Debt Cancellation
A couple weeks ago we announced the great news that Liberia had reached HIPC completion point. For countries with a lot of international debt, the HIPC process offers a means to debt cancellation from multilateral organizations by undertaking major and difficult reforms to improve country economic and financial systems.
Liberia started the HIPC process two years ago with US$4.9 billion in debt, and potential annual repayments that overshadowed their entire annual budgets! Throughout the period of Liberia’s civil war and the resulting crisis, loans were not serviced and interest and penalties accumulated. By reaching completion point, Liberia has passed the 12 triggers stipulated by the World Bank and the IMF and today, Liberia has had $4.6 billion of their multilateral debt has been cancelled.
This action is a recognition of the tremendous efforts taken to transform Liberia, under the leadership of President Johnson-Sirleaf, and is an endorsement of the progress made in public financial management, debt management, governance, social service provision and the implementation of a poverty reduction strategy.
This decision now opens up more fiscal space for Liberia, allowing them the opportunity to embark on more development programs that will help expand the economy whilst continuing to tackle poverty. It also paves the way for additional debt relief. Liberia still has a way to go before we can declare victory. The Paris club, which holds Liberia’s bilateral debt, includes wealthy countries that meet under the Chairmanship of the French Ministry of Finance. Their next meeting is in September and the HIPC completion news certainly positions Liberia to make the best case possible.
Back in January more the 200,000 ONE members signed our petition to cancel Haiti’s external debt and help the country rebuild from the terrible earthquake that struck on 12 January.
6 months on we thought it would be useful to report back on what happened next.
At the handover of the petition during the G7 finance ministers summit in the small Arctic Canadian town of Iqaluit (the first ONE petition to be delivered above the Arctic Circle!) we welcomed the news that the G7 had agreed to support debt relief.
According to our friends at the Jubilee Debt Campaign Venezuela cancelled $295 million of debts at the end of January, while at the end of March the World Bank and the Inter-American Development Bank together forgave a combined total of $472 million.
That leaves Haiti’s only outstanding debts at the moment being held by Taiwan and the IMF. Taiwan is difficult as many of these debts are held by commercial creditors who are unwilling to forgive them. The IMF, however, is currently working on a process to cancel Haiti’s remaining debts, though this hasn’t happened as yet.
The process of rebuilding Haiti will be a long one, but as ONE members we can celebrate the fact that a country facing so many obstacles on the road to recovery has, at least, one less injustice to face: Haitians will no longer be saddled with the debts accumulated by previous governments.
Yesterday, the IMF and the World Bank decided to support $4.6 billion of debt relief for Liberia.
More details from the official press release:
Debt relief under the Enhanced Heavily Indebted Poor Countries (HIPC) Initiative from all Liberia’s creditors was estimated at US$ 2.7 billion in end-June 2007 present value terms. Debt relief from the IMF would total US$730 million—the IMF’s biggest ever HIPC contribution for a single country—and from the World Bank’s IDA, US$374 million.
After reaching the HIPC completion point, Liberia also becomes eligible for further nominal debt reduction from IDA (US$66.9 million) and the African Development Bank (US$17.2 million) under the Multilateral Debt Relief Initiative (MDRI) and beyond-HIPC assistance from the IMF (SDR117.4 million or US$173 million) and the EU Special Debt Relief Initiative (US$0.9 million).
As a result of this relief, Liberia will no longer face a heavy debt service burden in relation to its revenue and foreign exchange resources.
The Boards determined that Liberia has taken the necessary policy actions to reach the completion point, and therefore debt relief from both the HIPC Initiative and MDRI becomes irrevocable. Liberia has successfully implemented its poverty reduction strategy and maintained a stable macroeconomic environment, despite the global economic crisis.
“We welcome the concerted efforts made by Liberia to obtain this debt relief—this will help attract new investment and generate much needed opportunities,” said Chris Lane, IMF mission chief for Liberia. “Liberia can now mobilize additional resources to rebuild the road network and the electricity supply system, providing the infrastructure needed to allow economic growth, while continuing to expand the health care and education systems. Liberia will also be able to further develop its own financial market and channel private savings to productive uses. We wish to acknowledge the efforts by the international community to finance Liberia’s debt relief, with over 100 members of the IMF making exceptional contributions beyond the normal terms granted to heavily indebted poor countries.”
Exciting news out of Canada today. Jim Flaherty (the Minister of Finance) just announced that the Canadian government will forgive nearly $24 million owed by the Republic of Congo. This means that Canada has now cancelled close to $1 billion of debt owed by the world’s poorest countries.
“Canada’s debt relief program continues to support nations that have demonstrated a commitment to invest in the current needs of their citizens, even as they struggle with the debt burdens of their past,” said Minister Flaherty. “Today’s debt relief announcement will free up more resources that can be better invested in the health and education of the Republic of Congo’s citizens.”
To read the full release put out by the Canadian Department of Finance, click here.
Image from Department of Finance Canada website.
The Haiti Debt Relief and Earthquake Recovery Act of 2010, which previously passed both the House and the Senate, was quietly signed into law on Monday night; the will of the American people is loud and clear that all nations should come together to aid Haiti’s recovery.
The bill, which was significantly aided by the support of Senator Chris Dodd (D-CT), Senator Dick Lugar(R-IN), Representative Maxine Waters (D-CA 35), and Representative Spencer Bachus (R-AL 6), encourages eliminating Haiti’s remaining debt to international financial institutions, currently totaling $1 billion, and instructs these institutions to offer grants rather than loan assistance to Haiti in order to end the debt-relief cycle.
When the earthquake hit Haiti in January, ONE members came together in an unprecedented campaign on this issue, mobilizing for Haiti through extensive networking and contributions. In January, thousands of ONE members participated in a conference call to discuss Haiti’s debt earlier this year. In February, a petition with 400,000 signatures (200,000 of which were ONE members and another 200,000 from our partners) was delivered to the G7’s Finance in Canada by a Haitian-Canadian ONE member Michele Bertol.
You were heard by the Minister and now you will be heard by governments around the world: Haiti needs debt relief. This bill specifically shows that the American people support this initiative.
Despite relief through the World Bank’s Heavily Indebted Poor Countries Initiative, Haiti has still been borrowing from other nations. Haiti’s main creditor is the Inter-American Development Bank. The International Monetary Fund (IMF) has been making allusions towards cancelling the debt, but we must be vigilant to provide Haiti with debt relief.
The United States will help to relieve Haiti’s debt out of the 150 account, an important section of the Foreign Affairs portion of the FY 2011 Budget. Therefore, it is important to stay active and encourage your representatives to work hard on the appropriations process. ONE members are an integral part of our work; the Haiti bill would not have become a law without your support.
The Associated Press is reporting that the Inter-American Development Bank has agreed to forgive $479 million in Haitian debt. This is particularly significant, as the IADB is one of the Haiti’s biggest lenders.
Bank President Luis Alberto Moreno said the bank’s board of governors voted to forgive the debt and will offer $2 billion in financing to the Caribbean nation over the next 10 years.
“This commitment is good news for all Haitians, and will help heal the wounds caused by the earthquake,” Moreno said at the inauguration of the bank’s annual meeting in the Caribbean coast resort of Cancun.
The IADB debt was the biggest single chunk of the $1.2 billion Haiti owed as of late January, according to figures of the International Monetary Fund.
The measures are meant to help Haiti recover from the magnitude-7 Jan. 12 earthquake, which killed an estimated 230,000 people. The new funds would be directed toward supporting long-term reconstruction and development efforts.
The 48-member regional development bank is Latin America’s largest lender for projects such as roads and power plants.
On Wednesday evening, the House of Representatives passed Rep. Maxine Waters’ bill, (H.R. 4573)- the Debt Relief for Earthquake Recovery in Haiti Act. It passed under what is known as ‘a suspended rule’ meaning that it is not considered controversial, so the vast majority of the House Members voted for it. This legislation directs the Secretary of the U.S. Treasury to seek the cancellation of Haiti’s $1.2 billion debts to the World Bank, the International Monetary Fund (IMF), the Inter-American Development Bank (IDB) and other multilateral development institutions. It also directs the Secretary to urge other bilateral, multilateral, and private creditors to cancel all debts owed by Haiti to such creditors. We expect the Senate to take up and pass the Waters bill in the next few weeks, so President Obama can sign it into law.
The voices of ONE members and our partners are being heard loud and clear on Capitol Hill. We will keep monitoring the progress of this legislation, and its implementation, when it becomes law.
