Ann Pettifor - Director, Jubilee Research
Dinesh Dodhia - Consultant Advisor, Economic Affairs Division, Commonwealth Secretariat
Oona King - MP
- Dinesh Dodiya introduced the discussion, identifying three main issues related to debt relief, aid, and poverty reduction (insert reference to presentation if available). These were: (a) Debt sustainability; (b) Poverty Reduction Strategy Papers; and (c) the Multilateral Development Goals.
- With regard to debt sustainability (defined as a debt-to-export ratio of less than 150%), it was clear that exogenous shocks, particularly a sharp fall in commodity prices, had pushed debt-to-export ratios up and made debt sustainability more difficult. There was no international mechanism for dealing with shocks in a concessionary and flexible way. It was also apparent that macro-economic projections built into calculations of debt sustainability were over-optimistic. For the initial group of HIPC countries, GDP growth had been estimated at 5.6%, compared to an historical record of 2.7%, and export group at 8% compared to 5%. These projections were likely to be unrealistic. Re-assessments were needed along with a formal procedure for periodic reviews. Even without considering exogenous shocks and possible lower than expected growth rates, there were other problems with debt sustainability, including the fact that indicators left out the importance of internal debt. It might be useful to think of having a fiscal debt to government revenue ratio
- On PRSPs, Dinesh Dodiya pointed out that only five countries had reached completion point for debt relief on the back of completed PRSPs. This was partly because of over-emphasis on the quality of the documents: there was an obvious trade-off between quality and speed in preparing PRSPs. There were also wider problems: the volatility of donor flows meant that it was difficult for countries to deliver on the policy commitments made in PRSPs; there were also special problems affecting HIPC countries affected by conflict where PRSPs were not possible or appropriate. Dinesh Dodiya was also keen to see greater attention to gender issues in PRSPs.
- Finally, on the multilateral development goals, Dinesh Dodiya reminded the meeting that various reports (the Zedillo report, the World Bank) had estimated that $40-60 billion per year in additional flows would be necessary. Gordon Brown had proposed an international development trust fund to help leverage private funds to meet this target. It was clear that HIPC debt relief resources on their own would be completely inadequate to meet the targets. Current estimates were that HIPC might generate not more than $1.2 billion annually.
- Ann Pettifor gave a pessimistic account of the impact of HIPC. Despite the plaudits Jubilee 2000 had received, HIPC was failing. Of five countries at completion point, two (Uganda and Bolivia) were already unsustainable by World Bank criteria. Of 21 countries currently between decision and completion point, 8-10 would not be sustainable at completion, and nine had had interim relief suspended by the IMF because they were off track on reform. Meanwhile, the World Bank was predicting that Africa would not reach the Millennium Development Goals, that the numbers in poverty would increase, and that child mortality would rise. There were particular problems with countries emerging from conflict. Because they were in arrears, they were ineligible for HIPC relief, and were required to borrow at full market rates: Sierra Leone was a case in point. Perhaps most disappointing for Jubilee campaigners, the additional resources provided seemed to have been most effective in strengthening the balance sheets of the World Bank and the IMF.
- Ann Pettifor urged greater understanding of the development problems facing HIPC countries. For example, Bolivia had been declared off-track and unsustainable. But a key reason for this was the collapse of remittances from Argentina, itself caused by the Argentina crisis. Jubilee Plus was campaigning for a new approach to debt relief. Creditors should not be in charge of writing off debt. In rich countries, bankcrupty would be left to the courts, and the same procedure should be followed in developing countries. There seemed to be an international consensus on this issue, and she was hopeful that an international bankruptcy process would be put in place.
- A number of points were raised in the discussion:
- Questions were raised about the importance of debt relief relative to other possible uses of aid flows. Was debt relief the best use of additional money that donors might provide? Ann Pettifor was clear that it was. She argued that debt denies a country policy autonomy, and that governments will only be accountable for their people if they control the resources they raise. Debt gave control over the economy to outsiders
- The susceptibility of countries to shocks was emphasised, for example in Rwanda and Uganda. Commodity prices and the volatility of donor flows were problems. It was very difficult for countries to plan on this basis.
- The question of loans versus grants was debated. Some felt that grants were always preferable to loans. Others made the case for continued lending within a growth process.
- A number of growth and poverty related issues were discussed: trade access, the free movement of labour, industrialisation behind protective trade barriers, etc.
- Closing the meeting, Oona King thanked the participants. She also emphasised on her own account the importance of debt relief, for example in the Greater Horn.
Outlining the history and future of debt relief, this event discusses what the experiences of - and prospects for - MDGs, PRSPs and the accountability of donors.