Mercy Global Concern - 2005

Debt-Watch: Debt Cancellation Special

Over the last six months, we have seen both the UK and US Governments put forward alternative proposals to cancel the debts (or debt service) of some of the world s poorest nations. The tireless work of thousands of debt campaign groups and policy analysts across the globe has ensured that the issue of multilateral debt cancellation does indeed feature highly on the political agenda and many feel that this year there are significant opportunities to advance on the issue. This is also due in part to the UN MDG Summit in September which will undoubtedly highlight the sad fact that too many countries and in particular the countries of Sub-Saharan Africa are on trajectories that will result in their failure to reach the internationally agreed goals and that millions will die needlessly as a result.

UK and US proposals tackle the issue quite differently (certainly from a financing perspective). The UK proposes to extend its plan to 20 countries initially (this could be expanded up to 65). It proposes to raise up to US$35 billion from the revaluation of IMF gold reserves to fund the cancellation of debts owed to the IMF. For debts owed to the World Bank and African Development Bank, the UK will fund 10%, equivalent to its share in those institutions, of the debt service owed by eligible countries for a period of 10 years (between 2005 and 2015). Canada has also recently announced similar proposals: it will fund approximately 4% of the debt service owed the IMF, WB and AfDB (also equivalent to its share). Importantly, these proposals are for debt service cancellation over a period of 10 years for only a limited number of countries: many low-income countries have loans with repayment periods of over 30-40 years which means that come 2015, many debts will still be outstanding and countries may suffer serious (and worrying) spikes in debt service repayments. These proposals should not therefore be labelled as 100% debt cancellation as some would have you believe! US proposals do provide for a 100% cancellation of the stock of debt of 42 HIPCs but there are serious concerns that this will be financed via IDA (International Development Association) resources which provide interest-free loans to the world s poorest countries. Many fear that this would seriously damage the financial integrity of IDA and that, in fact, US proposals do not provide additional resources to countries. Finally and fundamentally, neither proposal addresses the problem of grossly unequal creditor-debtor power relations that currently characterise the international debt architecture.

US Proposals on Multilateral Debt Cancellation

Until very recently, the US had not released written details of its plans. It has now done this, and in a very brief paper has outlined how it proposes to use IDA resources and how it believes that IDA will not be negatively affected. EURODAD has published the paper on its website: http://www.eurodad.org/articles/default.aspx?id=610

EURODAD Briefing on UK Proposals

At the end of last year, the UK published the details of its plans. In a briefing, EURODAD has summarised the proposals and outlined some of its main strengths and weaknesses that we feel should be taken on board by policy-makers. This paper has also been published on our website (available in English, French and Portuguese), see: http://www.eurodad.org/articles/default.aspx?id=610

African NGO Statement on Recent Debt Cancellation Proposals

In response to these developments, a number of African NGOs have grouped together to draft and publish their response to these recent plans. The full statement is below. See also: http://www.eurodad.org/articles/default.aspx?id=611

At the upcoming Spring Meetings of the IMF and World Bank, the issue of gold sales/revaluation will again be on the agenda. The IMF has produced two papers which look at further debt relief for HIPCs and the pros/cons of gold sales/revaluation which were to be considered by the Fund Board on 30 March. Civil society organisations intend to keep up the pressure for a deal with a Day of Action against G7 embassies on 1 April. G7 embassies around the globe will be targeted with demands to drop the debt and EURODAD urges you to become involved! Full details can be found at the bottom of this message and please keep us informed!

Please email me with any comments, contributions and questions.

Thanks!

Gail Hurley

EURODAD

Avenue Louise 176, 8th Floor,
1050 Brussels, Belgium,
Tel: +32 2 543 90 68
Fax: +32 2 544 05 59
Email: ghurley@eurodad.org
Website: www.eurodad.org

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