The Position of South Africa regarding Debt Relief

On 9 September 1999, an Extraordinary OAU Summit was held in Libya. The Sirte Declaration was adopted by the Heads of State and Government at the conclusion of the Summit. As part of the Declaration, President T Mbeki and President A Bouteflika of Algeria were mandated to engage Africa's creditors on the total cancellation of Africa's external debt.

President Mbeki has successfully utilised various opportunities since then, during bilateral visits and at regional and multilateral meetings, to present an economic and social development agenda for Africa. He has been working with President Bouteflika and President O Obasanjo of Nigeria, in terms of an extended mandate from the OAU and from the South Summit, to develop the Millennium African Renaissance Programme (MAP). This global initiative endeavours to change the place of Africa in the global economy.

It is based on the twin priorities of poverty alleviation and people centred development (economic growth and social justice). Debt is one of the major issues emphasised in the process of discussing what needs to be done. Debt is not seen in isolation, but as a vital part in an overall, enhanced and coordinated package of measures, aimed at developing a new world agenda to integrate the developing world into the global economy. The slow pace of debt relief remains a critical obstacle in this process.

Pursuant to the Sirte and South Summit mandates, President Mbeki, along with Presidents Bouteflika and Obasanjo, went to the G8 Summit in Japan during July 2000 to engage the G8 leaders on the issues of concern for the South, particularly the debt issue. The matter was also raised during the 2000 UN Millennium Summit.

Debt cancellation, coupled with the efficient utilisation of scarce financial resources and macro-economic stabilisation policies, is a fundamental condition for growth, development and the eradication of poverty. Unsustainable debt has a severe impact on resources available to address economic and social development needs. Resources are wasted on debt repayment and foreign debt servicing, instead of where they are most needed, eg education, health, and infrastructure development.

The situation becomes even more untenable when coupled with declining levels of overseas development aid and foreign direct investment, and deteriorating terms of trade and international market access. Existing measures, such as negotiations within the London and Paris Clubs, bilateral negotiations and the HIPC Initiative have not succeeded in resolving the debt crisis. The total external debt stock of the continent, despite the best efforts, continues to increase, as does the debt to GDP ratio and the debt to export ratio. Sums of money greater than the original debt have been paid, but, due to the capitalisation of arrears, the debt has increased.

The enhanced Highly Indebted Poor Countries (HIPC) Initiative adopted in Cologne and endorsed at the World Bank/IMF Annual meeting of September 1999, attempted to address the deficiencies identified in existing debt relief measures. It attempted to provide deeper, faster and broader debt relief, while forging the vital link between debt relief and poverty reduction and development. In general, the enhanced HIPC was widely welcomed at the time. However, even the enhanced HIPC has serious shortcomings and increasingly it can be seen that the initiative is failing in its goal of providing accelerated relief. The financial commitments made to the enhanced HIPC largely still have to be met and implementation is proceeding too slowly.

In Washington during April 2000, Minister Manuel addressed the key IMF policy body, the International Monetary and Financial Committee. He stated that the enhanced HIPC initiative was not working and needed to be revised. The commitments made to the initiative were not being followed up, and the deeper, faster, wider debt relief envisaged was not happening. Financing of the US$ 28 billion initiative still remains a major problem.

In this regard, South Africa, Nigeria and Botswana, amongst others, have made contributions to the HIPC-PRGF (Poverty Reduction and Growth Facility) Trust. The qualification process under the initiative is too cumbersome, prolonged, resource intensive and complex. In order to qualify, detailed poverty reduction strategy papers (PRSP) have to be developed by countries, in consultation with civil society. Furthermore, these strategies have to be implemented for at least one year in order to qualify for relief. This presents a major obstacle/conditionality for eligibility, in that the funds deriving from relief are needed for the very poverty implementation that states are expected to pursue before receiving any relief. This process of policy formulation, implementation and management also presents a major human resource capacity challenge to poor states.

The linkage between multilateral and bilateral creditor support for relief presents another problem, particularly where developing states are involved. Debts owed to developing states should be excluded from burden sharing requirements. There is a concern that the problems of middle income states are not being addressed. Lastly, Minister Manuel called for the developing world to have a greater say in the global financial organisations.

In statements following the same Committee meeting, the Chair of the Committee and the Acting Managing Director of the IMF were more positive, talking of progress made under the enhanced HIPC initiative. They welcomed the establishment of a joint World Bank-IMF Committee to facilitate implementation of the initiative and of poverty reduction strategies. However, they did urge all parties to work for faster and more effective implementation and to ensure that as many countries as possible reach decision point by the end of 2000. There are 41 HIPC states, 33 of which are in Africa.

Both sides have roles to play in the process of debt relief. For creditors, relief must not replace other forms of development and growth support, such as increased flows of development aid, increased foreign direct investment, access to capital, and market access. The debtors must continue with economic policy reforms, structural adjustment, liberalisation, and poverty alleviation programmes.

An enabling environment for the mobilisation and efficient utilisation of scarce resources, such as the savings from debt relief, must be in place. All attempts should be made to ensure that the basis for linking debt relief to poverty reduction is realised, ie poverty must in fact be reduced. The linkage should not become just another conditionality. Speedy, flexible and clearly defined eligibility criteria and time frames for graduation need to be reviewed, in order to immediately bring relief to countries faced with an untenable debt overhang.

Generally, the matter is still being looked at from the perspective of the needs of the creditor rather than those of the debtor, eg criteria used to measure debt sustainability still focus on levels of debt service and debt stock, rather than the capacity to pay and the growth, poverty reduction and infrastructural needs of a country.

The report of the UN Secretary-General for the Millennium Assembly states that debt relief must be an integral part of the international community's contribution to development in poor countries. The linkages between debt cancellation, poverty eradication and finance for development are accepted. It states further that the expansion of debt relief programmes under the HIPC initiatives must be implemented without further delay. Progress under HIPC has been slow and the enhanced HIPC endorsed in September 1999 has not yet been implemented.

The report calls upon donor countries and international financial institutions to cancel all official debts of the heavily indebted poor countries, in return for them making demonstrable commitments to poverty reduction. New approaches to the debt problem are required. The report proposes cancellation for those who have suffered major conflicts or natural disasters, expanding the number of states in the HIPC scheme (by allowing them to qualify on grounds of poverty alone), pegging debt repayments at a maximum percentage of foreign exchange earnings, and establishing a debt arbitration process to balance the interests of creditors and sovereign debtors. The Secretary-General concludes by saying that, without a convincing programme of debt relief, the objective of halving world poverty by 2015 will be but "a pipe-dream".

In conclusion, the initiatives taken and achievements forged over the past year or so should be consolidated. The message needs to be conveyed that the debt issue continues to present a critical obstacle in the development of Africa and the fight against poverty. Existing measures must be accelerated, improved and implemented. Commitments made under the existing relief mechanisms, particularly relating to financing, must be met. Shortcomings inherent in present initiatives must be resolved.

A radically new initiative must be developed to cover the gap between existing measures and the ultimate objective, represented by the total cancellation of Africa's debt. Coordinated action by African governments, to put in place a unified framework to address the debt issue on a continent-wide basis, while still allowing for a case-by-case, country-by-country analysis and assessment, is required. The different types of creditors and debt should also be factored in.

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2003 Department of Foreign Affairs, Republic of South Africa