Minister of State Tom Kitt T.D. Launches New Government Policy on Developing Country Debt.
Tom Kitt T.D., Minister of State at the Department of Foreign Affairs, today launched a new Government policy strategy on the problem of developing country debt. The new strategy has been prepared jointly by Ireland Aid and the Department of Finance.
Speaking at the launch of the new debt strategy, Minister of State Kitt said:
"The Irish Government now believes, in principle, that the total cancellation of the debts of the world's poorest countries is a politically acceptable objective and one that we would support.
In our view, total debt cancellation would have to be funded largely through additional donor funds, rather than from the existing resources of the World Bank and the IMF. This means that major donors would have to increase their Overseas Development Assistance towards the UN target of 0.7% of GNP.
We welcome the progress which has been made in delivering debt relief to the poorest countries. Twenty six countries have now qualified for debt relief and an average of 50% of their debts will be written off. We are beginning to see evidence that the funds released through debt relief are being channeled into increased expenditure on social programmes.
We believe, however, that the current international debt relief process, the Heavily Indebted Poor Countries Initiative, is flawed. We have serious reservations about both the adequacy of the debt relief being provided and about economic projections and assumptions used by the World Bank and the IMF to determine debt relief levels. Many of the projections used appear to us to be over-optimistic.
The result is that some countries qualifying for debt relief under the current system are not having their debts lowered to a level which is sustainable. Instead they continue to have high debt service payments.
We also raise questions about how the World Bank and the IMF define a sustainable level of debt. We believe that the international financial institutions are focussing too strongly on economic indicators rather than on indicators which take human development into account.
Ireland does not believe it is acceptable to oblige countries facing a HIV/AIDS epidemic to re-pay high levels of debt. In our view, the debt burden continues to be an obstacle to the efforts of poor countries to reduce the number of people living in extreme poverty.
We also believe that debt cancellation should go hand in hand with the efforts by the heavily indebted poor countries to strengthen their governance and to fight corruption. Total debt cancellation would be an important contribution by donors to the successful implementation of the New Partnership for Africa's Development which is under discussion in the African Union this week in South Africa.
Ireland also believes that developing countries should be helped to improve their debt management and to borrow prudently. We do not want to see another debt crisis emerge in the next decade. I have decided, therefore, that Ireland should join with other donors, including Sweden, Norway and Canada in supporting the activities of Debt Relief International. This week Ireland has pledged €1.5 million to Debt Relief International, a non-profit making body that assists the world's poorest countries in the effective management of their debts."
In 1996, the World Bank and the International Monetary Fund launched the Heavily Indebted Poor Countries (HIPC) Initiative which was designed to lower the debts of 42 of the world's poorest countries to a sustainable level. By 1995 the debts of these countries had risen to over 160% of their GNP and debt service payments were consuming more than expenditure on health and education.
The HIPC Initiative, which was further strengthened in 1998, has now been in operation for nearly six years. It s objective is to provide broad, fast and deep debt relief. By 2002, twenty six of the 42 eligible countries had qualified for debt relief worth $25 billion. On average up to 50% of their debts will be written off.
Ireland Aid and the Department of Finance have reviewed the implementation of the HIPC Initiative. The review is critical of its implementation, In particular the review raises questions about the adequacy of current debt relief levels and on the assumption and projections used by the Bank and the IMF in calculating debt relief.
Recent reports by the World Bank and the IMF have raised concerns about the operation of the HIPC Initiative. A number of countries emerging from the debt relief process, even after qualifying for the full amount of debt relief available, still have unsustainable debt burdens. Zambia, one of Ireland aid's programme countries faces particularly difficult problems and will continue to spend up to 25% of Government revenue on debt service payments.
Ireland Aid and the Department of Finance have also raised questions about the projections and assumption used by the Bank and the IMF in their determination of debt sustainability. We are concerned also that the economic impact of HIV/AIDS has not been factored into the calculations of debt relief.
While Ireland has never extended development assistance in the form of loans, and is not owed any money by the heavily indebted poor countries, we have contributed over €40 million to international debt relief efforts.