SUNS  4294 Monday 5 October 1998


FINANCE: DEBT RELIEF NEEDED FOR WORLD'S POOREST

Washington, Oct 2 (IPS/Jim Lobe) -- Non-governmental organisations (NGOs) led by Oxfam International appealed to donor nations Friday to adopt a new approach to speed and increase debt relief for the world's poorest countries.
The NGOs decried the failure of the two-year-old Heavily Indebted Poor Country (HIPC) initiative to reduce the debt burden of the most needy countries and called for the creation of a 'Human Development Window.' This would involve donors agreeing to reduce more debt more quickly in
exchange for debtors' commitments to use the savings for poverty-reduction efforts.

The plight of Nicaragua, one of 41 countries which stand to benefit from HIPC, was cited as a strong case for such an approach.

Under existing HIPC provisions, Nicaragua, the poorest country in Latin America, must wait at least until 2002 before receiving relief. In the meantime, it will have to spend on servicing its 6.1 billion-dollar debt more than twice what it spends on health and education combined.

If, on the other hand, the Oxfam proposal is adopted, the Central American nation could use the more than 500 million dollars in resulting savings between 2000 and 2002 to invest in education, health, and water and sanitation services, according to a report released here Friday.

That amount would be enough to provide free universal primary education each year; build 1,500 preschool classrooms and rehabilitate 500 schools; double the primary-school completion rate to 70 percent; improve access to primary health services for 1.2 million people; and provide complete sanitation coverage to the entire rural population.

But quick action is essential, according to the report, 'Debt Relief for Nicaragua: Breaking Out of the Poverty Trap,' which was released on the eve of the annual meetings here of the World Bank and the International Monetary Fund (IMF).

While those meetings will focus primarily on the ongoing financial crisis which has devastated emerging markets in Asia and the former Soviet Union and now threaten the western economies, many NGOs hope that the plight of the world's poorest will not be forgotten.

HIPC was launched with much fanfare two years ago as the most important new initiative to aid the poorest countries since the Paris Club of mainly western creditor countries began offering relief to indebted countries during the 1980s.

The initiative was designed to coordinate debt reduction by Paris Club members, commercial banks in the London Club, and, for the first time, major multilateral agencies, including the IMF, the World Bank, and regional development banks, for the world's poorest countries whose debt burden is considered "unsustainable." Much of their debt is held by these multilateral development banks (MDBs).

The IMF and the Bank determined that 41 countries fell into the unsustainable category. In order to qualify for HIPC treatment, however, these countries were required to successfully implement IMF
structural adjustment programmes (SAPs) for a period of at least six
years before relief could be granted.

Even then, the debt would be reduced only to levels at which creditors believe the cash-strapped countries could resume repayments.

These conditions annoyed NGOs like Oxfam which complained that debt sustainability levels were set too high for many countries which badly needed debt relief and that the six-year timetable was too onerous.
NGOs also argued that some Paris Club donors and the MDBs themselves had been too slow or unwilling to contribute to HIPC.

So far, only seven out of the 41 countries had entered HIPC, and only two - Uganda and Bolivia - actually had been granted relief. In the last year, only Mali was accepted into HIPC, which bolstered the belief among many NGOs that the initiative was now bogged down.

"The present debt relief initiative is delivering too little too late," Kevin Watkins, Oxfam's Senior Policy Adviser said here Friday. 'Without a strong stand by finance ministers, we will miss this opportunity to re-energise HIPC and inertia will prevail with tragic consequences for the health and education of millions of poor children."

Earlier this month, the Bank and the IMF published their own review of HIPC, to be discussed at the meetings beginning this weekend. It recommended extending the deadline by which countries may enter HIPC to Oct 1997, a provision expected to benefit as many as five African countries which have suffered recent civil wars.

But the review, which was denounced by Oxfam as a "complete whitewash," made no other recommendations that would substantially change the programme.

Oxfam and other NGOs, including the European Network on Debt and Development (EURODAD), Sudewind of Germany, and Ibis of Denmark, favoured redesigning HIPC to ensure that debt relief was tied to the reduction of poverty in the poorest countries.

They proposed a new "Debt for Human Development Window" in which debt sustainability thresholds are cut roughly in half and which would be open to governments willing to commit 85 to 100 percent of savings on debt into specific poverty-reduction initiatives. These could include
small-scale infrastructure projects, as well as social-sector initiatives in health and education.

To qualify, governments would be required to develop a "Poverty Action Framework (PAF) that would serve as a contract between creditor and debtor governments. These agreements, which would be drawn up in consultation with civil society as well, would also act as blueprints for achieving specific development targets set forth by the western countries' Organisation for Economic Cooperation and Development (OECD), according to the NGOs.

The report noted that Uganda, the first country to qualify for HIPC benefits, has already provided a good model of how the window might work. Its government established a Poverty Action Fund designed to mobilise resources obtained from debt relief for road-  building, agriculture, health care and primary education.

In the case of Nicaragua, the NGOs, which included 'Grupo de Propositivo de Cabildeo' of Nicaragua, said the government should agree to commit 85-100 percent of debt-relief resources to poverty reduction in exchange for which, it could gain much greater debt relief by 2000, as opposed to 2002, the earliest date by which it would benefit under current HIPC rules.