BENTLEY COLLEGE

Bentley Model United Nations Program 16th Annual BMUN igh !"hool Con#eren"e $%&'1 May $(() La Ca*a Cam+us Center
BAC,G-OUN. PAPE- AN. TOP/C !UMMA-Y

Third World Debt

E0e"uti*e !ummary1 The debt problems of developing countries that began in the 1980s still remain a huge burden in the new millennium. Although there have been several initiatives like the aker !lan" the rad# !lan" and the $%!& %nitiative to ease the burdens of those countries" man# still e'perience unsustainable debt. The debt burdens of developing and middle(income countries increased from )*00 billion in 1980 to )1 trillion b# 198*. # +000" their debt was about )+

trillion. The debts of $%!& countries increased from ),0 billion in 1980 to )190 billion b# 1990. -ven with relief programs like the $%!& %nitiative" 8 countries under the %nitiative e'perienced worsening debt indicators even after reaching their completion points. The conse.uences of developing countries/ inabilit# to e'it from debt pa#ments go be#ond the financial level. %n addition to economies being hurt" the peoples of developing countries will also feel the affects. The 0nited 1ations established the 2illennium Development 3oals in +000 that pledged to halve income povert# between 1990 and +01*" but countries like those in 4ub(4aharan Africa will most likel# not meet this goal. The problems dela#ing debt relief result from numerous actors. &reditors need to provide additional financing and fulfil their commitments to debtor countries. The retton Woods institutions need to speedil# and effectivel# implement the enhanced $%!&. 4ome heavil# indebted countries still have to take polic# measures to become eligible for the $%!& %nitiative and reach the decision point. All parties are responsible and must make greater efforts to reduce the debt burdens in order to improve the lives of those people that are most affected.

/ntrodu"tion1 The debt burdens of developing countries continue to hinder their economic and social developments. Although there have been several programs to tr# to resolve the problem" no one program has proven to be completel# effective. The debt burdens of developing and middle( income countries have continued to rise. The# increased from )*00 billion in 1980 to )1 trillion b# 198*. # +000" their debt was about )+ trillion. The debts of $%!& countries increased from

),0 billion in 1980 to )190 billion b# 1990. With unsustainable debt" man# of the worlds poorest will not be able to receive an education" have access clean water" or be free from e'treme povert# due to their governments spending more on debt repa#ments than on social services. The destinies of these people can be changed with the cooperation of international organi5ations" developed countries" and developing countries to reduce debt pa#ments and divert those savings to social e'penditures. To understand the scope of the debt problems of developing countries and see what challenges the# face" the problem has to be e'amined from multiple angles and from the viewpoints of various actors. The current situation section highlights the most recent reports on debt sustainabilit# and what different organi5ations have done and still need to do to improve the situation. The historic background section provides the histor# of how unsustainable debt was incurred and the initiatives that were taken to reduce it b# actors like the 0nited 1ations and retton Woods %nstitutions. The countr# position section looks at the roles of the !aris &lub" the 38 countries" individual creditors" and the retton Woods %nstitutions in shaping the debt relief situation. All these actors are vital in debt relief process and their actions or in(actions have alread# and will continue to affect so man# lives.

Current !ituation1 6n April 1," +007" the Development &ommittee of the World ank and %nternational 2onetar# 8und issued the 3lobal 2onitoring 9eport +007. The report found that current trends indicate the 2illennium Development 3oals will not be met b# man# countries. The 2illennium Declaration" which was signed b# 189 countries in the 0nited 1ations 3eneral Assembl# on 4eptember +000" led to the 2illennium Development 3oals :2D3s;. 1 4ome of 2D3s targets included freeing men" women and children for ab<ect and dehumani5ing conditions of e'treme povert#. %t aimed to halve the proportion of the world/s people whose income was less than one dollar a da#" to halve the proportion of people who suffered from hunger" and to halve the proportion of people who did not have access to or could not afford safe drinking water.+ The goal of halving income povert# between 1990 and +01* will most likel# be met due to stronger economic growth resulting from improvements in polic#. $owever" some countries in different regions" especiall# 4ub(4aharan Africa" will not meet this goal. 6nl# 8 countries" which represent 1* percent of the population within this region" will accomplish the task. The trends are similar for the 2D3 to cut in half the proportion of people suffering from hunger. The global goal is e'pected to be met" but 4ub(4aharan Africa and other countries in different regions risk falling short.= The difficulties in achieving the 2D3s are intertwined with man# factors> one factor being the current debt burdens of developing countries. The debt and debt repa#ments problems of man# countries are stumbling blocks to the achievement of their citi5ens/ social and economic
1

Development &ommittee. ?3lobal 2onitoring 9eport +007@ !olicies and Actions for Achieving the 2D3s and 9elated 6utcomes.A D&+007(000,. %nternational 2onetar# 8und. 1+ April +007. 1 2a# +007 Bhttp@CCwww.imf.orgCe'ternalCnpCpdrCgmrCengC+007C071+07.pdfD. + 3eneral Assembl#" ?**C+. 0nited 1ations 2illennium Declaration"A AC9-4C**C+" 0nited 1ations" 18 4ept. +000. 1 2a# +007 Bhttp@CCwww.un.orgCDeptsCdhlCresguideCr**.htmD. = Development &ommittee.

development. 8or instance" Tan5ania spends nine times more on debt pa#ments than on basic health and four times more than on primar# education. 6verall" Africa spends four times more pa#ing creditors than on health and education.7 %n order for low(income countries to invest in their people" the# need funds to be allocated to social programs rather than debt repa#ments. Although this is necessar#" the main program to combat unsustainable debt for low(income countries" the $eavil# %ndebted !oor &ountries %nitiative :$%!&;" has been progressing at a slow rate. As of 2arch +007" +E heavil# indebted poor countries out of the =8 potentiall# eligible countries had reached their ?decision pointA and are receiving debt relief. 6f those +E countries" 10 reached ?completion point"A which is when full debt relief has been provided.* Despite the efforts of the $%!& %nitiative" some countries still have not achieved debt sustainabilit#. A report b# the 0nited 1ations $igh(level Dialogue on 8inancing for Development issued b# the 4ecretar# 3eneral in 6ctober +00= announced that the countries who reached the ?completion pointA still e'perienced worsening debt indicators. , The dela#s in reaching the ?decision pointA result from different factors. There have been problems in preparing the !overt# 9eduction 4trateg# !apers :!94!s;" a countr# owned and led development strateg# that pla#s a ke# role in bringing national polices and international support together to achieve the 2D34. %t also has been attributed to countries/ inabilit# to meet their fiscal targets and to the evaluations of $%!&s b# international financial institutions like the %28 and World ank to see if the# have established a satisfactor# track record of using sound economic

2onitoring Development and 3overnance Division" ?Debt and 4ustainable $uman Development"A Technical Advisor# !aper 1o.7" 0nited 1ations Development !rogram" + 2a# +007 Bhttp@CCmagnet.undp.orgCdocsCefaCtechpaper7Cdefault.htmD * -conomic and 4ocial &ouncil" ?&oherence" coordination and cooperation in the conte't of the implementation of the 2onterre# &onsensus"A -C+007C*0" 0nited 1ations" 8 April +007" 1 2a# +007 Bhttp@CCods(dds( n#.un.orgCdocC01D6&C3-1C167C=0*C=EC!D8C167=0*=E.pdfF6pen-lementD. , -conomic and 4ocial &ouncil.

policies.E 4ome countries have had difficulties reaching the ?decision pointA due to conflicts or their emergence from recent conflicts. The inabilit# of man# countries to reach the decision point has raised the .uestions of whether the economic growth and feasible polic# reforms were too high and unrealistic. The 4ecretar#(3eneral" therefore" called for a deepening of the $%!& process and for donors to provide additional contributions and relief" which creditor countries agreed was needed. $e also called for new e'ternal financing to be in non(debt creating forms such as providing grants instead of loans to poor countries. During this meeting" creditor countries agreed to re( investigate the option of ?topping off"A which is another means to provide additional debt relief to $%!&s still having unsustainable debt after their completion point. 8 As for improving the $%!& %nitiative itself" there have been recent suggestions to make it more effective. 4ome of these suggestions include e'panding the framework of the %nitiative in order to overcome e'ternal and natural disaster shocks like providing rapid financing b# international financial institutions. There have also been calls to creditor countries to stop dela#ing their deliver# on $%!& commitments and a proposal for the World ank and %28 to report on the compliance of member countries.9

&urrent role of the %28 and World ank@ esides the $%!& %nitiative" the %28 and World ank are contributing through other means to improve the situations of highl# indebted countries. The# are completing an anal#tical framework for measuring the debt sustainabilit# of low(income countries that provides separate
E 8

-conomic and 4ocial &ouncil. ?8inancing for Development riefing note =@ 0nfinished business on developing countr# debt"A D!%C+==0&" 0nited 1ations" " 6ctober +00=" 6ctober +00=. + 2a# +007 Bwww.un.orgCesaCffdD 9 ?4ummar# b# the !resident of the 3eneral Assembl# of the $igh(Gevel Dialogue on 8inancing for Development"A AC*8C***" 0nited 1ations" 1 2a# +007 Bhttp@CCods(ddsCn#.un.orgCdocC01D6&F3-1C16=C,01CE,!D8C160,01E,.pdfD

guidelines to those countries since their debt is mainl# official debt.10 The# are also investigating whether an e'tension of the $%!&" which is due to e'pire b# the end of +007" will be appropriate in addressing the problems of countries that have #et to benefit from the program.11 6n an individual basis" the %28 is improving its role in assisting low(income countries b# adapting financial and technical support to allow those countries to get donor assistance" deal with post( conflict situations" respond to e'ogenous shocks" absorb the cost of ad<ustment to multilateral trade liberali5ation" and create institutions to access private financing. %t is also working to improve 8und(supported economic programs to low(income countries and enhancing the integration of !94!.1+

&urrent Activities b# 0nited 1ations 6rgans@ Different organs within the 0nited 1ations have also developed programs to help low( income countries deal with unsustainable debt. Debt anal#sis has shown that these countries have serious weaknesses in debt management. 8ew countries" especiall# those in 4ub(4aharan Africa" have been able to maintain accurate information on debt stock and arrears. The# have not been able to set up effective debt management policies like regulating debt undertakings and making sure that unsustainable debt does not take awa# from sustainable development. %n order to provide effective debt management" the 0nited 1ations Development !rogram :01D!; have created global" regional and countr# level partnerships and programs. # Hune 1999" 01D!

upgraded the 0nited 1ations &onference on Trade and Development/s :01&TAD; programme for debt management and installed it in over *0 countries in Africa" Asia" -urope" Gatin America" and the &aribbean. %t also created a regional program in 4outhern and -astern Africa for debt
10 11

-conomic and 4ocial &ouncil. -conomic and 4ocial &ouncil. 1+ Development &ommittee.

and reserve management known as -4AD%A92 and later 2-82%" the 2acroeconomic and 8inancial 2anagement %nstitute of -astern and 4outhern Africa. 2-82% is the onl# successful debt management program in the African region. %ts members contribute to its budget in addition to donors" and it emphasi5es high .ualit# staff recruitment. 2-82% provides workshops to identif# user needs" thus" allowing members to gain new knowledge and learn new practices. %n addition to training" the program provides onsite training and advice so new debt managers have constant support.1=

istori" Ba"2ground1 %ncurrence of Debt@ %n the 19E0s and 1980s" there was a rapid growth of banks lending to offshore markets. &ommercial banks provided loans to developing countries due to a lack of customers in developed nations and the abilit# of the banks to earn .uick profits from high risk countries. The lending operations proved to be disastrous. # 1981" the debts of developing countries with

deficits rose to )7E0 billion :04; from )+E0 billion in 19EE. %ncreasing debt resulted from ma<or disruptions during the 1980s. There was a huge increase of interest rates that did not return to past levels.17 8or instance" interest rates on loans reached up to 1E(18 percent between 19E9 and 1980. There were also e'change rate fluctuations" energ# price increases" and the terms of trade for non(oil developing countries deteriorated drasticall# since the mid(19E0s. The prices of manufactured goods increased while the prices of primar# goods decreased. %n addition to declining terms of trade" developing countries were also hurt b# the protectionist policies that limited access to the markets of developed countries.1*
1= 17

2anagement Development and 3overnance Division. 0nited 1ations Development !rogram" ?D- T 2A1A3-2-1T(9eport on te Hoint !rogrammed of Debt 2anagement"A 0nited 1ations" 1 2a# +007 Bhttp@CCmagnet.undp.orgCdocsCefaCDebt.htmD. 1* 0nited 1ations Development !rogram.

The loans obtained b# developing countries were often used in uneconomical wa#s that went be#ond the countries/ means. Goans were used to finance badl# planned pro<ects" to balance budget deficits" and in some countries the# were used private assets like bank deposits" shares and propert#.1, %n addition to poor policies b# governments" inefficient debt management" outside shocks such as bad weather and political factors such as civil war and social strife also contributed to the debt crisis.1E As a result of incurring huge debt burdens" man# countries had to reduce spending on social services in order to make pa#ments to creditors. This caused much of their population to remain in povert#. The seriousness and depth of the debt crisis can be seen in the debt figures for developing and middle(income countries. Their debt rose from )*00 billion :0.4.; in 1980 to )1 trillion in 198*. # +000" their debt was about )+ trillion. 8ort#(one $%!& countries/ debts increased

from ),0 billion in 1980 to )10* billion in 198* and )190 billion b# 1990. Without debt reduction measures" their debt would be close to )+00 billion in +000.18 These figures provide evidence of the urgent need for debt reducing policies and mechanisms.

-fforts to -ase the Debt &risis@ aker !lan@ 6ne of first efforts to prevent third world countries from defaulting on their loans was the issuance of new loans b# the developed countries through institutions like commercial banks" the %28" and other multilateral agencies. The goal was to give indebted countries time to rework their finances before repa#ing their debts in future #ears. Developing nations had to follow %28
1, 1E

0nited 1ations Development !rogram. 9a#" rooks et al. ?-'ternal Debt $istories of Ten Gow(%ncome Developing &ountries@ Gessons from Their -'perienceA %nternational 2onetar# 8und Working !aper. %nternational 2onetar# 8und. 2a# 1998. +E 8eb. +997 Bhttp@CCwww.imf.orgCe'ternalCpubsCftCwpCwp98E+.pdfD 18 %28 4taff ?The Gogic of Debt 9elief for the !oorest &ountriesA %28 %ssues rief. 4ept. +000. %nternational 2onetar# 8und. 9 8eb. +007 Bhttp@CCwww.imf.orgCe'ternalCnpCe'rCibC+000C09+=00.htmD.

sponsored ad<ustment programs that included raising ta'es" increasing tariffs" devaluating currenc#" and even reducing government spending.19 After it was evident that developing countries were not recovering from their debt problems and were becoming more indebted" the five largest industrial countries met in 1ew Iork to deal with the crisis. The# adopted the aker !lan" which was developed b# the 0.4. Treasur# 4ecretar# Hames A. aker in 198*. The plan provided )+9 billion worth of new financing for indebted countries over a three #ear period. The aker !lan used commercial banks to provide lending" re.uired that multilateral institutions activel# participate in the solution and re.uired that borrowers meet the conditions of those institutions. %t was also a voluntar# plan" which made it ineffective.+0

rad# !lan@ A successive plan to resolve the crisis was the rad# !lan" which was created in 1989. This plan increased the roles of the World ank and %28 while focusing on mostl# middle( income countries in Gatin and &entral America. The plan contained measures that would entice commercial banks to rewrite e'isting contracts b# e'changing debt for li.uid assets on better terms or for cash.+1 0nder the rad# !lan" 18 countries had agreed to forgive ),0 billion worth of debt b# 2a# 1997. Also" the %28 and World ank provided )1+ billion each" and the Hapanese %mport(-'port ank provided )8 billion for securiti5ation. A deal made under this plan led to a =0 to =* percent reduction of a countr#/s debt.++

19

%an Jas.ue5"?The rad# !lan and 2arket( ased 4olutions to Debt &rises"A The Cato Journal" Jol. 1," 1o. +" , 2a# +007 Bhttp@CCwww.cato.orgCpubsC<ournalCc<1,n+(7.htmlD. +0 0nited 1ations Development !rogram. +1 0nited 1ations Development !rogram. ++ %an Jas.ue5.

$eavil# %ndebted !oor &ountries %nitiative@ %n 199," further debt relief was provided b# the %28 and World ank in the form of a <oint %nitiative for the $eavil# %ndebted !oor &ountries :$%!&;. The %nitiative provided resources for countries to achieve sustainable debt within a reasonable period of time.+= 0nder the $%!& %nitiative" the poorest countries had the highest priorit# in obtaining low interest rate debt relief" especiall# those that had strong performance records under programs supported b# the %28 and World ank and those that would not achieve sustainable debt even after traditional debt relief. The measure used to determine e'ternal debt sustainabilit# was the ratio of the net present value :1!J; of debt to e'ports ratio which ranged from +00 to +*0 percent of e'ports.+7 To be eligible for assistance from the %nitiative countries had to have an annual per capital income of less than )900" and the# were re.uired to have used all e'isting debt relief mechanisms without reaching sustainable levels of debt. %n addition" the# had to prove that the# had a strong record of economic and structural reforms while receiving concessional financing from the !aris &lub.+* %f the# stra#ed from that track" the# would have to wait longer for relief.+, The adopted policies were designed to solve a countr#/s balance of pa#ment difficulties and add to strong economic growth b# creating greater economic stabilit#. The# were intended to address structural problems impeding health# growth" measures to strengthen financial s#stems or to improve governance.+E The %28 and World ank/s responsibilit# was also to ensure that the resources of donor governments were properl# being used.+8

+=

Andrews" David et al. ?Debt 9elief for Gow(%ncome &ountries(The -nhanced $%!& %nitiative"A %28 !amphlet 4eries" 1o. *1. %nternational 2onetar# 8und. 1999. E 2arch +007 Bhttp@CCwww.imf.orgCe'ternalCpubsCftCpamCpam*1Ccontents.htmD. +7 Andrews" David et al. +* Andrews et al. +, 2anagement Development and 3overnance Division. +E ?%28 &onditionalit#"A %nternational 2onetar# 8und" Dec. +00+" 8 2arch +00= Bhttp@CCimf.orgCe'ternalCnpCe'rCfacts.conditio.htmD +8 %28 4taff ?The Gogic of Debt 9elief for the !oorest &ountries.A

After successfull# implementing the economic and structural reforms for a three #ear period" the countries reached decision point. At this stage" the -'ecutive oards of the %28 and World ank would determine a countr#/s eligibilit# for the %nitiative. Assistance was then provided after a countr# was deemed eligible based on a debt sustainabilit# anal#sis b# the %28 and ank staff and countr# authorities. When a countr# was eligible for assistance under the %nitiative" assistance was provided at the completion point. etween the decision point and

completion point" countries had to continue implementing economic and structural reforms" and the# had to continue receiving concessional lending from the %28 and World ank.+9 The results of the $%!& %nitiative were limited to a few countries. 8ourteen countries were considered for eligibilit# under the %nitiative and seven of those countries which included 0ganda" olivia" urkina 8aso" 3u#ana" &ote d/%voire" 2o5ambi.ue and 2ali received assistance. 0nder the %nitiative" there was a +0K reduction in debt and total debt relief in nominal terms of ),.EE billion.=0 Although these figures were substantial" the number of countries and people benefiting from the %nitiative was limited. %nitiall# 71 countries" mostl# in Africa" were considered to be heavil#(indebted poor countries with about =00 million people living on less than a )1 per da#.=1 The %nitiative" therefore" was not able to reach all the people and countries re.uiring assistance. %n 1999" the $%!& %nitiative was reviewed b# the -'ecutive oards of the %28 and World ank who consulted with religious groups" nongovernmental organi5ations" the media" international organi5ations" and governments.=+ This review resulted in changes to the $%!& %nitiative" thus" creating the most recent measure known as the -nhanced $%!&.

+9 =0

Andrews et al. Andrew et al. =1 %28 4taff" ?The Gogic of Debt 9elief for the !oorest &ountries.A =+ Andrews et al.

The -nhanced $%!& is designed to offer greater debt relief and e'tend relief to more countries. The new framework lowers targets and modifies performance re.uirements. %t simplifies the design and implementation of the $%!& %nitiative while also lowering the uncertainties of how much debt relief will be provided to $%!&s. %t adds to the original %nitiative b# re.uiring the full participation of all creditors and focusing on sustainable development.== The -nhanced $%!& increases the number of countries that could potentiall# .ualif# for assistance from +9 to =," with the potential for more countries to be involved.=7 The -nhanced $%!& also emphasi5es the link between debt relief and povert# reduction. This comes in the form of the !overt# 9eduction 4trateg# !aper :!94!; which is prepared b# the government with involvement from civil societ#" nongovernmental organi5ations" donors" and international organi5ations. !94!s are intended to make the voice of the poor heard and ensure that $%!& resources are trul# used to reduce povert#. %t is also the basis for the %28 concessional lending that will provide 10(#ear loans at a rate of 0.* percent to low(income countries. =* The -nhanced $%!& has provided greater relief to the low(income countries able to meet the re.uirements of the %28 and World ank. Twent#(seven countries have reached completion points" and over )=1 billion of debt relief have been committed to these countries. %n +00+" the 1!J terms were estimated to fall from )EE billion before traditional relief to )=+ billion after the deliver# of traditional relief and the $%!& %nitiative" and )+, billion with additional relief from different creditors. The annual debt service b# the +E countries is pro<ected to be =0K lower for +001(0* than in 1998 and 1999. This allows )1.0 billion in debt service to be saved" therefore" allowing the savings to be spent on povert#(reducing e'penditures. !overt#(reducing spending

== =7

Andrews et al. Andrews et al. =* %28 4taff" ?The Gogic of Debt 9elief for the !oorest &ountries.A

increased from ),.1 billion in 1999 to )8.7 billion in +00+. %t is pro<ected to increase to )11.9 billion in +00*.=, The gains show how the -nhanced $%!& of the %28 and World ank has been and will continue to be a positive mechanism for reducing the debt of third world nations and improving the lives of their citi5ens. %t is" however" not the onl# mechanism needed to ensure that millions of people will be lifted out of povert#. &ollaboration between all parties" which include the %28" World ank" the 0nited 1ations" debtor countries" and creditor countries" is essential to meet this goal.

Actions b# 0nited 1ations 6rgans@ %n 1989" a group of independent e'perts presented a 0nited 1ations Development 9eport on debt management. %t found that e'cessive foreign debt was an obstacle for economic growth and development for man# countries during the 1980s and contributed to problems between the 1orth and 4outh. Although it was being addressed" the problem still persisted. The report and its recommendations led to the 01D!" 01&TAD and the World ank to establish the Hoint !rogramme in 1991. The program was created to bring countries/ debt management capacit# to acceptable levels that would allow sustainabilit# and prevent the government from being put in circumstances that led to the debt crisis of the 1980s. The program provided new technologies like 01&TAD/s Debt 2anagement 8inancial Anal#sis 4#stem :D28A4;" which was a state(of( the(art computer(based debt management s#stem designed to collect" record" validate" and report data. %t also provided technical assistance" technical training of staff" monitoring of countr# pro<ects" e'changes of information" and research and development work supporting debt
=,

%28 and World ank 4taff" ?!overt# 9eduction 4trateg# !apersLDetailed Anal#sis of !rogress in %mplementation"A $eavil# %ndebted !oor &ountries Documents" %nternational 2onetar# 8und" 1+ 4ept. +00=" 1 2arch +007 Bhttp@CCwww.imf.orgCe'ternalCnpChipcC+00=CstatusC091+0=.pdfD.

management activities. The Hoint !rogramme was financed b# 01D! through 1997 but due the reduction of 01D!/s budget" it was unable to in 199* and 199,. $owever" 01&TAD was still able to pursue its work as a result of special fund(raising.=E

0nited 1ations 9esolutions@ 3eneral Assembl# 9esolutions@ There have been several 0nited 1ations 3eneral Assembl# resolutions tr#ing to urge the international communit# to resolve the unsustainable debt problems of developing countries. The resolutions adopted b# the 3eneral Assembl# were@ 78C1,* on December +1" 199=" *0C9+ on December +0" 199*" *1C1,7 on December 1, 199," *+C18* on December 18" 199E" *=C1E* on December 1* 1998" *7C+0+ on December ++" 1999" **C187 on December +000" *,C187 on December +1" +001" *EC+70 on December +0" +00+" and *8C+0= on December +=" +00=. 6f the man# resolutions that have been adopted" some significant resolutions" 9esolution *1C1,7" **C187" and *8C+0=" will be e'plored.

9esolution *1C1,7@ %n 199," the 3eneral Assembl# passed 9esolution *1C1,7 which stated that it was aware of the improvements of the debt situation of man# developing countries since the 1980s due to measures taken b# creditors" but it called for the full and swift implementation of programs especiall# to the poorest and heavil# indebted countries. %t asked for more financing of the $%!& %nitiative from multilateral and bilateral creditor governments. The 3eneral Assembl# also urged the developed countries to give the %nitiative the support it needed in order to make

=E

0nited 1ations Development !rogram.

the %nitiative more fle'ible and ensure that its intended purpose of debt reduction and assisting indebted countries in e'iting from debt rescheduling would be achieved.=8

9esolution **C187 %n +000" 9esolution **C187 was adopted b# the 3eneral Assembl#. The 3eneral Assembl# was still concerned with the continuing debt and debt(servicing problems of heavil# indebted developing countries" which it saw as adversel# affecting their development efforts and economic growth. %t reaffirmed the importance of finding other measures to deal with the debt of developing countries so the# reach the 2illennium Development 3oals. %t welcomed the efforts and encouraged debtor countries to pursue structural ad<ustment programs. %t also called for close attention to be paid to the impact economic reforms had on the poor through the linking of countr#(owned povert# reduction strateg# papers to the $eavil# %ndebted !oor &ountries %nitiative and urged that debt relief be more closel# linked to povert# reduction. %t approved of the -nhanced $eavil# %ndebted !oor &ountries %nitiative" launched b# the 3E ma<or industriali5ed countries at their meeting held at &ologne" 3erman#" in Hune 1999" and its efforts to provide deeper" broader and faster relief. The resolution urged all creditor countries to participate in providing debt relief to developing countries and to provide additional resources to fulfill the future needs of the %nitiative. %t called for creditor countries to agree to cancel all bilateral official debts of the heavil# indebted poor countries if the# demonstrated their commitments to povert# reduction. The 3eneral Assembl# welcomed the adoption b# the -'ecutive oards of the %nternational 2onetar# 8und and the World ank of a number of measures to speed up the

=8

3eneral Assembl#" ?9esolution *1C1,7A 0nited 1atinons"1, Dec. 199," 9 2a# +007 Bhttp@CCwww.un.orgCdocumentsCgaCresC*1Ca*1r1,7.htmD

implementation of the enhanced $%!& %nitiative" to make the eligibilit# criteria more fle'ible" to make the $%!& more countr#(driven" and to make it more inclusive of civil societ#. %t welcomed the decision of the countries that cancelled bilateral official debt and urged creditor countries that did not #et do so to consider the full cancellation and e.uivalent relief of the bilateral official debts.=9

9esolution *8C+0=@ The most recent efforts b# the 0nited 1ations 3eneral Assembl# to address the debt crisis have been the release of a new resolution. 6n 8ebruar# 7" +007" the 3eneral Assembl# adopted 9esolution *8C+0= which noted with great concern that the continuing debt and debt servicing problems of heavil# indebted poor countries was one element hindering their sustainable development efforts and development goals" including those containing the 2illennium Declaration. %t was aware that highl# indebted countries" both low and middle income countries" still have difficulties meeting their e'ternal debt(servicing obligations. The 3eneral Assembl# reali5ed the positive outcomes of the $eavil# %ndebted !oor &ountries %nitiative" but encouraged all creditor countries including those in the !aris &lub to forgive on a unilateral basis up to 100 percent of all remaining claims after $%!& debt relief. %t also urged official and commercial creditors to participate in the $%!&. The resolution urged countries whose resources were freed through debt relief to direct those resources towards povert# eradication" sustainable economic growth" sustainable development" and meeting the internationall# agreed development goals. %t also called upon the indebted countries who have not taken polic# measures to become eligible for the $%!& and to reach the decision point b# creating povert# reduction strategies.
=9

3eneral Assembl#" ?9esolution **C187A 0nited 1ations" ++ Han. +001" 9 2a# +007 B http@CCods(dds(n#.un.orgCdocC01D6&C3-1C100C,09C88C!D8C100,0988.pdfF6pen-lementD

The 3eneral Assembl# stressed the need to the international communit# including the 0.1. s#stem" retton Woods institutions" and the private sector to speedil# and effectivel# implement the -nhanced $%!& while addressing changes in the economic circumstances of those developing countries. These changes include natural catastrophes" severe terms(of(trade shocks or conflict. %t also called on them to acknowledge the problems of debt sustainabilit# of some low(income countries that are not heavil# indebted and provide those countries with debt treatment that takes into consideration their financial needs and has the ob<ective of ensuring long(lasting debt sustainabilit#. %t called on them to reduce the debt burdens of developing countries through debt relief" debt cancellation and other mechanisms aimed at the debt problems. The resolution encouraged e'ploring innovative mechanisms to deal with debt problems such as debt(for(sustainable(development swaps or multi(creditor debt swap arrangements. %t called for establishing debt(tracking mechanisms in developing countries and strengthening technical assistance for debt management and tracking through the cooperation of organi5ations providing these t#pes of assistance.

Country Positions1 The !aris &lub@ 6ne of the ma<or actors in providing debt relief to indebted countries has been the !aris &lub. The !aris &lub" founded in 19*," is an informal group of creditor countries which toda# includes Austria" Australia" elgium" &anada" Denmark" 8inland" 8rance" 3erman#" %reland"

%tal#" Hapan" 1etherlands" 1orwa#" the 9ussian 8ederation" 4pain" 4weden" 4wit5erland" the 0nited Mingdom" and the 0nited 4tates. %t was created to provide debt relief to debtor countries with temporar# li.uidit# problems in order to prevent them from defaulting on their loans. 6riginall#" the !aris &lub onl# rescheduled interest so the debt problem worsened due to the interest being capitali5ed as new debt. This led to the creditor countries of the !aris &lub to increase debt relief to the poorest countries.70 9escheduling terms were applied to countries on an individual basis" but after the debt crisis in 1980" the !aris &lub began to grant more long(term rescheduling to reduce developing countries/ debt burdens. 4ince this did not end the debt problem" in 198E the !aris &lub agreed to reschedule debt on concessional terms for the first time. The# granted the Jenice terms which allowed longer grace and maturit# periods to the poorest countries in 4ub(4aharan Africa. 71 %n addition to the Jenice terms" new terms were adopted b# the !aris &lub at the 3(EC8 summits. The 3roup of EC8" a group of ma<or industrial democracies that meet annuall# to discuss ma<or economic and political issues" include@ 8rance" the 0nited 4tates" 3reat ritain" 3erman#" Hapan" %tal#" &anada" and 9ussia :since 1998;. Their summits were held in Toronto" Trinidad" Gondon" 1aples" and &ologne to develop new means of debt relief.7+ At the Toronto summit in 1988" the# agreed to additional debt relief under the Toronto Terms which granted ==K relief. %n 1991" the Gondon Terms were created to replace the Toronto Terms" and it provided *0K debt reduction. # 1997" the 1aples Terms were adopted" which increased debt

relief to ,EK for the poorest and most indebted countries. The relief was determined on the present value of the debt rather than its nominal value. The !aris &lub also introduced an option that allowed countries to e'it from the debt restructuring process b# reducing their debt stock.
70

Huan &arlos Jilanova and 2athew 2artin" ?!ublication 1o. =@ The !aris &lub"A Debt 9elief %nternational" +001" + 2a# +00= Bhttp@CCwww.dri.org.ukCpdfsC-ng!ub=N!arisN&lub.pdfD 71 Huan &arlos Jilanova and 2athew 2artin. 7+ %28 4taff ?The Gogic of Debt 9elief for the !oorest &ountries.A

$%!&s or countries that had benefited from the Toronto or Gondon terms were also eligible under the 1aples Terms. # 199," the club created the G#ons Terms which provided 80K present

value reduction" but the# were onl# given to $%!&s that had received relief under the 1aples Terms and had .ualified for the $%!& %nitiative. At their decision point" these countries could receive the G#ons Terms on their debt and on their debt stock at the completion point.7= The final terms were adopted b# the !aris &lub on Hune 1999 during the 3E summit in &ologne. 0nder the &ologne Terms" 90K forgiveness of non(concessional 6fficial Development Assistance :6DA; and more if needed to reach the sustainabilit# under the $%!& %nitiative. The terms called for all creditor countries to forgive 6DA debt of .ualif#ing countries on top of the amounts needed to achieve debt sustainabilit#. &anada" the 0nited Mingdom" and the 0nited 4tates promised to cancel bilateral debt including e'port credits. Australia" the 1etherlands" 1orwa# and 4weden agreed to cancel 6DA which includes post cutoff date debt" debt incurred after the date when the countr# first re.uested assistance from the !aris &lub. 4pain agreed to this action on a case(b#(case basis. Australia is also thinking of cancelling non( 6DA debt that is past the cutoff date.77

9ole of $%!& &reditors@ The $%!& %nitiative that is so vital to debt reduction in heavil# indebted poor countries was initiall# reluctantl# supported b# man# ke# creditors including 3erman#" Hapan" %tal#" 8rance" the 0nited 4tates" and the %28. The 0nited 4tates wanted low threshold levels but long monitoring periods while 8rance onl# wanted to assist countries that were once former colonies. 3erman#" Hapan and %tal# were against the %nitiative and wanted high thresholds and long

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Debt 9elief %nternational. Debt 9elief %nternational> 2anagement Development and 3overnance Division.

monitoring periods for the $%!& since this would reduce the relief that would be needed. &urrentl#" 3erman# has shifted its position while %tal# and the 0nited 4tates are adopting more fle'ible approaches.7* The 0nited Mingdom" 1ordic countries" 4wit5erland" the 1etherlands and &anada supported the %nitiative from the beginning. The creditors support low threshold levels and earl# completion points. Austria" elgium" 3reece and Gu'embourg agree with same re.uirements. During the 3(EC8 summit in 199E" 9ussia was admitted into the !aris &lub. This puts 9ussia in a position of providing 80 percent discounts on debts to $%!&s. %t will then provide debt relief and reduction on the same basis as other !aris &lub creditors under the 1aples Terms or the G#on Terms for $%!&s reaching their completion points.7,

%ndividual 3( 8 2ember &ontributions to Debt 9elief@ -ach member of the 38 has contributed to debt relief in various amounts. The 9ussian 8ederation cancelled )11.+ billion of African countries debt in 1998(+00+. Hapan has committed to cancelling )7.9 billion official debts of African $%!&4 under the enhanced $%!& %nitiative. Hapan also <ust recentl# changed its method of debt relief measures concerning 6DA debts of $%!&s and other countries owed to the Hapan ank for %nternational &ooperation. 8rance cancelled about O10 billion before the &ologne summit and is committed to cancelling O10 billion for $%!& African countries. The 0nited 4tates cancelled 100 percent of the debts incurred b# $%!& countries before the Hune 1999 &ologne -conomic 4ummit. The 0.4. estimates that it will forgive about )7.+ billion worth of debt belonging to African countries b# +007. %tal# has cancelled )1.* billion worth of debt. 3erman# has cancelled O=.* billion before

7* 7,

2anagement Development and 3overnance Division. 2anagement Development and 3overnance Division.

the &ologne summit and O+.* billion for $%!& African countries. &anada agreed to forgive all the debts of , African $%!&s once the# reach their completion points. %t has done so for Tan5ania and enin. %t is e'pected to forgive &)1.1 billion owed b# 17 African $%!&s. The 0nited Mingdom is committed to providing 100 percent debt relief on both aid and non(aid debts for .ualif#ing $%!&s and is read# to cancel P+ billion of debts owed b# African $%!&s.7E %n addition to providing relief to $%!& countries" the !aris &lub developed new agreements affecting non($%!& low and middle income countries. 6n 2a# 1E" +00=" new agreements were made that are e'pected to open the prospects of additional progress towards lasting debt sustainabilit#. Although creditor countries have provided over several billion dollars worth of debt relief" there is still a greater need for additional aid from creditor countries. &reditors voluntaril# provide debt relief so the# are in a position to decide how much relief will be provided and what form the relief will be in. Their decision to act or not act determines the outlook of the debt problems of developing countries and whether those countries can achieve the 2illennium Development 3oals. All nations and organi5ations involved are aware of the additional financing needed for relief programs like the $%!& %nitiative" which rel# on creditors as ke# pla#ers in the process. Although the 0nited 1ations 3eneral Assembl# have called for greater and deeper creditor participation over the #ears" the gap has not been completel# filled. There is also an e'isting need for creditor countries to increase the speed of their commitments to debtor countries. The effectiveness of debt relief initiatives" therefore" depends on consistent" timel# and innovative creditor participation.

7E

?%mplementation 9eport b# Africa !ersonal 9epresentatives to Geasers on the 38 Africa Action !lan"A 38 %nformation &enter" 1 Hune +00=" , 2a# +00= Bhttp@CCwww.gE.utoronto.caCsummitC+00=evianCapr0=0,01.htmlD

9ole of the %28 and World ank@ The %28 and World ank" like individual creditor countries" pla# a huge role in providing debt relief especiall# through the $%!& %nitiative. During the decision point of the $%!& %nitiative process" the -'ecutive oards of the %28 and World ank determine a countr#/s eligibilit# for the %nitiative. The ank is also the world/s largest single donor source for development finance" and it provides about )+0 billion each #ear in loans" credits" and guarantees. Although the ank and %28 are ke# pla#ers in the relief process and their decisions determine which developing countries receive debt relief" those developing countries do not have strong representation within both institutions. 8or instance" 7, sub(4aharan African member countries together control a small percentage of the board/s voting power and have onl# two directors on the e'ecutive board of both the ank and the %28.78 6ne group of African countries has =.01 percent while another group has 1.7+ percent voting power in the %28. While these African countries lack voice and decision making power" countries that contribute more to finance the 8und wield greater influence over the %28/s decisions. 4ome of the ma<or contributing countries include the 0nited 4tates with 1E.17K" Hapan with ,.1*K" 3erman# with ,.01K" 8rance with 7.9,K and the 0nited Mingdom with 7.9,K.79 These same countries also have greater influence in the ank. This results in the stronger members" especiall# the 0nited 4tates" having a greater abilit# to block an# proposals to change the governance structure of the World ank and %28. The 0nited 4tates did so in +00= when it blocked the proposal to reform the ank/s structure that would modestl# increase the representation of African countries on the governing board. Without greater representation" the poor countries not onl# have less voice but also a smaller sense of responsibilit# and ownership
78

Him Gobe" ?04 locks 4tronger African Joice at World ank(136"A %nter !ress 4ervice" +, Hune +00=" = 2a# +007 Bwww.globalpolic#.orgCsoceconCbwi(wtoCwbankC+00=C0,+,blocks.htm 79 ?%28 -'ecutive Directors and Joting !ower"A %nternational 2onetar# 8und" 1, April +007" * 2a# +007 Bwww.imf.orgCe'ternalCnpCsecCmemdirCeds.htmD

of the %28 and World ank and its operations that been geared toward helping them with their debt burdens. *0

!uggested -eadings #or 3urther -esear"h1 0nited 1ations http@CCwww.un.org 3eneral Assembl# 9esolutions http@CCwww.un.orgCdocumentsCresga.htm 01D! http@CCwww.undp.orgC %28 http@CCwww.imf.org World ank
*0

Him Gobe.

http@CCwww.worldbank.org Debt 9elief %nternational http@CCwww.dri.org.uk !aris &lub http@CCwww.clubparis.orgCenC 3EC8 http@CCwww.gE.utoronto.ca http@CCwww.g8.utoronto.ca 3lobal !olic# 8orum http@CCwww.globalpolic#.org

ibliograph# Andrews" David et al. ?Debt 9elief for Gow(%ncome &ountries(The -nhanced $%!& %nitiative.A %28 !amphlet 4eries" 1o. *1. %nternational 2onetar# 8und. 1999. E 2arch +007 Bhttp@CCwww.imf.orgCe'ternalCpubsCftCpamCpam*1Ccontents.htmD. rooks" 9a# et al. ?-'ternal Debt $istories of Ten Gow(%ncome Developing &ountries@ Gessons from Their -'perience.A %nternational 2onetar# 8und Working !aper. %nternational 2onetar# 8und. 2a# 1998. +E 8eb. +997 Bhttp@CCwww.imf.orgCe'ternalCpubsCftCwpCwp98E+.pdfD Development &ommittee. ?3lobal 2onitoring 9eport +007@ !olicies and Actions for Achieving the 2D3s and 9elated 6utcomes.A D&+007(000,. %nternational 2onetar# 8und. 1+ April +007. 1 2a# +007 Bhttp@CCwww.imf.orgCe'ternalCnpCpdrCgmrCengC+007C071+07.pdfD. -conomic and 4ocial &ouncil. ?&oherence" coordination and cooperation in the conte't of the implementation of the 2onterre# &onsensus.A -C+007C*0. 0nited 1ations. 8 April +007. 1 2a# +007
Bhttp@CCods(dds n#.un.orgCdocC01D6&C3-1C167C=0*C=EC!D8C167=0*=E.pdfF6pen-lementD.

?8inancing for Development riefing note =@ 0nfinished business on developing countr# debt"A D!%C+==0&. 0nited 1ations. 6ctober +00=. + 2a# +007 Bwww.un.orgCesaCffdD 3eneral Assembl#. ?**C+. 0nited 1ations 2illennium Declaration"A AC9-4C**C+" 0nited 1ations" 18 4ept. +000. 1 2a# +007 Bhttp@CCwww.un.orgCDeptsCdhlCresguideCr**.htmD.

?9esolution *1C1,7.A 0nited 1ations" 1, Dec. 199," 9 2a# +007 Bhttp@CCwww.un.orgCdocumentsCgaCresC*1Ca*1r1,7.htmD. ?9esolution **C187.A 0nited 1ations. ++ Han. +001. 9 2a# +007
B http@CCods(dds(n#.un.orgCdocC01D6&C3-1C100C,09C88C!D8C100,0988.pdfF6pen-lementD.

?%mplementation 9eport b# Africa !ersonal 9epresentatives to Geasers on the 38 Africa Action !lan.A 38 %nformation &enter. 1 Hune +00=. , 2a# +00= Bhttp@CCwww.gE.utoronto.caCsummitC+00=evianCapr0=0,01.htmlD ?%28 &onditionalit#.A %28 8actsheet. %nternational 2onetar# 8und. 7 Dec. +00+. 8 2arch +00= Bhttp@CCimf.orgCe'ternalCnpCe'rCfacts.conditio.htmD. %28 and World ank 4taff. ?!overt# 9eduction 4trateg# !apersLDetailed Anal#sis of !rogress in %mplementation.A $eavil# %ndebted !oor &ountries Documents. %nternational 2onetar# 8und. 1+ 4ept. +00=. 1 2arch +007 Bhttp@CCwww.imf.orgCe'ternalCnpChipcC+00=CstatusC091+0=.pdfD. ?%28 -'ecutive Directors and Joting !ower.A %nternational 2onetar# 8und. 1, April +007. * 2a# +007 Bwww.imf.orgCe'ternalCnpCsecCmemdirCeds.htmD %28 4taff. ?The Gogic of Debt 9elief for the !oorest &ountries.A %28 %ssues rief. 4ept. +000. %nternational 2onetar# 8und. 9 8eb. +007 Bhttp@CCwww.imf.orgCe'ternalCnpCe'rCibC+000C09+=00.htmD. Gobe" Him. ?04 locks 4tronger African Joice at World ank(136.A %nter !ress 4ervice. +, Hune +00=. = 2a# +007 Bwww.globalpolic#.orgCsoceconCbwi( wtoCwbankC+00=C0,+,blocks.htmD. 2onitoring Development and 3overnance Division. ?Debt and 4ustainable $uman Development.A Technical Advisor# !aper 1o.7. 0nited 1ations Development !rogram. + 2a# +007 Bhttp@CCmagnet.undp.orgCdocsCefaCtechpaper7Cdefault.htmD

?4ummar# b# the !resident of the 3eneral Assembl# of the $igh(Gevel Dialogue on 8inancing for Development.A AC*8C***. 0nited 1ations. 1 2a# +007 Bhttp@CCods(ddsCn#.un.orgCdocC01D6&F3-1C16=C,01CE,!D8C160,01E,.pdfD 0nited 1ations Development !rogram. ?D- T 2A1A3-2-1T(9eport on te Hoint !rogrammed of Debt 2anagement.A 0nited 1ations. 1 2a# +007 Bhttp@CCmagnet.undp.orgCdocsCefaCDebt.htm Jas.ue5" %an. ?The rad# !lan and 2arket( ased 4olutions to Debt &rises.A The &ato Hournal. Jol. 1,. 1o. +. , 2a# +007 Bhttp@CCwww.cato.orgCpubsC<ournalCc<1,n+(7.htmlD. Jilanova" Huan &arlos and 2athew 2artin" ?!ublication 1o. =@ The !aris &lub"A Debt 9elief %nternational. +001. + 2a# +00= Bhttp@CCwww.dri.org.ukCpdfsC-ng!ub=N!arisN&lub.pdfD.