*{OXFAM INTERNATIONAL
Media Briefing
Debt relief and poverty reduction: 
failing to deliver

Summary}

Thousands of people are converging on Washington DC to protest the negative impact of globalisation and the failure of international institutions to find a balance between global markets, the needs of the world's poor, and a battered environment. The slow progress in providing debt relief to the world's poorest countries is just one example of this failure.
Last year the G7, the IMF, the World Bank, and the rich countries that control them, promised to reduce poor country debt, and to place poverty reduction at the heart of economic reform. It is still early days but they have failed to deliver. Oxfam believes there are three main problems:
1.Slow progress: "The key question is, can the debt relief start under the enhanced initiative for those countries that are ready and need it now. The answer is yes…"  Seven months later, only five countries have entered HIPC2 and are receiving interim debt relief.
2.The financing gap: Contributions to the HIPC trust are way below target. $1.7bn has been pledged, but only around $400m has been received. While Jesse Helms, the Meltzer Commission, and President Clinton all support the United States pledge of $600m over three years, payment is being held up by Congress. The shortfall means Bolivia is being denied debt relief to the cost of $35 million per year, and this figure will increase as more countries become eligible.
3.Failure to develop coherent strategies to link debt relief to poverty reduction: The IMF has designed programs in countries such as Tanzania and Honduras that bear a striking resemblance to previous IMF programs. There is little evidence of the promised poverty-focused approach.


*{Introduction}

“I think it’s very good news for the poor of the world. All of us at the World Bank look forward to working constructively on the individual cases with which we will deal almost immediately.”
 Jim Wolfensohn, World Bank President, 
speaking at the joint IMF-World Bank press conference when the 
Heavily Indebted Poor Countries Initiative (HIPC) was adopted in September 1996.

Three years later, recognition of the failure of the first HIPC to deliver on debt, led to agreement on improvements at the Cologne G7 in June 1999. And again, at last year’s annual meetings in September, creditor countries and institutions redesigned the HIPC and announced dramatic changes to the way the Bank and IMF do business:

•Poverty Reduction was agreed as the main objective for both the IMF and the World Bank’s work. This was a major breakthrough with implications far beyond the dimensions of debt relief. IMF-World Bank programming in all low income countries, not just HIPCs, is now supposed to place poverty reduction ‘front and centre’ of policy and financial support. Major reforms were promised in the design of IMF and World Bank programs to bring them into line with the achievement of the international poverty reduction goals. The mechanism for such support in low income countries will be through the development of a nationally led Poverty Reduction Strategy Paper (PRSP), designed in consultation with civil society. 

•A commitment was made to deeper and quicker debt relief. A number of creditor governments have agreed to provide increased bilateral debt relief beyond that agreed in HIPC2. Of the G7, Canada, the United States and the United Kingdom have agreed to provide 100% bilateral debt relief. Meanwhile progress has been extremely slow, especially given that the countries which are going through now, have been those furthest ahead in their development of poverty reduction plans. Other countries will require more flexibility.

However, the initiative is still failing. Only five countries (Uganda, Bolivia, Mauritania, Tanzania and Mozambique) are starting to receive enhanced debt relief under the new initiative, HIPC2, with only Uganda close to fully passing through (see Annex). 

Such slow progress contrasts with recent statements by these institutions. As recently as December 1999 the IMF’s Executive Board  expected between 7-10 countries to reach Decision Point within the first four months of 2000. The World Bank and IMF in their December report  expect 24 countries to reach Decision Point in HIPC2 by the end of 2000. Given current slow progress, these targets are likely to be missed. 
 
*partie=titre 1. Slow progress *partie=nil 

Progress in confirming countries’ eligibility for debt relief has been painfully slow.  Only five countries have reached this point. Oxfam believes this is unacceptable and demonstrates lack of political will by the institutions and governments. 

Under the rules announced in September 1999, countries must gain World Bank and IMF approval of their Poverty Reduction Strategy Paper (PRSP) before eligibility is confirmed – the so-called Decision Point. There is a tension between the need to develop a good plan with civil society participation, and the demand for early debt relief. So that the PRSP process would not delay debt relief, the rules allow countries to get interim debt servicing relief once they have an interim PRSP. This interim PRSP would set out commitments to poverty reduction, and a ‘road map’ showing how the PRSP will be developed.  It is vital that governments quickly develop interim PRSPs and that these are rapidly approved by the World Bank and IMF.

If countries are not to be penalised by the new PRSP process, they should receive interim debt relief equivalent to what they would receive under full debt relief. In reality, the levels of interim debt relief have been inadequate and inconsistent. 

It may take up to two years for countries to progress from the time eligibility is confirmed (Decision Point) to the time debt relief comes on stream (Completion Point). The IMF and the US Treasury are pushing for further delay by requiring countries to undergo a year of PRSP implementation before receiving full debt relief.

*partie=titre 2. The financing gap *partie=nil 

Headline-number promises are one thing, delivery is another. Contributions to the HIPC trust are way below target. $1.7bn has been pledged, but only around $400m has been received. While Jesse Helms, the Meltzer Commission, and President Clinton all support the United States pledge of $600m over three years, payment is still being held up by Congress. The shortfall means Bolivia is being denied debt relief to the cost of $35 million per year, and this figure will increase as more countries become eligible.

The European Union pledge of euro 734m has still not yet been transferred. Japan, the world's largest donor, has only recently increased its Trust Fund contribution to $200m, equivalent to less than 2% of Japanese Official Development Assistance, and one-third of the United Kingdom proportion. Meanwhile Japan, France and Germany have still failed to move to 100% debt cancellation equivalent to that agreed by Canada, the US and the UK. Recent efforts by France, Germany, and now Japan, only include pre-cut off debt (debt accrued before the country first goes to the Paris Club of bilateral creditors) and as such ignore substantial amounts of debt. This lack of generosity and spirit, undermines the potential for poverty reduction in indebted countries. Even worse, Japan refuses to provide future aid to countries that receive debt relief through HIPC, placing a country like Ghana which is heavily dependent on bilateral Japanese aid, between a rock and a hard place.
 

*partie=titre 3. Failure to develop coherent strategies to link debt relief to poverty reduction *partie=nil 

The announcement of the PRSP framework signalled dramatic changes in the way the IMF and World Bank do business in poor countries. Poverty was to be placed at the front and centre of their programs. Poverty Reduction Strategies were to be produced in a transparent way with the participation of civil society. The Fund’s dominance was to be replaced with an approach that saw the Bank and other actors fully involved. It is still early days but there is little evidence of the promised new approach.

The acronyms have changed but in some cases little else. In Tanzania and Honduras the Fund has approved new Poverty Reduction Growth Facility (PRGF) programs that bear striking resemblance to the structural adjustment programs that preceded them. The new PRGFs do little to support the Fund’s claim that its programs will integrate poverty reduction into macro-economic policies. The IMF is yet to demonstrate how its policy design will be altered to achieve the international development goals as promised at last year’s annual meetings.

For instance, the IMF needlessly requires Tanzania to run a budget surplus to 1-2 per cent of GDP when it has guaranteed long-term aid commitments. Increasing public spending by 2 per cent of GDP with a focus on basic service provision would help to translate economic growth into human development gains. Such policies also undermine investment in other growth creating areas that also deliver on poverty reduction. For instance, the roads budget has suffered deep cuts (64 per cent in the last budget). This has undermined the access of poor people to markets because of problems with the maintenance of rural feeder roads.

The World Bank is also part of the problem. In Vietnam recently the World Bank produced a high quality poverty analysis, in collaboration with NGOs, and at the same time produced a detailed overview of reforms required for growth . The document on reforms made little reference to poverty reduction, and there was no serious analysis of how trade liberalisation, or reforms to state owned enterprises, or the banking sector, could be made to benefit the poor. In Honduras the Bank is preparing to invest heavily in a social fund that does not address the underlying causes of poverty and is widely seen as unaccountable.  This lack of connection between macro-economic and structural policy design, and poverty reduction, indicates a business as usual approach by the international financial institutions.

There are other instances where the process has not matched the rhetoric. The IMF cut two months from the agreed timetable for the Honduras government to prepare its interim PRSP so it could meet its internal bureaucratic deadlines. As a result the quality of the PRSP is likely to suffer, the opportunity for the Honduran government to discuss the process with civil society was cut short, and Honduras will not reach its Decision Point any more quickly.
 

*partie=titre Addressing the international poverty goals: debt relief beyond HIPC2 *partie=nil 

Much has been made of progress at Cologne and at the Annual Meetings of the World Bank and IMF last year. Billions of dollars in debt relief have been promised. Powerful links between debt relief and poverty reduction were made. However, many countries will pass through HIPC2 with a debt problem that still undermines the needs of their citizens, and which undermines internationally agreed goals of human development. 

Even after it receives HIPC2 debt relief, Mali’s debt servicing over the next few years will remain more than health spending; this is in a country where life expectancy is 47 years, and where a quarter of children die before their fifth birthday. Less than half of the country's children enrol in school, and only a third of the population have basic literacy skills. 

Zambia last year spent $133m on debt servicing, some two thirds of spending on health and education. This is in a country where life expectancy of 37 years is less than it was at independence in 1964, where it was 42 years. At the same time, due to the impact of HIV/AIDS and other diseases, Zambia may have up to 1.6 million orphans within the next few years, making it the most orphaned country in the world. Speedy and deep debt relief will be required, yet Zambia will not be considered until the end of 2000 - or later, and even then, the size of interim debt relief is unclear.

The inadequacy of HIPC2 has been highlighted by the UN Secretary General in a recent speech , where he said, "I call upon donor countries and the international financial institutions to consider wiping off their books all official debts of the heavily indebted poor countries in return for those countries making demonstrable commitments to poverty reduction." 

The problem is not just inadequate finance and slow progress, but also insufficient country coverage. Many countries with acute poverty and chronic debt problems, such as Haiti, Jamaica, and Bangladesh, are not being addressed. There are questions as to whether Nigeria merits the case for debt relief now, but if Nigeria becomes more democratic and accountable, it will deserve debt relief in future. The IMF and World Bank should undertake a review of eligibility of additional countries, so that such countries can start to build debt relief into their poverty reduction efforts.