For those unfamiliar with the term, certain countries are considered Heavily Indebted Poor Countries, or HIPC. These are countries that are eligible for special assistance from the International Monetary Fund and World Bank.

The annual “HIPC Status of implementation” report was published a couple weeks ago. There’s some very interesting information here:

In total 35 out of 40 HIPCs have qualified for assistance; 26 have reached completion point. Of the five remaining pre-decision point HIPCs only the Comoros might reach decision point in the next 12 months. The other candidates are either not working towards reaching decision point (Eritrea, Kyrgyz Republic) or find themselves in a governance situation that does not allow progress (Somalia and Sudan). So it will be interesting to see which countries can reach completion point. Given the status of implementation we can estimate this will be Afghanistan and Republic of Congo (Brazzaville) in 2009 as well as Liberia in the first quarter of 2010. Progress of the single biggest debtor at decision point, the Democratic Republic of Congo, is currently stalled, because the Bretton-Woods institution considers its debt sustainability threatened by the DRC’s plan to take a multi-billion dollar loan of the Chinese EXIM-Bank.

For the 35 post-decision-point HIPCs, poverty reducing expenditures between 2001 and 2008 increased by 2 percentage points of GDP, on average, while debt service obligations declined by the same percent. The total amount of debt cancellation now stands at $117 billion, out of which $72 billion was cancelled under HIPC and $45 billion was cancelled under MDRI – the Multilateral Debt Relief Initiative (all in nominal terms). This is an increase of roughly $5.5 billion in cancelled debt ($3 billion under HIPC and $2.5 billion under MDRI) since last year. The number of post-completion-point countries that are at risk of re-incurring unsustainable debt (especially due to the global economic crisis) has increased from four in 2008 to five now.

This last point is showing the importance of continuing and expanding the initiative. Post completion point countries must have a chance to maintain bearable levels of debt, even when shocks, such as the global economic crisis, occur. This can be done firstly, by providing grants rather than loans. Otherwise, financing the achievement of the MDG’s in many countries will be tantamount to reaccumulating unsustainable debt.

Secondly, a sovereign debt workout mechanism is needed. This is a comprehensive way to preserve the achievements of debt relief. Governments in the South and civil society have long been calling for such an “international insolvency procedure” for states. It would be applied by a panel similar to the arbitration panel structure of the World Trade Organization (WTO).

-Andreas Huebers

I recently attended a very interesting congressional briefing titled “The Global Financial Crisis and Africa: How to Avoid a Renewed Debt Crisis?” hosted by partner organizations Jubilee USA Network, the Evangelical Lutheran Church of America, the American Jewish World Service and the Episcopal Church. The conversation focused around how to preserve the achievements that many African countries have made over the last five or so years (with help from debt relief and increased trade) in light of the current global financial crisis. One of the measures suggested was that the International Monetary Fund (IMF) direct revenue from its upcoming gold reserve sales to developing countries.

As explained by Matthew Martin, Director of Debt Relief International, countries freed from odious debt have been able to invest in national poverty-fighting strategies such as lowering the barriers to healthcare and education by reducing user fees and improving infrastructure. In turn, debt relief empowers countries to be less dependent on foreign assistance in the future. Hon. Timothy Thahane, Minister of Finance and Development Planning for Lesotho, shared how when Lesotho received debt relief from the United Kingdom, they immediately redirected monies previously spent on debt relief service to vulnerable populations by providing free primary education, school feeding programs, and antiretroviral drugs for persons living with HIV/AIDS.

All this was somberly put into context when Thahane explained that the gains in employment and revenue due to debt relief and increased trade vis-à-vis the African Growth and Opportunity Act (AGOA), are currently threatened by the global financial crisis. The World Bank has estimated that an additional 53 million people will be forced to live on less than $1 per day as a result of the global economic downturn. The decline in commodity prices, remittances, and demand for exports has already had a dramatic effect throughout the continent. For example, the downward trend of car manufacturing in the U.S. has led to a significant decline in steel exports, which has impacted steel-producing African countries such as Guinea, Liberia and South Africa. Similarly, the sudden decline in demand for textile exports, led to a loss of 12,000 jobs in Lesotho, which impacts 40,000-50,000 lives.

Vitalis Meja, Program Director of African Network on Debt and Development (Afrodad) warned that the economic situation will make it very difficult for African countries to achieve the Millennium Development Goals (MDGs) and called on donor countries to resist reducing Official Development Assistance (ODA). Meja called for the reform of lending practices and joined the other panelists in asking the IMF to allocate revenue from its gold sales for debt relief and grants for the world’s poorest countries, which would help them weather the current economic crisis and avoid falling back into another debt crisis. Lesotho would be one of the countries that would directly benefits.

More information about the IMF gold sales and its potential to help low-income countries can be found in briefings prepared by ONE and Jubilee USA.

-Margaret McDonnell, US NGO Partnerships & Faith Relations Team

After freeing itself from a civil war, Liberia is now freeing itself from another major impediment to its development: a mountain of foreign debt. Little more than a year ago, Liberia’s foreign debt totaled $4.9 billion, equivalent to 700% of Liberia’s national income. This basically means all Liberians would have had to work for seven years without eating drinking or consuming anything just to pay off their debt to foreign creditors (and this is excluding the interests due during these seven years).

The country has chosen another path and embarked on a series of steps for which the support of creditors is indispensable.

The first step was taken when the country reached decision point under the “Highly-Indebted-Poor-Countries”-Initiative in March 2008. Liberia was originally named as HIPC-eligible but, due to its 14-year civil war, progress was limited. Under the leadership of President Ellen Johnson-Sirleaf, Liberia worked with major creditors to clear past debts, and at the same time creditors built in flexibility for Liberia in allowing a Staff-Monitored Programme of the IMF to count towards the requirement that countries demonstrate a track record of working with the international financial institutions. Although there were costly delays, the flexibility of the IFIs has offered essential support to Liberia at a turning point in its political and economic history. This first step only affected government-to-government debt.

This debt buyback is a second important step to ensure the economic viability of the country. As around 25% of the debt of Liberia was held by private creditors (hedge funds for a large part), it was essential to tackle this category of debt as well. With the financial support of the Worldbank and bilateral donors, Liberia has bought back the commercial debt that it owed to private creditors.

The third step, which has yet to be taken, is the completion point under the Heavily Indebted Poor Country (HIPC) Initiative. Liberia’s foreign debt is now down to $1.8 billion (still standing at around 250% of its national income). Most of this remainder will be cancelled when Liberia reaches its Completion Point. The creditors and above all the Worldbank, should continue to be flexible. They are setting and interpreting the triggers, which will decide when Liberia reaches decision point. One year has now passed since Liberia reached decision point. This means the minimum time any one HIPC country has to stay at decision point level is now over.

Therefore, the buyback is a good reminder to allow Liberia to take the third step and to rid itself of a debt burden that impedes the development of this increasingly stable post-conflict country.

Andreas Huebers

Liberia bought back $1.2 billion in debt today at a 97% discount, “the steepest ever negotiated on developing country commercial debt.”

From the World Bank:

“The deal was concluded with the payment of $38 million to retire 25 outstanding commercial claims. The World Bank contributed half of this money through the International Development Association (IDA) Debt Reduction Facility, and Germany, Norway, the United Kingdom, and the United States contributed the other half.

“The successful resolution of this inherited debt, which had ballooned through interest and penalty charges during a period when my country was wracked by civil war, is an important step on our road to recovery,” said Liberian President Ellen Johnson Sirleaf. “This puts us on a firmer footing to attract investment and accelerate economic growth.”

Expect more from ONE soon on this amazing update.

-Virginia Simmons

On March 31, Cote d’Ivoire reached the “decision point” under the HIPC-initiative. Cote d’Ivoire is the 29th African country to reach the decision point. The West-African country can now stop servicing around $ 3 billion worth of mainly bilateral debt and start spending it on urgently needed health and education policies instead. The debt stock will only be cancelled when it reaches the final stage of the Highly Indebted Poor Country Initiative (HIPC): the completion point.

At this point around $ 3 billion in mainly bilateral debt and $2 million USD in multilateral debt will be cancelled. The Worldbank and IMF are optimistic that this can happen rather rapidly. In the HIPC-process this means probably more than a year. The International Financial Institutions have good reasons to move Cote d’Ivoire to “completion point”: Cote d’Ivoire is a post-conflict country at a critical stage of its development. A Peace Accord between the government and the rebels was signed in 2007 and has proved stable since then. The interim debt relief that comes with reaching decision point is a good first step. But the benefits of full debt relief could contribute even more substantially in helping the country to stabilize and develop.

-Andreas Huebers

On January 29, Burundi reached its debt-canceling “completion point”! This is the final stage of the Highly Indebted Poor Country Initiative (HIPC) which seeks to cancel highly indebted countries’ loans. After a long process, Burundi, a small country in Eastern Africa will now receive irrevocable cancellation of a little less than $ 1 billion in debt. This is composed of $833 million under HIPC and $105 million under the Multilateral Debt initiative (MDRI). MDRI is only accessible to countries that have reached the HIPC-completion point and it complements HIPC, which is basically focused on bilateral debt.

Burundi has improved the quality of its fiscal and debt management. The funds that no longer need to be paid to international financial institutions can now go towards economic and social recovery of the country, which is needed to stabilize its post-conflict society.

-Andreas Huebers

Here at ONE we love a good news story and this is a mini-victory for transparency!

The Paris Club of creditor nations has published the list of its debt claims on individual countries. Although people have long argued for this, it’s the first time they have published this information. This is a great step forwards in terms of transparency and gives the public an opportunity to look at the figures.

The Paris Club, originating in 1956, is an informal group made up of finance officials from 19 of the world’s richest countries. According to their website their role is “to find co-ordinated and sustainable solutions to the payment difficulties experiences by debtor nations”.

In April 2006, Nigeria became the first African country to fully pay off its debt (estimated $30 billion) owed to the Paris Club.

You can view the list of Paris Club’s debt claims here.

-Jessica Gomez-Duran, UK ONE Media Assistant

Yesterday, (after speaking at the GWU forum) Bill Gates appeared on CNN to continue pushing Obama to “craft a wide-ranging stimulus package, to help jump-start the nation’s sputtering economy, and double the United States’ commitment to foreign aid.”

Excerpts from CNN.com below:

“On his Web site, Obama has pledged to double the United States’ annual investment in foreign aid to $50 billion by the end of his first term, with the goal of fully funding debt cancellation for poor nations and fighting AIDS and global poverty.

In the interview with CNN, Gates said he thinks Obama will live up to that commitment.

‘Obviously it’s the Congress that gets to actually vote the final decision for how the money is spent, but I do think he will get to that commitment,” Gates said. “I am thrilled to be able to see that people are responding to the success stories. Aid from the United States did go up in the last eight years.’

The interview will air tonight on CNN’s “The Situation Room.”

-Virginia Simmons

Last month, the World Bank and the International Monetary Fund released their annual report on the status of debt cancellation for the world’s poorest countries.

ONE’s debt expert and Berlin-based Policy Manager Andreas Huebers sent along the following summary after combing through the report:

In September, the IMF and World Bank released their annual report on the progress of debt cancellation. In the last year, two African countries have started to benefit from debt relief- Liberia (which ONE members helped make possible) and the Central African Republic. The Gambia has also completed its debt relief program. These developments bring the overall debt cancellation provided by the HIPC and MDRI initiatives from $105 billion to $111 billion. The next African countries that are expected to progress to the next stage in the coming months are Togo, Cote d’Ivoire Burundi and Guinea.

Debt relief is continuing to free up government resources to fight poverty. The report found that in post-decision point HIPC countries, government expenditures targeting poverty reduction increased on average from under 7% of GDP in 2000 to 9% in 2006. This translated to $17 billion in 2006, which represents a substantial increase of $3 billion since 2005. These expenditures are more than five times the level what countries now paying to service their debts, a major improvement from a decade ago when some countries were spending more repaying old debts than on health and education combined.

Read more about how the financial crisis might impact debt cancellation.

(more…)

African development was again the subject of G8 discussions as world leaders gathered in Toyako, Hokkaido in northern Japan from July 7-9 for the 2008 G8 Summit. While the G8 was confronted with multiple global challenges, including climate change and a weakening global economy, the 2008 Hokkaido Summit marked an important “mid point” moment in the fight against poverty. The Hokkaido Summit came at the critical halfway point to both the Millennium Development Goals (MDGs) and the G8 Gleneagles promises to Africa. The G8 are dangerously behind on their landmark commitments to the region, having delivered only $3 billion of the promised $25 billion in additional assistance to Africa by 2010, according to the 2008 DATA Report.

After difficult negotiations, the G8 summit yielded small gains for the poorest. The bulk of G8 agreements on development and Africa and food security reiterated previous pledges rather than outlining new measures to get the group back on track. The G8 did announce plans for a new effort to tackle the global food crisis, though more details are needed to ensure its effectiveness and delivery. They highlighted the UN High-level meeting on the MDGs in September as an important opportunity to review progress and identify actions needed to overcome remaining challenges.

At a time when G8 credibility is at risk due to slow progress in delivering on commitments, there was a strong call for greater accountability in the G8 Communique. The G8 agreed to track progress against previous commitments in health, education, water and agriculture, as well as its compliance with anti-corruption measures.

Overall, the US, UK and Germany provided strong leadership in negotiations and have significantly increased their funding for Africa in recent years.

After the jump, the following brief overview of outcomes for Africa from the 2008 G8 Summit.

-Ben Hubbard

……

(more…)