Campaigners in Africa and Europe Call for Immediate

13/02/2007

CEDE, AFRODAD and EURODAD have written to European Executive Directors of the Bank and Fund to urge them to come to a swift solution on Liberia's crippling debt burden


Liberia's President Ellen Johnson-Sirleaf will urge the World Bank, IMF and bilateral donors to arrive at a swift solution to the country's debt crisis in an international donor conference on the country in Washington, DC on 14 February 2007. Liberia owes over US$3.7bn to creditors which represents over 3000% of exports. To put this figure in context, the IFIs define a sustainable level of debt as a debt-to-export ratio of 150%. Of this sum, US$1.5bn is in arrears to the IMF, World Bank and African Development Bank. Liberia's debt is unpayable and uncollectable. This is not in dispute. However, the country's arrears to the three multilateral institutions must be cleared for Liberia to be able to "normalise" relations with the international community and obtain debt cancellation and new finance. How to fund this massive arrears clearance operation is however the subject of intense political debates. And it is this question which will be on the table at the conference on 14 February.

In a letter the IMF Managing Director, President Johnson-Sirleaf has stressed that she regrets the slow pace of discussions over how to resolve the problem. In addition, the President has highlighted concerns that the HIPC Initiative process may be lengthy and that the Bank and Fund should recognise the good progress already made by the government to address economic reform and governance concerns. This, she says, should count towards the track record of policy reform required by the institutions to enter the HIPC Initiative.

The problem centres around the fact that the HIPC and MDRI Trust Funds (which finance multilateral debt cancellation) do not have sufficient funds to cover the three protracted arrears cases: Liberia, Somalia and Sudan. Liberia is the first country of these three in a position to wish to resolve its arrears and debt situation.

Of the US$1.5bn in arrears, the IMF is owed almost half (49%). The IMF has outlined a series of options to finance the arrears clearance operation over recent months. These include a partial gold sale (which could take some time to agree), a distribution of general reserves (this requires 70% of shareholders to agree), the use of SCA 1 resources (a fund established in 1987 to protect the IMF against the non repayment of any member of certain obligations - most likely the quickest option). Other options presented also include the provision of an exceptional PRGF arrangement of sufficient magnitude to cover the arrears clearance operation (but would also generate significant new debt). Despite this range of options presented, the IMF has still stressed however that the most straightforward solution would be the provision of external bilateral finance to cover the treatment of arrears. This position comes as no great surprise given that the institution faces an acute financial crisis (of its own making). But should bilateral donors step-in with sufficient funds to cover the cost of arrears clearance, this will most likely be counted as ODA even though the entire sum will flow to the multilateral institutions and Liberia will not see a cent. President Johnson-Sirleaf is also worried that this would slow down the whole process as donors squabble over how much to put in and would mean that ultimately less finance would be available to her government as a result. In her letter, she stresses that "we are concerned that a large amount of new[external] financing may slow the process and reduce the amount of funding provided directly to Liberia for reconstruction and development purposes". In this context, the IMF - as other lenders - should to take the hit for "bad loans" on their books, many of which never served the country's interests in the first place.

With respect to the World Bank, President Wolfowitz has on several occasions spoken very publicly of his support for the government of President Johnson-Sirleaf and of the need to "loosen the rules" to find a swift solution to the country's crippling debt burden. He has however made the pitch to the G7 and other bilateral donors to pledge new finds to support the resolution of the country's arrears crisis and to compensate the World Bank for any looses incurred. In the event, it appears as though a mixed solution will be found under which internal bank resources will be supplemented with external bilateral contributions. If this is indeed what is agreed in Washington DC, civil society organisations will need to remain vigilant as to what extent this assistance is reported as ODA and expose false aid where donors have indeed done just that. EURODAD would urge European donors to exercise leadership and follow Norway's example of not counting debt cancellation - or arrears clearance operations - as ODA. This would be a clear sign that their stated commitments to the MDGs and to the reconstruction and development of Liberia are indeed credible commitments.

In sum, negotiations on resolution of Liberia's arrears crisis need to be speeded up dramatically. In her letter to IMF Managing Director Rodrigo de Rato, President Johnson-Sirleaf stresses that "it is important that Liberians see tangible results as soon as possible. Since the debt burden is one of the most visible signs of gross mismanagement in the past, resolving that issue quickly will be a significant boost to our efforts". This will undoubtedly be the message the President takes to Washington on 14 February and CEDE, AFRODAD and EURODAD would urge donors to come to a decision to cancel Liberia's debts immediately, unconditionally and with full additionality in order to support Liberia's post-conflict reconstruction and development. Anything less is not good enough.

Note: Principle European creditors to Liberia are: Germany (US$232mn), UK (US$76mn), Italy (US$51mn), Denmark (US$17mn), France (US$16mn), Norway (US$9mn) and Sweden (US$9mn). In many (if not most) of these

Source: Eurodad