Introduction: In light of the glacial pace of the HIPC initiative, and developing economic, political and human crises in HIPC countries, Jubilee Plus is calling for the immediate cancellation of 100% of the debts of 42 countries defined by the World Bank and IMF as having unsustainable debts. We call for tough conditionalities for debt relief; but for these to be determined, monitored and overseen by civil society in the debtor nation itself. We call on creditors to use their immense leverage to empower ordinary people in debtor nations to hold their governments to account for economic management. We also insist on greater transparency and accountability by creditor governments and the IFIs, for decisions on taxpayer-backed international loans and loan guarantees.

Finally, HIPC is failing because it is a creditor-controlled process, designed to limit creditor losses, while increasing creditor leverage over HIPC countries. Its objective is not debt sustainability for poor countries, but rather to limit losses for rich countries. We call for justice in international financial relations, through a new, independent, transparent and accountable process for resolving debt crises, which recognises the co-responsibility of creditors for debt crises. We propose a process of transparent and accountable mediation between sovereign debtors and their international creditors. (see briefings on state bankruptcy and Chapter 9 of the US legal code)

Background:

• After five years of long and tortuous negotiations under HIPC;
• after a sustained international campaign, backed by 24 million people;
• by the UK government;
• by the Pope, by the US Congress etc.,
• only three countries
• - Uganda, Bolivia and Mozambique -
• of the 42 deemed eligible for relief,
• which in turn make up less than half of the 88 defined by the WB as "severely indebted"
• have had full debt relief under HIPC.

• 14 countries have not yet even been considered for relief under HIPC.

• 11 of these are deemed to be "in conflict". They include Angola, Burundi, Central African Republic, Dem. Rep of the Congo, Rep. of the Congo; Guinea Bissau; Myanmar; Rwanda; Sierra Leone; Somalia; Sudan.

• (Please note however, that Pakistan, which is in conflict on two fronts, is now being considered for substantial debt relief by the major western governments, through the Paris Club (i.e. not under HIPC which would include IMF/WB and Asian Development Bank debts)).

• The 23 countries that are in the HIPC process, but are not yet at "completion point" are having their annual debt service reduced, by on average 27%. Only at the end of the process (i.e. at the end of the 6-year qualification period) will they receive relief on some of the stock of debt.

• HIPC: rescheduling, not cancelling debts: Our recent report "HIPC: flogging a dead process" showed that overall debt stocks will not be significantly reduced under HIPC. So while in the short-term the annual debt service payments of HIPC countries will be reduced; in the long term they are not getting sufficient relief on the stock of debt, to make future debt payments "sustainable".

• Unsustainable debt relief. According to the World Bank, only 16 out of the 23 HIPC countries that have passed decision point, will have sustainable debt levels under criteria determined by the Bank. The Bank, in other words, admits that the HIPC initiative has failed 7 countries. (See "The Challenge of maintaining Long-Term Debt Sustainability", World Bank, DC2001-2013 April 21,2001).

• Jubilee Plus believes that using more rational criteria, at least 23 of the HIPCs will have not have sustainable debts after they have received debt relief. (See our report: HIPC: flogging a dead process).

• Despite this admission by the Bank, western creditor governments will continue collecting debt repayments from these seven countries.

• Chad will reach completion point in 2002, but will not be sustainable (according to the WB) until 2005; Burkina Faso will not be sustainable until 2007; Rwanda until 2008; and Tanzania after 2010.

• Malawi and Niger will not be sustainable until 2014, and Bolivia will not be sustainable at any time in the next twenty years.

• Honduras, after Hurricane Mitch, has had to factor in new borrowing, after interim debt relief under HIPC, to pay for old loans.

• In the case of Rwanda: by 2008, the Net Present Value of new debt will be higher than the current debt. Rwanda's total debt service rises from $12.6m in 2002 to $14.1m in 2008 and to $42.4m in 2019!

• Financing creditors' losses. Bank and Fund staff, to their credit, are also concerned that HIPC has slowed down, and is almost at a standstill. They claim they cannot move forward without new funds.

• Jubilee Plus does not accept that the Bank and the Fund need new funds to write off debts that they do not expect to be able to collect.

• One of the reasons the Bank and the Fund agreed to the launch of HIPC in 1996 was because HIPC countries were not paying their debts to the Bank and the Fund. (Unusual, because of the penalties; but a growing problem in the 80's and 90's. Many of HIPC countries cannot/do not pay their bilateral (government to government) debts. In other words the debtor/creditor relationship has broken down with many bilateral creditors. But they had tried to keep up repayments to the IFIs - until the late 1980s and 1990s, when even these debts could not be paid).

• In other words, the IFIs, in launching HIPC, did so because there was little hope of collecting debt payments from these countries.

• Instead of making provision for these losses - i.e. facing reality - they sought to raise more money for their different lending arms (IDA, and the PRGF (Poverty Reduction and Growth Fund). In other words, they were major beneficiaries of the Jubilee 2000 campaign.

• The Bank and the Fund (and the other creditor institutions) should now face reality; cancel debts, quickly, and take losses.

• The IFIs argue that they are co-operatives and other members would lose access to the pool of money (added to by debt repayments) used to make new loans. We rebut that: the co-operative was going to lose that money anyway.