Debt Relief Is Goal for Continent

Mozambique, like many other African countries, is a country of many contrasts. Located on the Indian Ocean, it lays claim to an extensive array of natural resources, such as coal, gold, titanium and some of the most beautiful landscapes in the world. Unfortunately, Mozambique also suffers from that which plagues so many African countries: a staggering debt burden that is preventing it from developing its full economic potential.

From 1995 to 1997, the average debt service amounted to $7.45 per person a year, while amounts spent on health and education were just $5.04 per person a year. These figures are typical of many African countries, which spend more than 25% of their export earnings on debt servicing. It is time for Western countries to cancel the debt owed by Mozambique and other developing countries and give them an opportunity to start investing in the future.

To date, the World Bank, the International Monetary Fund and the then-G-7 countries have avoided the issue of comprehensive debt cancellation for the poorest of the world’s developing countries--comprehensive meaning bilateral, multilateral and commercial debt. As international financial institutions, the World Bank and the IMF believe that comprehensive debt cancellation would contribute to the “moral hazard” phenomenon, which would manifest itself in the misapplication of future loans and irresponsible economic behavior by debtor countries.

The Highly Indebted Poor Countries initiative and its proposed reformulation have therefore been a rallying point for these institutions, which wish to preserve their reputations as credible lenders while demonstrating a concerted effort to address the debt problem. The initiative, which was introduced by the World Bank and the IMF in September 1996, was initially intended to provide a way in which 41 of the world’s highly indebted countries (30 of which are located in Africa) could achieve a sustainable debt level while avoiding the process of debt rescheduling. During a six-year period, qualified countries would be required to implement a structural adjustment program--a series of economic policy reforms in such areas as the financial sector, the civil service, the state-owned enterprises and the agricultural sector.

In its defense, the initiative was the first real attempt of international financial institutions to redress the crippling effects of debt on developing countries. However, almost three years after its inception, only two of the targeted countries have actually received debt relief: Uganda and Bolivia. This reality has prompted critics to call for faster debt relief for more of the world’s impoverished nations.

The most vocal of these critics hail from the Jubilee 2000 campaign. According to this group of churches, trade unions and charities from all over the world, the debt incurred by African and other developing countries has become an instrument of impoverishment and enslavement imposed by Western countries that ultimately threatens the present and future well-being of millions of the world’s inhabitants. The year 2000 is seen as an opportunity to wipe the slate clean and begin a course of development without debt.

If the World Bank, IMF, and the G-8 (the seven major industrial nations and Russia) refuses to subscribe to the notion of comprehensive debt cancellation, then the group must commit itself to a reformulation of the initiative during the G-7’s Cologne summit this week. A constructive reformulation of the initiative should contain comprehensive debt cancellation for the poorest of these nations, 90% to 100% reduction of bilateral debt for the remaining countries, a reduction of the time frame from six to three years and the inclusion of more countries in the initiative, particularly those that have experienced economic shocks or environmental disasters, as have the Philippines and Honduras.

Moreover, all donors must agree to make annual contributions to the HIPC Trust Fund, which was specifically established to fund multilateral debt relief. In 1996, the World Bank pledged to contribute $2 billion annually for the next four years. However, creditor countries must also participate in this effort. Germany and Great Britain are among the first Western countries to donate resources to the fund.

Additional financing for the initiative should come from the sale of IMF gold reserves as proposed by President Clinton in March. His idea to sell $30 billion of the reserves and reinvest the profits was supported by the African finance ministers during a meeting in Ethiopia last month. The finance ministers said that the problem of debt could be further ameliorated by an increase in aid in the form of grants, more trade and increased investment. All of these sources of foreign capital seriously lag behind those of other developing regions.

In the grand scheme of things, what matters most is the attainment of self-sustained development for African countries. For Africa to enjoy the full benefits of development, and hence improve the well-being of its people, it is imperative that the debt overhang be addressed in a prompt and forthright manner.

Africa’s future depends on it.