
Aid debts for 11 countries, worth more than £46
million, have been forgiven under this initiative in support of
poverty reduction and the achievement of the international development
targets. Most recently, and as part of the above strategy, DFID
agreed to relieve Jamaica's debt repayments for the years 2000/01-2002/03,
worth £11.4 million; this brings Jamaica's relief on its
aid debts to the UK to £24.2 million.
Each application for the provision of UK export credits
guarantees to IDA-only countries is assessed on its developmental
merits. No request has been refused to date. IDA-only countries
do not generate many applications as ECGD cover, where available,
is generally on very restricted terms. At the Okinawa Summit,
the G7 underlined their support for productive expenditure, and
as a consequence of this, the UK is taking the lead in formalising
the voluntary agreement on productive expenditure within the OECD.