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Irish Government's Debt Policy: Comments and Questions
Debt and Development Coalition Ireland
1. Debt Cancellation:
We welcome the commitment to total debt cancellation as the government's
principled position, in particular the statement about the urgent need
for cancellation for countries with high levels of HIV/Aids. We are, however,
concerned at the absence of any strategy in the Debt Policy to give operational
content to this position. The document focuses mainly on support for the
Heavily Indebted Poor Countries' Initiative.
2. Funding Debt Cancellation:
We do not accept the argument that the funding for cancellation of IMF/World
Bank debt must come largely from bilaterals.
a) IMF: Prior to HIPC, the IMF argued they had no resources for debt reduction. However, the Debt Policy points out that IMF debt reduction to date has been virtually totally funded by the IMF through revaluing a small portion of their gold. We see no reason why the IMF can't repeat this exercise. Their reserves are not being depleted as it is only the interest from the proceeds of the gold sale which is being used. In addition to this, the IMF make a profit of $0.4 bn a year some of which could also be allocated to debt reduction. We find the statement in the Irish debt policy that unless bilaterals cover all the costs of further IMF debt reduction, the PRGF would be wiped out, lacks credibility .
b) World Bank: The Debt Policy accepts that the World Bank can continue to contribute some of IBRD's net income towards debt reduction. But the World Bank has other resources which could be called on. Chantrey and Vellacott , a City of London accountancy firm, concluded that the World Bank could use a small portion of its reserves and up to $600 million from its net income a year for further debt cancellation. They felt that the World Bank could probably go even further.
Overall. We are very disturbed by the Government's evident reluctance to press the World Bank and IMF to look seriously to their own resources, which in our view marks a clear break with the l998 Irish Debt Policy which states that Ireland would press the IMF to maximise the use of its own resources for debt reduction.
3. HIPC Initiative:
We are very concerned that while stating clearly that debt cancellation
is the appropriate policy, Ireland may continue to fund a virtually unreformed
Heavily Indebted Poor Countries' Initiative.
a) Concerns about HIPC
The government acknowledges that HIPC has failed in its overall objective of providing countries with an exit from the debt crisis. The two main causes highlighted are
We would add the following further concerns:
- Over optimistic growth projections by the IMF and World Bank
- The lack of focus on human development in how debt sustainability is assessed . Particularly highlighted is the fact that the impact of HIV/Aids hasn't been taken into account.
b) Reforming HIPC ?
- Conditionality
- countries are overwhelmed with conditions they must fulfill to receive debt reduction. In spite of a reduction in some IMF conditions , there has been an increase in others e.g. governance and public expenditure management. Further conditions must be fulfilled to reach completion point . Seven of the countries which have reached decision point have had their IMF interim debt relief suspended because of failure to meet this array of conditions. Many of these have high levels of HIV/Aids and are among the countries whose debts should be cancelled as soon as possible according to the Debt Policy.
- Although IMF and World Bank conditions have been surrounded by controversy for decades, these continue to be implemented without adequate assessment of the likely social or environmental impact of these conditions. The IMF's PRGF review found that the majority of PRGF policies with important social impacts are covered neither by social impact analyses nor by countervailing measures.
- The link between HIPC and PRSP is undermining country ownership which is meant to underpin the PRSP. Furthermore, the PRSP process is distorted through the submission of hastily prepared and inadequately thought through strategies in the rush to qualify for debt reduction. This has been highlighted by many Civil Society Groups, including in Ireland Aid partner countries e.g. Uganda and Tanzania and acknowledged in the IMF/World Bank PRSP Review.
- HIPC operations still lack a sense of urgency with only 6 countries having reached completion point 6 years on from the launch of HIPC and 3 years on since it was 'enhanced'.
- It is a creditor controlled mechanism with no independent decision making
We are very concerned at the very limited reform of HIPC called for in the Debt Policy. Further there is a lack of clarity as to what exactly the government's proposal is as regards debt sustainability analysis, the one reform of HIPC highlighted. The Debt Policy refers to two proposals currently on the table
- setting a ceiling to debt servicing as a proportion of government revenue
- giving first call on government resources to human development
Rather surprisingly for a document which purports to be a policy paper, the Debt policy does not opt for either one but unhelpfully descends into vague generalisations, commending the desirability of paying more attention to human development needs. We believe that resources for human development should take precedence over debt servicing.
We would ask for clarification on :
- What exactly the government is pressing for in terms of integrating human development indicators into HIPC
- Whether further Irish funding for HIPC is conditional on reform of how sustainability is assessed.
4. Civil Society
We welcome the commitment to support civil society groups in partner countries
on debt and poverty reduction. We note that qualitative monitoring is
a particular priority. For many civil society groups monitoring debt relief/
public expenditure are major priorities. These groups must, however be
allowed to set their own priorities. They must not be seen as agents to
carry out donors' priorities. Otherwise their legitimacy and independence
as civil society could be undermined.
5. A Debt Mechanism Independent of Creditors
The policy gives no indication of the government's position on proposals
for a new, independent mechanism to deal with debt. The IMF is currently
discussing a sovereign debt restructuring mechanism designed to deal with
financial crises in middle income countries resulting from financial liberalisation.
Debt groups, like the Debt and Development Coalition, are calling for
an end to the situation where creditors act as plaintiff and judge in
their own case and for the introduction of a fair and independent procedure
to deal with all debt. We would ask the government to clarify where it
stands on the range of issues thrown up by this debate e.g.
- The need for a new mechanism to deal with debt
- The debt which should be covered by such a mechanism e.g. mainly commercial
middle income debt or all debt of developing countries
- A decision making body independent of creditors and debtors
- The right of all stakeholders to be heard at such a process including civil society within the indebted country
6. Implementing the Debt Policy
We would seek clarification of the overall implementation plan for the
Debt Policy.
- Is implementation confined to the series of funding options outlined
in para 5.5?
- What are the actions being considered under each option?
- What will trigger this action?
- What are the likely priorities for next year?
We would like to clarify:
- What amounts are to be allocated to debt reduction initiatives?
- How and when will these be set?
- How will the budget be allocated between the different funding options?
Debt and Development Coalition Ireland
August 2002
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