Mathew Lockwood and Andrew Simms published an article about debt in ‘Christian Aid’ in September. The article, which used Tanzania as the model, has created a considerable stir. It criticised an Initiative, launched last year by the World Bank and the IMF to help Heavily Indebted Poor Countries (HIPC’s) to reduce heir debt burden. Starting off with some stark figures – ‘every child in Tanzania is born owing $250, twice the average national income per person’, the article went on to say that the country had passed every test and jumped every hurdle to qualify for debt relief. But, unless there was some change, Tanzania would get nothing until well into the next millennium – the year 2002. At the end of October Tanzania’s foreign debt had reached $8.09 billion – this was described as having a crippling impact on development of the country.
The paper concluded that the Bank’s HIPC Initiative was not adequate for the job; the qualifying period for major debt relief needed to be shortened; and, the performance conditions needed to take into account the real difficulty in implementing economic reform in open and democratic African societies.
Ron Fennell, who has been the World Bank’s Resident Representative in Tanzania, comments as follows:
– By their articles of agreement, neither the Bank nor the IMF can postpone loan repayments to them; one of the main reasons is to maintain the Bank’s AAA rating on the stock exchanges from which it borrows most of its funds.
– Not until 1994 did the Bank and the IMF openly admit that their assistance to support major reforms was not leading to sustainable economic recovery.
– The current HIPC initiative took three years to develop because of the need to secure the support of all the major shareholders in the two institutions; the Initiative provides additional potential debt relief to that under existing arrangements such as the Paris and London Clubs; Tanzania has already benefited from debt relief of about $1.0 billion under these Club arrangements (TA May 1997); the money is used to purchase a portion of the multilateral debt and cancel it or to pay debt service as it becomes due; Tanzania may become eligible for debt relief under the HIPC Initiative in about two years time;
– Tanzania is also likely to benefit from a discounted Debt Buyback scheme if the government’s management of the economy continues along sound lines; under this scheme, the Bank seeks funds from bilateral donors to liquidate the debt by paying possibly ten pence in the pound to commercial creditors; however, as only about 3% of Tanzania’s foreign debt is from commercial sources, debt relief from this instrument would probably be less than $500 million; the bulk of Tanzania’s debt is to multilateral or bilateral creditors and not currently eligible for discounted settlement;
– Assessing when a country will reach a sustainable level of debt is very difficult because assumptions about export earnings and government revenues are dependent on world commodity prices and good fiscal performance;
– Lack of government support for rural social services is sometimes due as much to diversion of official funds as it is to allocating funds to debt service; in the years when Tanzania’s external debt was not being serviced, the provision of health care and education deteriorated; in part, because many taxes and duties were not finding their way into general revenue;
– The World Bank and the IMF are technocratic institutions answerable to member countries; changes in policy on debt must be supported by the major industrial powers. Christian Aid and other advocacy groups need to focus on the governments of such nations.
