9th December 2003

Purpose of the delegation

This delegation of debt campaigners from across Europe is here to meet MEPs to discuss how the European Parliamentarians can help strenghten the European Union's policies on unpayable poor country debt. The European Parliament has shown strong interest on this issue over the last years. A Resolution passed last year[1] highlighted the inedaquecy of current approaches to the debt crisis. It called for human needs to be the central criterion in assessing how much debt reduction a country requires.

This Resolution is directly in line with what was agreed at the 2002 United Nations International Conference on Financing for Development (FfD). This conference called for debt reduction to be based on the resources needed to halve poverty by 2015 (the overarching objective of the Millennium Development Goals).

The EU's contribution to the UN FfD process is contained in the Barcelona commitments. The commitment on debt however, falls short of implementing the above-mentionned recommandation.

We call on the European Parliament to use the opportunities of the upcoming Irish presidency and the subsequent presidencies to press the for an amendment of the commitment on debt made in Barcelona to include the following:

(a) A human development approach to debt sustainability within HIPC. This would mean that the first call on poor country government resources would be expenditures needed to meet the MDGs[2]. For the poorest countries, this will require a total (100%) cancellation of their debts.

(b) to stress that debt reduction should be additional to current aid flows and should not take away resources for development co-operation. In particular, member states should abide by the European Council Directive stating that the cancellation of Export Credit debts should not be financed out of development aid budgets.

Debt sustainability: towards a human development approach

For several years now, debt campaigners North and South have been pointing to the failure of the HIPC initiative to deliver debt sustainability. More recently the International Financial Institutions (IFIs) have also begun to admit that this is the case. "The current criterion for assessing HIPC debt sustainability is a reductive and inappropriate analytical approach (the 150% debt-to-exports criterion). It is an unreliable predictor of debt sustainability for a group of countries characterised by an extreme vulnerability to shock and steep fluctuations in export earnings."[3]

In order to ensure debt sustainability beyond completion point[4], we believe it is necessary to break with the principle of prioritising debt servicing over the fulfilment of basic human needs. We argue in favour of an approach based instead on a country's ability to fund human development. This approach sets as an inviolable principle the satisfaction of basic needs.

The Millennium Development Goals, specified at the country level in participatory and nationally owned Poverty Reduction Strategy Papers (PRSPs), could serve as an initial measure of basic human needs. It is increasingly clear that most low-income countries (LICs) are on trajectories that will result in failure to meet the MDGs. Even the goal of halving extreme poverty, which numerous NGOs consider insufficient, will not be reached by 2015 without a considerable global effort by the international community to mobilise new financial resources. In Monterrey, the international community committed itself to linking debt sustainability analysis to the funding required to achieve the MDGs. This commitment should be fulfilled and the consequences of such a human development approach to sustainability accepted.

The amount of debt cancellation needed can be derived from working backwards from financing needs as identified in PRSPs. According to preliminary calculations, many HIPCs will require a total (100%) cancellation as well as further aid flows if their revenues are feasibly expected to meet the objective of financing the MDGs.[5] A 100% cancellation would at the same time provide those countries with a fresh start.

Financing 100% cancellation of unpayable debt

EU member states, as well as the EC, have promised to cancel all their claims on HIPC debt. As a result, the IFIs have become the main HIPC creditors. Given the scale of human development needs, EU shareholders within the IFIs ought clearly to declare themselves in favour of multilateral debt cancellation (as is supported by the Irish government). The IFIs are in a position to contribute significantly more to cover this debt cancellation from their own resources, without in any way jeopardising future commitments[6]. This should should not involve imposing any conditionalities that would affect basic human rights.

It is important also that debt relief is additional to current aid flows and should not take away resources for development co-operation. The 'Monterrey Consensus' 2002 states: "We encourage donor countries to take steps to ensure that resources provided for debt relief do not detract from ODA resources intended to be available for developing countries"[7]. However, it would appear that it is common practice to use development co-operation funds/ODA to finance the cancellation of export credit debt. Furthermore, registering export credit debt cancellation as ODA conflicts with European Council Directive 98/29/EC (7 May 1998). This directive states that the premiums paid for the export credit insurance, should be high enough to cover 'long term operating costs and losses'. This implies that cancellation of export credit debt does not entail any extra costs, as these costs are to be covered by premium income. We also recommend that export transactions that are insured by national governments, should be subject to [enforceable] economic, social and ecological criteria, in order to ensure that these transactions contribute to sustainable development.

The European Parliament's Role

As part of the process leading to the UN International Conference on Financing for Development (FfD), the European Union has made eight commitments now referred to as the Barcelona commitments. One of them relates to Europe's commitment to actively pursue policies to restore the sustainability of low income countries' debt and ensure "that developing countries, and especially the poorest ones, can pursue growth and development unconstrained by unsustainable debt dynamics".

The FfD conference agreed that debt reduction should be based on the resources needed to halve poverty by 2015 (the overarching objective of the Millennium Development Goals). The EU's Barcelona Commitment on debt however, falls short of implementing this recommendation.

The European Commission (EC) has subsequently been tasked to monitor, on a yearly basis, the implementation of these commitments by member states[8]. As part of this process, the EC has commissioned a study on the HIPC Initiative, which will look at ways to bring the Initiative in line with the FfD recommendation.

These two initiatives present a unique opportunity for the EU to adopt more progressive policies regarding the debt issue. The European Parliament has taken an active interest in the issue of debt. Its most recent resolution (mentionned above) is contained in report A5-0075/2002 (HIPC debt alleviation) of 25/04/2002.[9]

This resolution at point 5 "considers that the enhanced HIPC initiative is still inadequate in the current context of economic globalisation, even though it acknowledges the failure of earlier programmes based on purely macroeconomic strategies and is designed to establish a link between debt alleviation and poverty reduction (a formula based on the Poverty Reduction Strategy Papers) by making the eligibility criteria more flexible" and at point 6 "advocates supporting alternative efforts to revise the debt sustainability thresholds from a human development perspective."

Delegation contact details

Luc Coppejans
Africa-Europe Faith and Justice Network
Reseau Foi et Justice Afrique-Europe
Belgium
Tel. +32- (02) 234 68 10
Fax +32-(0)2 231 1413
coppejans@aefjn.org
www.aefjn.org

Jean Somers/Michael Sullivan
Debt and Development Coalition Ireland
Ireland
T +353 1 857 1828
F +353 1 857 3140
ddc@connect.ie
www.debtireland.org

Kim Trathen
Jubilee Debt Campaign
United Kingdom
T +44 (0)20 7324 4722
F +44 (0)20 7324 4723
kim@jubileedebtcampaign.org.uk
www.jubileedebtcampaign.org.uk

Sasja Bökkerink
Jubilee Nederland
Netherlands
T +31.30.231 9424
F +31.30.236 4903
info@jubileenederland.nl
www.jubileenederland.nl

Jean Merkaert
Plate-forme Dette et Développement
C/o CCFD
France
T + 33 1 44 82 81 23
j.merckaert@ccfd.asso.fr
www.ccfd.asso.fr

Francis Lemoine
EURODAD - European Network on Debt and Development
T +32 - (02) 543 90 68
F +32 - (02) 544 05 59
Flemoine@eurodad.org
www.eurodad.org