By Thomas Callaghy
WORK IN PROGRESS
Department of Political Science
University of Pennsylvania
Prepared for a conference on “New Patterns of Strategic Encounter:
Africa-US Relations in the Era of Globalization”
UCLA Globalization Research Center
April 30-May 1, 2004
*****NOT FOR USE IN ANY WAY WITHOUT THE WRITTEN PERMISSION OF THE AUTHOR*****
This paper examines the evolution of the international sovereign debt regime in regard to heavily indebted poor countries of Africa. It traces changes from the normal operation of the Paris Club in the 1980s to the creation of the Heavily Indebted Poor Country Debt Initiative (HIPC) in 1996, its revision in 1999, and finally to rising pressure to extend similar debt relief to other countries in Africa and elsewhere while significantly increasing it. Along the way the paper draws issues, lessons, and implications from the evolution of this part of the international debt regime and how it affects stalled development in Africa. The conclusion will assess the prospects for and wisdom of expanded debt relief.
At the core of the evolution of the debt regime is the broadening of the processes of international economic governance, especially the role of new actors and ideas and the institutional contexts that support them. The rise of HIPC, given previous practice, brought striking and important, but ultimately limited change, to the sovereign debt regime for a specifically designated group of countries for which, for the first time, more uniform rules were developed. The striking innovations included the systematic treatment of multilateral debt, developing the notion of debt sustainability, focusing debt relief on poverty reduction, and, in the process, quietly shifting the center of gravity of the debt regime from the Paris Club to the IMF and the World Bank, institutions that are more open and accountable than was the norm in past practice on sovereign debt and certainly far more so than the Paris Club.
These changes were brought about by a confluence of factors: (1) a slow and uneven learning by bilateral and multilateral creditors about the existence of group of states that were not benefiting much from structural adjustment, while greatly increasing their debt loads in the process; (2) the growing pressure, influence, and effectiveness of a new set of actors in international economic governance – networks of NGOs that believed the existing situation for these states was unjust and untenable and had new ideas and proposals of their own, plus a social movement to back them up; (3) the influence of a group of economists, both inside and outside creditor institutions, who provided knowledge, advice, and technical understanding on this issue; (4) the leadership of a group of small creditor states and eventually several members of the G-7; (5) new leadership at the World Bank that was more open to new ideas; (6) evolving views of the major creditor countries; and (7) eventually tough negotiations between all major creditor countries and institutions. This outcome was not inevitable, however: a change in one or two of these factors, such as different G-7 governments or leadership at the Bank, might have led to a quite different outcome
This confluence of factors was wrapped around a central structural dilemma of our times -- the emergence in Africa of a group of weak states and economies that have not been able to benefit as easily or quickly from economic reform and democratization as elsewhere in the world. This dilemma poses important difficulties for the functioning and evolution of the international political economy and for international peace and conflict. The causes of this structural dilemma are many, complex, and very deeply rooted -- external trade patterns and other sources of shocks, heavily reliance on primary commodities, weak formal economies and economic reform efforts, corrupt and oppressive governments with weak state capacities, civil conflict and war, environmental degradation, and disintegrating physical, health, and social infrastructure. All of this is reinforced by limited access to private international capital flows despite the implicit bargain with the Fund and the Bank that such access would sustain economic reform efforts.
The major path of the evolution of the treatment of sovereign debt was the move from debt collection, to debt rescheduling, to aid and structural adjustment, to debt “sustainability,” to forgiveness and poverty reduction – what one official called the slippery slope of debt. The original aim of HIPC was to provide debt sustainability that would help to remove a major constraint on investment and growth and be a spur to further adjustment, in part by galvanizing increased private external investment. It is not at all clear that this is happening or would happen even if HIPC were broadened significantly. By the time enhanced HIPC had emerged, the focus had shifted quite exclusively to poverty reduction, which may not necessarily be the most effective way to attack the structural dilemma of African countries.
By enhanced HIPC there was as a very clear sense that the process had acquired multiple objectives and but still had only one instrument. The objectives included debt sustainability, regularization of relations with creditors, poverty reduction, and, as a result of these objectives, growth. There was also an increasing perception that debt relief was but one part in a much larger picture, one that needed to be dealt with for real debt sustainability to be achieved. Real and significant tensions remain. There are two main ways to respond to the charge that HIPC is not dealing sufficiently with growth issues:  that the Poverty Reduction Strategy Papers (PRSPs) are really about growth, and  that growth is being handled by the Fund, the Bank, and the “donors” in ongoing structural adjustment work, especially via Poverty Reduction and Growth Facilities (PRGFs, ex-ESAFs). Neither response is satisfactory.
On the positive side, if fully implemented, the PRSP process of enhanced HIPC might foster the rise of stronger civil societies in these countries and a have a positive impact on democratization processes. This may not, however, facilitate economic reform efforts sufficiently strong to make a major dent in the structural dilemma, unless the process greatly increases the legitimacy of governments firmly committed to major economic reform and countries have sufficient resources to invest in growth-related activities and better trade access. As structured now, enhanced HIPC will not be of much help in this regard, except for a handful of countries.It is more akin to an exercise in international triage.
Many of the ideas inherent in HIPC were proposed by Southern states during the New International Economic Order (NIEO) events of the late 1970s and early 1980s, but nothing came of this intense state-to-state bargaining. One of the striking things about the rise of HIPC was precisely the fact that the debtor states were not a major driving force behind the innovation. Rather it was made possible by the NGOs shifting the battle into the domestic political arenas of the OECD industrial democracies and by creditor learning. The weak power position of the debtor states and the concomitant strong influence of the NGOs helps to account for the fact that HIPC eventually became focused almost exclusively on poverty reduction and not on larger developmental concerns such as growth.
HIPC is not a magic bullet, and expectations have been raised to dangerous levels. Debt is not a cause of Africa’s structural dilemma, but rather one of its symptoms. Given this, ameliorating or solving HIPC debt problems will not by itself solve the structural dilemma. Only significant economic reform, reinforced by international changes such as increased trade access, will attack the structural dilemma in any major way. It will take a multi-front assault, both national and international. While HIPC will not solve the structural dilemma, it may be one important aspect of an attack on it, but only one. At the same time, focusing the thrust of HIPC too exclusively on poverty reduction rather than on fostering economic growth and transformation may well only prolong the structural dilemma. The NGOs have never adequately explained how they can square this circle. In this sense, PRGF programs will have to work much better if debt relief is ever to lead to sustainable and productive debt levels. This is something many NGOs still resist, however, as they focus on the poverty reduction aspects of HIPC while calling for higher levels of debt relief. Improving PRGF performance, and Bank support efforts, may well be where the real task lies in dealing with Africa’s stalled development.
The notion of debt sustainability has been a very contentious one, and there is a need to demystify the debt sustainability analysis process. Major battles have been fought over what it actually means and how it might be measured and applied. It turns out to be an analytically difficult, often ambiguous, and manipulable, hence political, notion. The HIPC process has not fully removed the ambiguity of debt sustainability even for this set of countries, especially given the pressure to alter existing uses of it that comes from multiple sources – the countries themselves, their creditor patrons, creditors who firmly believe in more generous debt relief, and from NGOs and their social movements. Debt sustainability is, and is likely to remain, a hotly contested issue.
Until the emergence of HIPC, the major creditors responded with relatively ad hoc tinkering. HIPC brought more uniform rules for this ring-fenced group of countries, but the rules were bent beginning with the very first case. A striking evolution of the rules has taken place. There has been considerable flexibility in implementing them due to the varying situations of the debtors, political considerations among the major creditors, and pressure from a variety of other sources, but particularly the NGOs, for greater relief. Given past practice in the debt regime, flexibility should not be surprising, and it may well be a good thing if pursued for the right reasons.
The NGOs and their allies have reshaped international economic governance processes in regard to debt, and possibly set patterns for other issues as well. It remains to be seen, however, if they have shaped them in the most effective form. A key continuing challenge for the Bank and the Fund will be to balance these new forces of influence with their own hardheaded analysis about the best way to tackle a problem. The political task of the Bank and the Fund is to remain open to dialogue while convincing others that they have viable and efficient solutions to problems. This outcome will be better served by engagement rather than unilateralism. This is not to say that engagement will be easy or fun for these institutions; it will certainly be messy and often highly political. But that comes with the turf.
The very fact that HIPC is proving not to be a magic bullet for Africa and that new challenges are emerging in other parts of the world means that pressure to make HIPC more generous and to extend similar treatment to other countries will mount, especially in regard to multilateral debt. This constitutes the HIPC slippery slope. It will not be easy to draw clear lines; it will be analytically difficult and frequently political. Much of the politics will, of course, as it has since the creation of HIPC, revolve around funding and burden sharing issues. In addition, other issues that stalked HIPC from the beginning will continue to do so. These include moral hazard, structural adjustment conditionality, aid “additionality,” the very complexity of the process, the uses to which debt relief will be put, track record, and the ability of HIPC countries to use debt relief effectively. Also at issue is the problem of creating new debt with the lending that is an inherent part of the HIPC process and with borrowing that may take place to increase poverty reduction efforts because high expectations might lead to political problems, borrowing to engage in growth activities not allowed by the current HIPC focus on poverty reduction, and worst of all, new borrowing for non-productive purposes.
The ultimate dilemma of HIPC is a larger political one. Since it is but one part of a much larger development context, growth is central to the effort to achieve viable debt sustainability, and on the international side the key growth issue is trade access to the OECD countries. The NGOs have now clearly realized the importance of this issue and have begun to work on it. They succeeded with debt by bringing it into the domestic political arenas of the OECD, a process quite different from the one that led to the failure of the NIEO endeavor. The NGOs are likely, however, to find their task much more difficult with trade precisely because such efforts will impinge directly on very sensitive and powerful domestic political interests in the “donor” countries in ways that did not happen with debt relief. Yet they are correct that trade is central, and the World Bank and IMF agree. What is needed is not just debt triage but increased trade access. Here the concerns of those who worry about the political underpinnings of globalization come into play: will the major industrial democracies be able to adjust their own domestic politics so that the larger and very important changes in the trade regime can be made? Given past track record and current events, serious doubt exists. If debt relief is to mean anything, the issues of growth and trade must be tackled. Necessities, however, often do not become realities. Getting HIPC has been hard enough, and it was a very political process. The politics of trade will be much more difficult. The worriers have a right to be concerned – the political underpinnings of international economic governance are central and may well not be up to that task.
One of the most dramatic, systematic, and intrusive forms of external intervention in developing, especially very poor, countries over the last two decades has been what is usually referred to as “structural adjustment”-- the efforts of the International Monetary Fund, the World Bank, and the major OECD governments to get countries to reform their economies in significant ways. Structural adjustment has been tightly linked to the issue of debt and is seen by the powerful international actors as the way to reverse the decline and marginalization of these states as globalization of the world economy accelerates. Many of these developing countries, however, have seen structural adjustment, with its high and detailed levels of conditionality, as a major threat to their sovereignty and politically dangerous. They have often resisted it through the passive strategies of what I have called the ritual dances of reform.
The result has been increasingly weak, sometimes failing states. In addition, an important new force in international economic policymaking -- transnational advocacy networks of NGOs and the social movements they create – see structural adjustment and the increased debt linked to it as increasing poverty rather than reducing it.
One of the primary results of structural adjustment has been rising levels of external debt. It is mostly “official” debt owed to major Western countries, the International Monetary Fund, and the World Bank. Since the late 1950s, bilateral debt has been restructured by creditor countries organized into the mechanism that came to be known as the Paris Club, while multilateral debt could not be rescheduled.
The Paris Club became the core of the international debt regime for official debt--that is, the actors, norms, processes, and mechanisms focused around countries unable to service their bilateral debt. The practices of the international debt regime evolved in important ways over the 1980s as it became increasingly clear that many African countries, for whom structural adjustment worked least well, were usually unable to cope with their mounting debt loads, slowing development and accelerating poverty in the process.
The rising debt burden of poor countries, most of which were African, thus became an increasing concern of key actors in the international arena--some creditor countries, agencies of the United Nations system (UNCTAD in particular), a wide-ranging group of NGOs, and, of course, debtor countries themselves. During the New International Economic Order [NIEO] negotiations of the late 1970s and early 1980s, debtor countries insistently demanded more generous relief of sovereign debt, a simplified debt restructuring process, including generalized norms, and special treatment for the poorest debtor countries. In short, they wanted a reform of international governance processes on sovereign debt, especially the case-by-case norm. None of this, however, came to pass as a result of the struggle for the NIEO. Yet by the late 1980s, the Paris Club countries began slowly and incrementally to offer more generous (the debtors would say less onerous) terms for its poorest debtors, and occasionally for some of its biggest and most strategically important debtors (Poland, Egypt, Russia, and Indonesia
). By the end of the 1990s, however, the debt regime for poor countries had changed dramatically, first with the advent of the Heavily Indebted Poor County Debt Initiative in 1996 and then a major revision of it in 1999, creating the enhanced HIPC Debt Initiative. How did this happen and why?
The sources of change in the debt regime lay elsewhere than in the North-South state-to-state bargaining of the NIEO. They lay in the complex and uneven relations between some of the actors in the international debt regime (select creditor governments and the World Bank); in the activities of NGOs focused on debt, constituting what have been called principled-issue networks with their largely normative discourses and evolving capacities; and in fragments of an epistemic community of economists and other scholars who work on development issues, some of whom have played key roles as consultants and advisers to actors on both sides of the battles over debt. These three sets of actors have constituted a triple helix of relationships, of connections, which have led to important but still limited innovation in the way the sovereign debt regime functions.
The three strands of the triple helix--the official agencies and processes of the international debt regime, the NGO debt networks, and the epistemic community -- are wrapped around a central structural dilemma of the international political economy (see below) to which actors in the three strands have reacted in varying ways. The driving force for change in the governance of official debt has been the synergy between various forms of power of and over key institutions such as the World Bank, evolving knowledge and understanding about the nature and consequences of debt burdens, and discourses about the inherent appropriateness of debt and existing debt relief mechanisms – all as they interacted with the underlying structural dilemma. Each of the strands has used its power, knowledge, and discourses to alter or retain the overall pattern of governance of official debt. The actors of the international debt regime reacted haltingly and unevenly as they slowly came to the realization that something had to be done about the structural dilemma despite its apparent lack, until 9/11 at least, of major geostrategic importance. This realization was fostered, forced to the fore, by the networks of NGOs working on debt and development that deployed an increasingly coherent moral discourse about social purpose, especially in regard to equity and poverty reduction, which was meant to gain representation and accountability for the people of heavily-indebted poor countries, especially in Africa.
This NGO discourse was backed by a growing social movement and by progressively more sophisticated knowledge about the technicalities and functioning of the international regime for official debt. The NGOs were assisted by sympathetic fragments of the epistemic community of economists, mostly but not exclusively by those outside the institutions of the international debt regime. Some of those inside the organizations of the international debt regime accepted or were influenced by the content of the moral discourse. These and “outsider” economists -- mostly academic -- used their technical knowledge of economic theory, debt, rescheduling, and the operations of the international financial institutions to propose alternative mechanisms, norms, and practices to tackle what they perceived to be the underlying problem of official debt, especially that owed to the IMF and the World Bank. In the process, both groups of economists contributed to and were influenced by the moral discourses on debt and development of the NGOs. Loose, mostly informal, networked connections were established between the three strands of the triple helix, which pushed the evolution of the governance structures as the synergy between various forms of power, knowledge, and discourse interacted with the underlying structural dilemma of countries making little progress on structural adjustment. The triple helix of governance on official sovereign debt helped both to reproduce existing national and international structures for dealing with debt and to alter them in important ways. The result was a complicated new debt relief mechanism – HIPC -- that built on existing structures and was the result of a series of political compromises.
A key implication of this argument is that governance on debt was shifted haltingly and unevenly beyond the largely state- and international financial institution (IFI)-centric strand of the international debt regime. Over time, despite the absence of major positions of structural power, the NGOs and the sympathetic fragments of the epistemic community have grown in strength and influence. The result has been a much more complex web of international economic governance--one rooted in the democratic nature of the world’s highly industrialized democracies in which NGOs and their social movements can thrive, and one strikingly different from the pattern of the early Bretton Woods era. Given a relatively healthy global economy and the absence of major war, such helix-like structures across a variety of issues may slowly weave more coherent lattice-like structures of international economic governance. At the same time, given the power structures of the international state system and the growing power of global markets, distinct limits to elasticity and change continue to exist. A striking aspect of this story is the relatively small role played by the debtor states themselves in bringing about changes in the debt regime. While not completely passive, as we shall see below with Uganda, the debtor states were not a direct driving force behind the changes. In short, they did not constitute a not a fourth strand of the helix. They were weak during the NIEO debates about debt in the late 1970s and early 1980s, and they remained weak in the 1990s during the debates about HIPC. Their impact was largely indirect, coming via increased perception of the structural dilemma by major creditors, as accelerated by the NGOs. The weak power position of African debtor states helps to account for the fact that HIPC eventually became focused almost exclusively on poverty reduction and not on larger developmental concerns, especially growth. It is to the African structural dilemma that we now turn.
A central structural dilemma of our times is the emergence of a group of weak states and economies in Africa that have not been able to benefit as easily or quickly from economic reform and democratization as elsewhere in the world. This dilemma poses important difficulties for the functioning and evolution of the international political economy and for international peace and conflict.
By the early 1990s it had become increasingly clear that many of the poorest states that came before the international regime for official debt had insolvency rather than liquidity problems. This was a realization that was a long time in coming because it did not pose a major short-run threat to the stability of the world economy or to geo-strategic interests. It emerged first in Africa, signaled by Zaire’s first rescheduling in 1976, but went largely unnoticed until the mid 1980s. By 1996 the IMF and the World Bank had designated 41 of their members as “heavily indebted poor countries” (HIPCs) whose debt was not likely ever to be repaid in full. Of the 41, 33 were from Sub-Saharan Africa.
The debt of these countries, mostly public or official rather than private, rose from $55 billion in 1980 to $183 billion only a decade later and to $215 billion by 1995 or more than twice their export earnings. Most of the HIPCs have high levels of poverty, limited domestic resources, and weak state capabilities. In effect, they come close to constituting a semi-permanent group of states on the margins of the globalizing world economy. All but six fall into the United Nations Development Program’s lowest human development category. According to Oxfam, these countries are in a vicious circle of economic and social decline.
The reasons why the impact of structural adjustment in the HIPCs has been modest -- certainly much more modest than the IMF, the World Bank, and the major creditor states expected -- are quite complex. They have to do with the very nature of these primary-product export economies and the level of poverty attached to them, with states that have very low administrative and technical capabilities, with governments that are not committed to major economic reform or that find it very difficult to do politically. Despite the views of many NGOs to the contrary, no major counterfactual to structural adjustment currently exist.
This is a major reason why the structural dilemma of the HIPC countries is so powerful and why even very significant debt relief is not likely to sufficiently increase the flow of private investment to the HIPCs – a failure of the implicit bargain noted above.
Debt is not a cause of the structural dilemma, but rather one of its symptoms. Given this, ameliorating or solving HIPC debt problems, will not solve the structural dilemma. Only significant economic reform, fostered by international changes such as increased trade access, will attack the structural dilemma in any major way.It will take a multi-front assault, both national and international. In short, HIPC will not solve Africa’s structural dilemma, although it may be one important aspect of an attack on it. At the same time, as discussed below, focusing the thrust of HIPC too exclusively on poverty reduction rather than on fostering economic growth and transformation may well only prolong the structural dilemma, not solve it. The NGOs have never adequately explained how they can square this circle. In this sense, PRGF programs will have to work much better if debt relief is ever to lead to sustainable and productive debt levels, something many of the NGOs still resist while they focus on the poverty reduction aspects of HIPC.
Over the last two decades several hundred largely religious, humanitarian, labor, and environmental NGOs have focused on the issue of Third World debt and its perceived negative impact on the welfare of millions of people.
Their activities have revolved largely around a moral discourse that portrays developing country debt as an immoral burden on the backs of the poor. This discourse employs powerful notions of justice, representation, accountability, transparency, and equity. It challenges the notion of who should have authority over such issues in the global community, calls for intervention to rectify injustices and end what is considered to be blatant exploitation, and aims to provide space for debtor representation and agency in the governance processes involving debt. In the process, the NGOs determine to a large degree who is empowered and who is not, who is represented and who is not.
In 1996, for example, a loose coalition of over 50 NGOs in Britain created the Jubilee 2000 Coalition that called for “a one-off cancellation of poor country debt by the year 2000 of the backlog of unpayable debt owed by the world’s poorest countries, under a fair and transparent process” that would involve the establishment of a new international bankruptcy procedure. Characterizing this as a debt-free start to the next millennium, this network of NGOs portrayed itself explicitly as “New Abolitionists” out to abolish the “slavery of debt:”
Billions of people in the world’s poorest countries are enslaved by debt. Debts run up by governments on their behalf. Debts which started as easy credit pushed by rich lenders. Debts which the poor will never be able to repay. Debts which enrich lenders, but leave children malnourished, while families live in desperate poverty.
The Coalition’s success will be an irreversible achievement for humanity like that of the abolition of slavery -- and is particularly well suited to a Jubilee that will not occur for another 1000 years.
The activities, capabilities and interests of the NGOs that work on debt vary significantly. These principled-issue networks
have some of the characteristics of transnational social movements. Most of the network members are Northern NGOs, but increasingly they are helping to create, link up with, and foster Southern NGOs interested in debt and other development issues. Several of the strongest Northern NGOs have a network of offices in poor countries through which they can gather information, work with local governments and social organizations, and interact with the local representatives of the IMF, the World Bank, and the major aid providing “donor” countries, who are, of course, also the major creditors. Many of the debt NGOs believe that IMF and World Bank structural adjustment programs are an evil that needs to be abolished.
Two of the most important NGOs on debt are Oxfam International and Eurodad (the European Network on Debt and Development), a coalition of NGOs from 15 European countries, funded in part by the European Community. These and other NGOs, such as the Debt Crisis Network in the United States and Britain, have work assiduously to collect and analyze information on debt and the operation of the international debt regime; educated themselves and other NGOs; demanded that the Paris Club governments and their legislatures provide greater debt relief both in general and for specific countries; lobbied hard with the IMF and the World Bank and at each of the annual G-7 summits for broader debt relief and new mechanisms for it; attended and demonstrated at the joint annual meetings of the Fund and the Bank; organized public education and letter writing campaigns;
and worked closely with the media. Jubilee 2000 was specifically meant to become a social movement that enveloped the NGOs and extended their efforts.
It operated with considerable verve and kept the pressure on the IFIs and the G-7 for much more substantial debt relief. It was backed by major celebrities, from rock stars such as Bono
of U2 to heavy-hitter academics such as Harvard’s Jeffrey Sachs
and religious leaders such as the Pope, Archbishop Desmond Tutu, Billy Graham, and the Dalai Lama.
Coordination increased considerably over time, facilitated by growing fax, email, and Internet capabilities, as well as frequent travel and annual network conferences such as the ones organized by Eurodad. Information and documents collected by one organization have been shared quickly with others. Above all, as NGO capabilities and sophistication grew, personal ties based on respect, if not always agreement, developed between NGO representatives and officials in some creditor governments, the Fund, and the Bank; this significantly improved the exchange of views on growing debt problems, especially multilateral debt. In turn, this led to significantly more influential position and briefing papers and special issue alerts about the functioning of the international debt regime, ongoing discussions about what to do about debt, and the fate of individual Paris Club, and more recently, HIPC cases.
This coordination process both facilitated and fostered the growing professionalization of the more important NGOs working on debt, which was also promoted by increasingly close relations between fragments of a large and amorous epistemic community on development, one rooted to various degrees in neoclassical economics. It remains unclear, however, whether the activities of the debt NGO networks and those on other issues represent the rise of a new global civil society, as some claim, that will foster linkages between various levels of the international system in terms of more representative, effective, just, and accountable webs of governance processes.
Mainstream economics, in its academic, business, and official varieties, provides a relatively widely shared set of understandings, language, causal and policy ideas, and technical knowledge about the both the functioning of the global economy and the complex issues of development, including debt.
Within this community and its various fragments, however, there exists considerable diversity of views about specific policy issues and creativity about how to tackle them. Members of this community dominate the institutions and processes of the international debt regime, primarily the Paris Club and its member governments, the IMF and the World Bank. In short, they are the “insiders” of the international debt regime. At the same time, the “outsiders,” those not in major positions of structural power -- academic and think tank scholars, officials of “soft” international organizations such as the Commonwealth Secretariat, and private consultants -- have played an important role in the ongoing debates about debt by providing independent analyses of the existing state of the debt regime and about the status of individual country cases for NGOs, creditor and debtor governments, and some international organizations.
Some “insiders” have become “outsiders” and vice versa. These individuals, and the networks created between them, often become an important bridge between actors because they were perceived to share at least the basic tenets, technical knowledge, and analytic capabilities of the epistemic community, and their input became important as tensions in the debt regime mounted and policy uncertainty grew. Their influence has been facilitated by the fact that key actors in the international debt regime are far from homogeneous in their views and sympathies.
An important factor in the evolution of the international debt regime has been the role played by some epistemic community members inside the major units of powers who are sympathetic with parts of the NGO discourses on debt. When conjunctural conditions permit, they form important network connections with “outsiders” of the epistemic community and with the more sophisticated NGOs that have helped to move things along. In part they help to do this by legitimating new ideas, knowledge, and approaches in their own institutions and delegitimating existing ones.
As we will see below, such people played pivotal roles in the triple helix governance processes in regard to the Uganda, HIPC, and nhanced HIPC stories.
Uganda will also be used to illustrate the saga of the two HIPCs, but the first Uganda story will illustrate the functioning of the triple helix and underscore the degree to which the impetus, ideas, and mechanisms for change in the regime emerged from outside the confines of the IMF and the World Bank.
In the early 1980s Uganda was one of the first African countries to be perceived as a failing state, but, under the remarkable leadership of Yoweri Museveni, Uganda became one of the major indications of hope for Africa. The country engaged in a decade of vigorous economic reform efforts under the auspices of the IMF and the World Bank, with its GDP growing at an annual average of 6.4 percent. This impressive economic reform effort was achieved despite the fact that before coming to power Museveni was an avowed opponent of the IMF and structural adjustment. Nonetheless, despite this progress, Uganda was by the mid 1990s only beginning to approach its 1971 GDP per capita income level; in fact, it was only back to 78 percent of the 1971 figure. The task accomplished was striking, and the job ahead remained enormous, complicated eventually by Uganda’s central involvement in Africa’s first major inter-state war of the post-colonial period -- the battle for the Congo (former Zaire). Uganda received considerable outside support for its economic reform effort (about $500 million a year) and earned the image of a confident, proactive and increasing capable player. It garnered the respect, if not total confidence, of the key players in the international debt regime.
Between 1980 and 1995 Uganda had six Paris Club reschedulings of its bilateral debt. The last one in February 1995 was supposed to be an “exit” rescheduling. Given the high levels of resource flows from the international financial institutions to support its vigorous economic reform efforts, by 1996 multilateral debt was 76.3 percent of Uganda’s debt or $1.29 billion out of $1.69 billion in NPV terms. Multilateral debt was projected to rise to 81.3 percent of the total by 1999. Prior to HIPC, this multilateral debt was not eligible for rescheduling under the norms of the international debt regime. In 1996 net private capital flows were negative, and official flows were about $210 million, much of it in new debt.
Uganda created an innovative Ugandan Multilateral Debt, which resulted from network connections that were created between a core group of small European social democratic countries active as both Paris Club members and aid providers whose norms on debt and structural development where more flexible and sympathetic to reforming poor countries than those of most of the G-7 creditors. It was a loose knit and floating group of countries that worked together on various debt-related projects and included Sweden, Norway, Denmark, the Netherlands, Austria and Switzerland.
Supportive of more generous debt relief, this group of countries quietly provided NGOs and epistemic community consultants with information about Paris Club operations and the handling of individual debtor cases, and discussions on the state of the debt regime by the IMF, the World Bank, and the G-7 creditors. In 1991 they hired a British consultant to do a study of Uganda’s debt situation and to work with the Ugandan government as an advisor on developing a coherent and comprehensive debt strategy. They supported creative efforts to strengthen Uganda’s debt management capabilities and lobbied the major creditors for more generous debt relief. Given that Uganda had increasing heavy multilateral debt service burdens (including some arrears), a number of them contributed funds to service this multilateral debt. Out of these activities and interactions with the Ugandan government emerged the idea of creating a special Multilateral Debt Fund just for Uganda into which sympathetic countries could contribute funds to service multilateral debt.
One of the innovative aspects of the proposal was that Uganda would manage the Fund itself in consultation with the donor countries, the IMF, and the World Bank. The general idea was first broached at the Consultative Group meeting on Uganda in July 1994, and after further study and preparation, it was approved at the July 1995 Consultative Group meeting.
Several other innovations emerged out of these ongoing connections between the various networks, especially with the creation of the HIPC debt initiative in 1996. From the operations of UMDF came the idea of creating a social fund to act as the operational arm for using the resources saved from the HIPC program. Most importantly, a major move was made to institutionalize the role played by the consultant and extend it to other countries. The governments of Austria, Denmark, Sweden, and Switzerland helped to create and fund an organization called Debt Relief International that helps prepare countries for the HIPC Debt Initiative, develop debt management strategies, and coordinate capacity building efforts. By early 1998, Debt Relief International had started projects in 18 countries, including non-African ones such as Bolivia and Guyana.
At the same time, significantly larger innovation, influenced by the Uganda story, was underway in the international debt regime that led to the emergence of the HIPC Debt Initiative.
The innovation of the Paris Club debt “menus” of more flexible and generous terms in the late 1980s and early 1990s was a sign that major actors of the international debt regime were beginning to recognize the existence of the underlying structural dilemma but only in relation to bilateral debt. The emergence of the menus resulted from the quiet lobbying of small European countries on their G-7 colleagues; the important leadership of Britain (strongly influenced by its NGOs), Canada, and to a lesser but eventually important degree, the Clinton administration in theUnited States; the persistent work of the debt-oriented NGOs in encouraging both sets of countries; and suggestions that emerged from the epistemic community on debt, both from outsiders and quietly from those inside some Paris Club governments, the World Bank, and, to a much lesser degree, the IMF. With each new menu, however, it became clear relatively quickly that it was not adequate, and pressure would build for additional measures, but again only within the context of the Paris Club.
After the onslaught of Mexico’s debt crisis in 1982 many far reaching and innovative debt proposals were made by a variety of groups and individuals, all to no avail because they did not resonate with the major actors of the sovereign debt regime at the time. Despite rising recognition of a poor country debt problem in the early 1990s,
however, most of the Paris Club countries and the IMF and the World Bank continued to defend the preferred creditor status of the Bretton Woods institutions, in large part because they were worried about the cost of tackling the problem for a group of countries that was not as a whole perceived to have major strategic importance. At the same time, the realization was growing inside the NGO networks and some parts of the epistemic community that the problem of multilateral debt needed to be tackled head on, irrespective of cost or the absence of strategic importance, largely for normative and what they considered to be developmental reasons. After 9/11, some governments and NGOs began to see a geostrategic link as well.
At least a public rhetorical shift had taken place at the 1995 Halifax G-7 summit; now came the hard part of testing that rhetoric and turning it into something real. Prior to this time, concern did exist in various part of the Bank about the poor country debt issue, especially in the Africa region. Debates were taking place, work done, and ideas discussed, but management blocked all of this. It was not allowed to go anywhere.
A crucial point was reached when Australian-born American banker James Wolfensohn became the ninth president of the World Bank on June 1, 1995. He was more open to the views of debtor governments and the NGOs, as he demonstrated in a trip to Great Britain before he took up his new position. While there, he met with a group of NGOs, including Oxfam, who urged him to take the debt issue very seriously. At same time, the Bank had been extending it interactions with NGOs, although they were mostly project-related. After taking up his post at the Bank, Wolfensohn took a trip to Africa in which debt issues were particularly salient. In Uganda, for example, Oxfam helped to set up a meeting between Wolfensohn and local NGOs, including the Uganda Debt Network.
Wolfensohn was less worried about the financial market consequences of altering the Bank’s preferred creditor status, and needed a major policy initiative to demarcate his arrival at the head of this powerful international organization. He chose debt and empowered sympathetic elements of the Bank staff to accelerate its ongoing work on debt. Wolfensohn authorized the creation of a small, very low profile working group or task force on debt issues. It was headed by an economist who, after joining the Bank in 1994, started working quietly on these issues (based in part on a doctoral dissertation on debt sustainability), while establishing ties in a variety of arenas interested in these issues, including among NGOs.
The working group’s low profile was designed not to upset critics of new efforts on debt inside the Bank and the IMF, among some major creditor governments, and, particularly, in the Paris Club secretariat. The working group focused on the notion of debt sustainability and the issue of multilateral debt, fighting strong resistance inside the Bank to any change in the status quo. The dominant line of thinking continued to argue that no major debt problem existed – certainly not one of insolvency, that current liquidity problems were being dealt with effectively via new lending and by the Paris Club, and that increasing outside pressure to deal with this issue ought to be ignored and resisted. These were deeply entrenched views – ones the working group fought hard to change. By July 1995 the working group had produced a draft paper acknowledging the existence of a multilateral debt problem and proposing a set of mechanisms to deal with the debt problems of a set of 20-24 poor countries in a comprehensive way. Central to the proposal was the creation of a Debt Reduction Fund that would help to pay multilateral debt after all other debt mechanisms – private and public – had provided maximum debt relief.
In mid September a copy of the draft report was leaked to the Financial Times, which published two stories and an editorial that spelled out the proposal for a multilateral debt reduction facility and praised it.
Wolfensohn was traveling overseas and had not seen the draft report. A revised version of it,
which had undergone limited internal review but was not a recommendation of Bank management, was discussed a week later. At the same time, Bank officials consulted with the IMF and others on their reaction to the leaked proposal. It called for “the establishment of a Debt Reduction Fund that would coordinate action for reducing the entire debt burden of these countries to a sustainable level.”
In the process, the issue of write-off was neatly side stepped. Some who had been involved in the working group referred to the facility as the “Washington Club” to distinguish it from the Paris and London Clubs. It was to “provide debtors with a much needed forum where debt relief is discussed in a concerted and comprehensive way, within the framework of an overall strategy to allow them to achieved debt sustainability.”
Buried in the one of the report’s annexes is a clear sketch of four successive phases envisioned by the proposal, with a progression through each until debt sustainability is reached. The four phases are: I - private, II - bilaterals, III - multilaterals, and IV - bilaterals again, if needed. An important strategic rationale for the proposed fund was “the eventual removal of a major constraint on investment and growth…that would be an essential spur to further adjustment.”
This is an important argument, one that gets lost with enhanced HIPC in 1999, given its tight focus on poverty reduction. The inflexibility of enhanced HIPC in this regard, thereby preventing investment in more growth-related projects, was the major complaint of African finance ministers. It also is a reflection of the failure of the “implicit bargain” in the structural adjustment regime for African and other poor countries referred to above: “do what we tell you to do, and you will have the funds to invest in growth-related activities to support ongoing economic reform because private external investment will flow in.” For most of these countries this has simply not happen, and enhanced HIPC as it stands now may further aggravate this problem.
Lastly, given the history of the sovereign debt regime, the paper makes the important point that the risks of the proposed fund are high because its multilateral nature “defines its major challenges, since consensus building and coordination at the multilateral level take time.”
Given the uproar and resistance the leaked report generated, it is stunning that the HIPC Debt Initiative emerged only a year later, although it then stalled. In large part, this emergence was due to the fact that much of the groundwork outside the Fund and the Bank had already been laid and to the hard bargaining that took place among all of the key players; despite considerable disagreement on key issues, compromises and concessions were made.
Some in the Bank and many in the NGO community believed that the report was leaked in order to sabotage the proposal. Wolfensohn and senior Bank staff were caught off guard and embarrassed. So were key creditor countries. An emergency board meeting was held the evening of the Financial Times leak. From Beijing, Wolfensohn called the leak “distressing” and commented: “It is a personal and tactical observation, but it is more difficult to negotiate something as serious as that when you read it in the newspaper and you have not yet had the benefit of serious discussions with the participants. When I have an answer on what I think we can do in co-ordination with our shareholders in the International Monetary Fund, I’ll make an announcement. But I don’t know when that will be. It could be that the Financial Times may have delayed it.”
Describing the Bank proposal as “ideologically unsound,” an IMF official said, “The Fund would not get involved. This would undermine the Fund’s position and credibility. Writing off debt is not our business.”
The revised version of the leaked paper was discussed at an Executive Session of the Bank Board in September 1995. It was made clear that the paper was meant to be a staff-level working paper that would eventually be discussed with the Fund and that Wolfensohn had been very explicit about wanting intensive work that explored new options for dealing with a multilateral debt problem. The UK, the Netherlands, and Sweden voiced strong support for Fund-Bank efforts to help the HIPCs. The UK thought it was appropriate that the paper considered radical options and that limited efforts by creditors groups would not be able by themselves to solve the problem. The Netherlands supported a new multilateral approach aimed at developing an exit strategy for the HIPCs. On the other hand, France and Japan stated that they were not ready to support the proposal, with France expressing particularly vehement opposition to a significant role for the Bank.
Wolfensohn decided to engage in serious negotiations with the Fund and other key players about the proposal, and the Fund announced its willingness to do so. In the period after the leak, Fund staff were told, despite some very negative views held by senior officials, to work with colleagues in the Bank, although it was clearly going to be a rough ride. In fact, considerable tension remained in the Bank over this issue as well. A senior Fund official said, “It is not a matter of a good idea or a bad idea. It is a matter of what is the preferable way to, what is the best way to use what are inevitably going to be limited resources.”
The IMF’s managing director, Michel Camdessus, said, “We support here in the IMF the ongoing efforts of the Bank in this area and we stand ready to assist in whatever measure we can.” Yet as two observers noted, “In private, however, senior IMF officials are much chillier. They heap scorn on the details of the World Bank’s calculations, argue that the scale of the problem is much less than claimed by the Bank and the NGOs, and question whether debt relief is the best use of scarce funds.”
At the Fund-Bank annual meetings in early October, although a number of G-7 countries were opposed to the plan, the Bank’s Development Committee asked the two institutions to have proposals on multilateral debt ready for discussion by the time of its next meeting in April 1996. Wolfensohn asserted that Fund-Bank discussions were “proceeding in a totally amicable, professional and as good as you can have way,” although he added, “I’m not sure that there is unanimity even among the people we are trying to help.”
Unanimity certainly did not exist among Bank staff. Nevertheless, the Bank eventually got the IMF on board by stressing the existence of a “debt overhang” that prevented increased development flows.
The Bank proposal did generate positive, although sometimes cautious, reaction from key NGOs such as Oxfam, Christian Aid, and the Debt Crisis Network, as well as from the Commonwealth secretariat. Oxfam’s director, David Bryer, made his support clear very early on and observed, “The political initiative has at last caught up with the economic reality that current debt levels are unsustainable.”
Wolfensohn clearly had the larger context in mind. Noting that the Bank was “not doing this in isolation” and that “there is a lot of emotion out there and a need to do something,” he said there was “no doubt that if we were to stop the debate tomorrow, the debate will continue around the world sponsored by many, many organizations who are giving this central focus and were indeed doing so even before my arrival.” The proposal generated a split among many of the NGOs working on debt, largely because of the continued link between debt relief and structural adjustment. Divisions among the NGOs remained as the HIPC saga unfolded, and an Oxfam official working in the US had a law about them: “My law of Washington is that people who are making less compromises than you are sellouts who don’t know why they’re in this business. And people who are making less compromises than you are wild-eyed idealists who have no idea how to accomplish something and would rather be right than make any change in the real world. Virtually everyone sees themselves as the midpoint in the spectrum.”
Initially, the leak did galvanize opposition to the plan among more hard line G-7 governments.Although the initiative was likely to help only about 20 countries and not quickly, it was resisted strongly from the beginning by Japan, Germany, and Italy, even Belgium, because of concerns, not always expressed explicitly, about cost, burden sharing, moral hazard, and issues related to the proposed sale of IMF gold reserves; it was likewise seen to undermine the credibility of the IMF and the World Bank as enforcers of major economic reform. The Clinton Administration continued to have doubts along the way. The Paris Club secretariat was highly suspicious of the plan, as was much of the IMF staff. The Paris Club staff, and the French government, fought a vigorous battle right up to the day HIPC was approved. At the time of the leak, the French complained vigorously that the leaked document had significantly lifted expectations that the Bank was making a dramatic change in regard to debt and left the premature impression that Bank shareholders approved of the plan and that the Bank and Fund positions were the same. Yet the British said that they were afraid of the opposite – the perception that the Fund and the Bank were squabbling.
By late January 1996 the Bank and the Fund had jointly produced two papers on the nature of the problem and on the concept of debt sustainability and the application of it to the 41 HIPC countries;
both papers were discussed in an informal session of the Bank’s Executive Directors in late February. By early March the Bank and Fund had put together a basic proposal for HIPC debt relief;
it was discussed at a meeting of the Bank’s Executive Directors in mid March. The UK, Switzerland, Belgium, and Canada expressed strong support for the proposal, with a few suggestions to make it more realistic. They urged continued forward movement. The US, Russia, China, and India provided support in principle in the spirit of supporting a consensus for more action. The Netherlands and Sweden, on the one hand, and France, Germany, Italy, and Japan, on the other, all expressed hesitation, but the two groups had different reasons -- the former that the initiative was not strong enough, the latter that it was too strong. France expressed considerable skepticism, indicating that the approach was unrealistic and unworkable. In particular, it criticized the assumption that the Paris Club would go to 90 percent debt reduction as part of the mechanism. Above all though, the issue that started to rear its head in a clear way was widespread concern, by proponents and opponents alike, was about how the initiative was to be funded. The Bank’s Development Committee welcomed the proposed framework in its April spring meeting. Bank and Fund staff had done what it had been asked of them the previous October – a striking achievement, given the strong initial opposition to the revised version of the Bank’s working group paper, as well as the earlier version of it that was leaked to the Financial Times.
Over the months between April and September 1996 more staff work was done, particularly on financing issues and on two illustrative cases – Uganda and Nicaragua. Bank Executive Directors discussed this work in September 1996, almost exactly a year after the Bank’s working group document was leaked. By this time the battle had turned definitively from accepting the initiative to how to fund it. Even its strongest supporters now became vigorous examiners. In short, the battle now shifted to one that pitted all the bilateral creditors against the Bank, and, to a lesser degree, the Fund. Burden sharing now became the obsession. The UK, for example, indicated that all creditors should make a fair contribution and that it would be wrong to condition multilateral action on prior bilateral action. Yet it was never obsessed about cost issues, assuming that they would be worked out over time as the pressure increased to fulfill raised expectations; it was more focused on getting the structure of the initiative in proper shape. The US, Japan, and Canada also noted that it would be wrong to condition multilateral action on prior bilateral action. France, Italy, and Germany were skeptical about equal burden sharing because the Paris Club had not discussed, much less agreed to, 90 percent reduction. Only Sweden felt that it might be wise for the Paris Club to contribute more than the Bank.
The more technically capable NGOs such as Oxfam International and Eurodad made important contributions to the design of the HIPC apparatus, not always getting what they wanted but certainly making a difference as advocates of the debtor countries. In fact, it was one of the NGO consultants from the epistemic community that came up with a key compromise formula that the IMF and World Bank were to be “preferred but not exempt.” Oxfam in particular had excellent access to key executive directors on the boards of both the IMF and the World Bank, to staff in each institution, and to finance ministry officials of key creditors. The same holds true for some of the academic fragments of the epistemic community interested in debt.
What finally emerged was the complicated Rube Goldbergian
mechanism that the HIPC Initiative came to be, with the Paris Club continuing to have a central role while allowing the IMF, the World Bank, and the other multilateral creditors to tackle their debt problems with the HIPC countries. The IMF was brought on board as Michel Camdessus eventually saw the wisdom of trying to steer the design of the mechanism rather than resist it. In addition to seeing the writing on the wall, some evidence exists that he was influenced by the arguments of the Catholic Church and its debt-focused NGOs, as well as by other religious figures.
Over the years Pope John Paul had sent senior aides to the IMF and World Bank to argue for debt relief. The HIPC Initiative was formally approved and announced at the September 1996 Fund/Bank joint annual meeting. It was the result of the complicated interactions of the triple helix that combined normative social pressure and influence of NGO networks, the ideas of epistemic economists and small creditor states, leadership by a major G-7 creditor heavily influenced by its own NGOs – the UK, learning and leadership change at the World Bank, eventual acquiescence and serious negotiation on the part of the IMF and the Clinton administration, and a set of complicated political compromises between the major players of the international debt regime, but particularly major creditor states and the IMF and World Bank. This confluence of factors allowed striking but still limited innovation – a new strategic relationship. The absence, however, of one or two of these elements could have led to no innovation, but instead to continued halting adaptation. Think, for example, what the outcome might have been with different governments in the US and the UK, different leadership at the Bank, or the absence of NGO pressure and proposals.
The intent of HIPC was to provide an exit from the rescheduling process by reducing debt to “sustainable” levels so that it is not an impediment to growth and poverty reduction. It was billed as a “new paradigm” for international action, despite the fact that it built on existing mechanisms in a very complicated way. It was meant only for those countries that demonstrated a strong commitment to major IMF and World Bank economic reform for at least six years and was conditioned on continued compliance with their dictates. In a complex, multi-stage process, the Paris Club countries would provide concessional debt relief and reduction on a case-by-case basis to eligible countries, with the IMF and the World Bank providing important formal debt relief for the first time. In fact, the HIPC apparatus shifted the center of gravity from the Paris Club towards the IMF and the World Bank because they were tasked with doing the debt sustainability analyses central to the process. All non-Paris Club creditor countries and commercial creditors were supposed to provide comparable treatment, although how this would be achieved was not clear. With Russia now a member of the Paris Club, about $170 billion dollars of Soviet-era debt was to be brought under the HIPC umbrella. Initial estimates put the cost to the creditor countries, the IMF, and the World Bank at about $5.5 billion, with the hope that it would catalyze private financial flows and help reintegrate these countries into the global economy in productive ways. The cost would prove to be much higher, however, and the catalytic effect much lower.
Although the HIPC initiative was formally adopted, disputes over financing and case modalities were to significantly slow its implementation. On September 19, 1996, for example, the Chairman of the Paris Club issued a letter that urged the Fund and the Bank to move forward to define and implement the contribution they intend to make – out of their own resources. The Paris Club agreed that for a quite limited number of countries – on a case-by-case basis – that it would go beyond Naples terms – the most recent of the Paris Club menus.
The following July, the Chairman of the Paris Club wrote again indicating that it would after all agree to up to 80 percent reduction of eligible debt subject to proportional action by the other bilateral and multilateral creditors. A number of bilateral creditors made it clear that any effort to get the Paris Club to go higher than 80 percent would set off “difficult discussions.” Sweden pointed out that these burden sharing battles were the main reason for the slow implementation of HIPC.
Similar battles were fought over contributions to the HIPC Trust Fund, with the US, Canada, Germany, Japan, Belgium, and Australia insisting that the contributions be voluntary. Wolfensohn stuck to the Bank’s position that the Paris Club should go to 90 percent debt reduction and that, in order to protect the preferred creditor status of the Bank, he did not want to do more than the bilateral creditors. He warned that if these were not possible then the objectives of the initiative might have to be adjusted. All the while the projected costs of the initiative continued to rise.
The US, UK, Japan, and Sweden and the Netherlands strongly suggested that the multilaterals provide additional resources. France insisted that the bilateral creditors should not have to bail out the multilaterals. Germany and Italy expressed similar concerns; while Canada, the Netherlands, and Switzerland worried that cost considerations were unduly affecting the determination of debt sustainability ratios in cases under consideration.
At the same time battles were being waged on other fronts, such as the nature and length of track record,
the form of conditionality, the degree of flexibility that might be introduced in specific cases, the setting of sustainability ratios, and moral hazard among others. Many of these battles were fought over Uganda. It became the first country to enter the complicated multi-staged HIPC process, but not without considerable controversy. Some actors did not want to start with Uganda precisely because its case for relief was so strong they feared making precedent setting changes in the delicately negotiated framework almost before it was off the ground. Key Paris Club creditors, such as Japan, remembered all too well how the ratchet effect – exceptions that became norms -- worked in the Paris Club to provide more generous terms. This fed fears about loosening of agreed criteria, moral hazard, and increased cost. Major battles over funding and technical design were fought over Uganda, and the Ugandan government lobbied effectively, in part by using NGOs to push the country’s case over a wide range of issues. It freely shared data with best of the NGOs, Oxfam International in particular, and used its epistemic contacts to great effect.It also sent a high-level delegation to Eurodad’s annual conference in January 1997 and, working with the NGOs, it actively used major international media to make its case.
Oxfam weighed in with a hard-hitting press release:
This decision [to delay] will hurt the poor people in Uganda. This year many children, especially girls, will not be going to school, many health clinics will go without basic medicines. The decision also sends the wrong signals to those other countries undertaking painful economic reforms. If Uganda, which is seen as the jewel in the economic reform crown, is so shoddily treated what incentive is there for other countries?
A Ugandan debt NGO, the Uganda Debt Network, also lobbied both in Uganda and at the global level for quick application of HIPC to Uganda.
The Bank’s Executive Directors finally discussed the decision point documents for Uganda in late April 1997. The US, UK, Canada, and the Netherlands supported a low debt-to-export ratio in order to ensure a robust and well deserved outcome, while Japan, Germany, and Italy supported a higher ratio because Uganda was not seen as vulnerable and because of fears about cost inflation and the use of IDA resources. France expressed concern about multilateral burden sharing, assuming that the Fund and the Bank would have to pick up the share held by the African Development Bank. Given Uganda’s exceptional track record, more consensus existed on establishing a shorter period to the completion point, but even here Japan and Italy argued for the standard time to completion point in order to ensure strong policy performance.
Thus, Uganda became the first country approved for HIPC treatment after important battles were fought on several fronts. Uganda did not get everything it wanted but far more than it would have without the efforts of the NGOs and their epistemic community allies. Similar processes played out with Bolivia, Côte d’Ivoire, and, more contentiously, Mozambique. Hence, the main NGOs and their epistemic community allies played a major role in affecting the design of HIPC thereby altering the structure and process of the international debt regime, and they continued to be influential with each county case as it came up, helping to defend the debtor’s interests in the face of powerful larger forces. Finally, in April 1998, Uganda received its first actual HIPC debt relief, a year and a half after the initiative was launched. One Western diplomat praised Uganda’s pro-active approach by “adopting the reforms as their own and not using the IMF and World Bank a scapegoats when the going gets tough.”
HIPC lead to considerable institutional learning for Bank and Fund staff. Coordination became far greater, although tough battles were fought, with hard bargaining and difficult political compromises on many fronts, over a variety of procedural and substantive issues. This accounts for much of HIPC’s slow start. Some of the battles went all the way up to both Boards. There were two big debates over long-term debt sustainability, and other resources flows and additionality. The rise of HIPC was a very political process.
The Rise of Enhanced HIPC and the Dominance of Poverty Reduction
Serious doubts remained, however. Major NGOs -- led by Jubilee 2000, Oxfam and Eurodad -- maintained that the Paris Club and, in particular, the IMF lacked the will to achieve serious debt relief. They claimed that IMF conditionality was much too stringent; challenged the way sustainability, vulnerability and threshold indicators were assessed; and pointed to weak comparability mechanisms and, above all, to a seriously inadequate commitment to poverty reduction. Oxfam charged the IMF and some of the major countries with systematic attempts to delay and restrict implementation, partly through data manipulation, while asserting that industrialized countries could easily afford the cost. Not all of the 41 HIPC countries were to be eligible for HIPC relief. In fact, only about half of the original 41 were likely to even be considered, and only seven countries had even entered the process after three years.
On both the technical knowledge and moral discourse fronts, the battle for greater representation, accountability and, hence, according to the NGOs, better international economic governance would continue.
The shock of the Asia crisis slowed the momentum of the debt relief movement, a fact about which African leaders were particularly bitter. Kwesi Botchwey, the architect of Ghana’s mini-economic miracle, noted that the projected cost of HIPC was only “about a fifth of the resources that were mobilized in the space of a few months for bail-out operations for a handful of countries as a result of the Asia crisis.”
But as a result of renewed pressure, the World Bank in late 1998 and 1999 undertook a quite wide-ranging and intensive two-stage process of consultation and review of HIPC. Informal consultation and exchange had now become formal and institutionalized. It included regional meetings, including one in Africa,
with NGOs and debtor governments and consultation via a specially created website administered by the World Bank. At the same time, close consultations and negotiations took place among the creditor players in the debt regime. Out of this process came EHIPC in September 1999. Almost everybody took credit for it, of course, including the major creditor countries, especially in the Clinton administration. A Treasury report stated that “the United States led the effort to redesign the HIPC Initiative to provide deeper, broader, faster debt relief.”
The claim was that the US got everything it wanted. That may be so, but it got things it had not wanted even two years earlier.
In the emergence of EHIPC, the evolution of views of key G-7 players did make a real difference: the intensifying interest of Gordon Brown in the UK (reinforced by NGO pressure), Clinton’s trip to Honduras in March 1999, which also raised Congressional interest or at least knowledge about the problem, and, above all, the change of government in Germany and the altered views of Chancellor Gerhard Schroeder’s government, reinforced by the fact that Germany was the host of the next G-7 meeting in Cologne. The Development Committee and the then Interim Committee also helped to maintain pressure to maintain progress on poor country debt, especially leading up to EHIPC. Bank staff used the Development Committee to maintain momentum, and the NGOs put pressure of both committees. This also allowed the views of other countries to be manifested.
EHIPC was meant to be “enhanced” -- bigger, better, faster. The World Bank claimed that it would cost about $30 billion, possibly more, and that it would cut in half the approximately $90 billion in public debt of the 33 HIPC counties it considered likely to qualify eventually for relief. Many actors had serious doubts, however. Funding was not ensured even for the first couple of years, the amount of increased debt relief remained questionable, and the NGOs and debtors worried about the issue of “additionality” -- that is, whether this debt relief would be in addition to all other assistance and not just another version of it at the same level. Thus, the “failure of the implicit bargain” holds for debt relief as well as structural adjustment – in short, explicit and implicit promises that additional resources from the public and private sectors would follow to help to maintain debt sustainability have not been fulfilled. While loosened somewhat, major conditionality remained; in fact, as noted below, the NGOs ended up creating new forms of conditionality, despite their longstanding opposition to it. This just goes to show that one’s view of conditionality depends a great deal on the type of conditionality; each actor likes its own type of conditionality.
One significant change incorporated in EHIPC is that all debt relief is now to be tied in a detailed way to poverty reduction. This is to be ensured by the creation of Poverty Reduction Strategy Papers (PRSPs) put together by debtor countries in consultation with civil society groups. In theory at least, IMF and World Bank adjustment lending programs are to be finalized only after these efforts have been taken into account. The PRSP process is very demanding. The IMF noted, “These strategies must be genuinely country-owned and reflect the outcome of an open participatory process involving governments, civil society, and relevant international institutions and donors.” These plans “should contain systematic and participatory analyses of poverty, short-and-long-term tradeoffs of alternative policy decisions, and the impact of proposed reforms for the most vulnerable social groups. These strategies will also address the critical, and often complex, issues related to building capacity, enhancing governance, and supporting transparency in policy making.” In addition to far better data, “the PRSPs will need to include clear, monitorable key actions that would allow, if endorsed by the two Boards, a country to reach its completion point under the HIPC Initiative; it is also essential in this context that all available resources are integrated in a transparent, accountable budgetary framework, which could include poverty/social funds, to ensure their effective use to combat poverty.”
An elaborate process of consultation was developed for the PRSPs, and a much simpler one for the interim PRSPs that were used to keep the process moving.
If seriously implemented by all sides, this new process could be an important change in international governance on debt, aid, and development more generally, and might have implications for the unfolding of democratization processes in African countries. In addition, it has the potential to be a process for enhancing state capacity and legitimacy.
Major actors on the creditor side have, often with gritted teeth, praised the role of the NGOs while trying to coopt them via consultation or deflect them. It is not at all clear who was being coopted, however. In 1999, former US Treasury Secretary Larry Summers commented on how “grateful we are to the many committed NGOs and others in the development community who have kept debt relief high on the international agenda this year and helped to generate the political will for action... Thanks in large part to the efforts of the Jubilee 2000 coalition, the advent of the millennium has given us an historic opportunity to accelerate these efforts, and help these countries finally build an attractive environment for private investment and market-led growth.” Referring to the fragile nature of EHIPC, especially given that it was far from adequately funded, the IMF’s former Managing Director, Michel Camdessus, noted that “it shows us above all, how fragile our collective commitments are, and how small the chances that they will be fulfilled without a universal mobilization of public opinion, as has been the case with Jubilee 2000.”
One World Bank official put it more directly. After acknowledging that the NGOs in Jubilee 2000 had provoked a necessary and healthy debate and played a critical role in forcing a discussion in industrialized countries on debt, he noted that “we are continuously being monitored and told what needs to be improved. Groups have proposed different ways to ensure that countries channel the savings from debt relief into social programs. And other groups have asked that projects financed with debt relief, as well as new lending, be closely monitored to avoid mistakes of the past.”
The NGOs, of course, gave themselves much of the credit. Oxfam, for example, claimed that “without such visible public pressure, politicians in the G7 and other countries would not have given HIPC reform the impetus required; and without strong advocacy from a wide range of NGOs and other actors, policy makers would not have been pushed into improving mechanisms with such strong linkages to poverty reduction.”
This assertion is largely correct.
Funding again became an issue, and this time the NGOs did battle on a different front – the US Congress. In October 2000, a complex Jubilee 2000-led bipartisan coalition, that included major business support, convinced the US Congress to fully fund the US contribution to HIPC, grant approval to use IMF gold proceeds to fund it, and declare its opposition to the imposition of user fees for basic healthcare and education in structural adjustment programs for poor countries. The latter was to be enforced by the Treasury and US representatives to the IMF and World Bank. This was accomplished by making effective normative appeals to conservative House Republicans who then allied with liberal Democrats and the US Treasury, along with some clever policy proposals and intensive, hardheaded, and intelligent lobbying.
This is yet another interesting example of how economic governance patterns are opening up in interesting ways.
For savvy governments who already have experience and developed state capacities in the social policy arena, such as Ghana and Uganda, the new HIPC process offered real opportunities; for others, this was far less clear. Many hoped that the PRSP process will strengthen democratization and state capacity building efforts, but actors of all types were skeptical. For the IFIs and the creditor countries, this process also quietly shifted important responsibility to the international and African NGO communities.
For some countries, such as Uganda, the benefits have proved to be real and supportive. As with HIPC, Uganda was the first country to benefit from EHIPC. It will receive debt relief of about $55 million annually over the next 30 years under EHIPC in addition to the $45 million annual relief agreed to under HIPC. At a Consultative Group meeting in March 2000, donors pledged about $2.5 billion over the following three years for poverty reduction under Uganda’s Poverty Eradication Action Plan (PEAP). At the same time, they criticized official corruption as well as Uganda’s involvement in the war in the Congo.
The Uganda Debt Network continued to grow and increase its capabilities. By late 2000 it had more than 60 institutional members as well as strong ties to the Uganda Joint Christian Council and business, student, and labor organizations. The Catholic Church gave it particularly strong support. It held several campaigns in Uganda to raise the level of awareness about debt relief, as well as participated in Jubilee 2000’s international activities, especially lobbying about EHIPC treatment of Uganda. It launched a major anti-corruption drive to make sure debt savings were used properly and lobbied parliament about future debt levels. Above all, however, it was becoming very active in coordinating civil society participation in the PRSP process, with the help of Northern NGOs. Lastly, it improved its own organizational capabilities and created its own independent website.
Ugandan NGOs have helped make Museveni’s Uganda stronger while increasing creditor country and international financial institution accountability. Uganda succeeded because it was perceived by the major actors in the debt regime to be doing what was expected of it. Without Uganda’s decade of impressive economic reform, it would not have been able to help make changes in the debt regime and benefit from them. In many ways, it is still a self-help world. With its pro-active behavior and the help of other actors, Uganda government has been able to grab back some sovereignty and build new capacity, while increasing its legitimacy. In the current African context, this is no mean feat for a HIPC. Nonetheless, Uganda has not yet been able to break the back of the structural dilemma. Private capital is not flowing into Uganda in any substantial amount; it remains heavily dependent on grants and debt.
By late 2000, Jubilee 2000 had campaigns in over 20 African countries, with active organizations in at least 14 of them. Many of these were based on existing local NGOs, such as the Jesuit Centre for Theological Reflection in Zambia, which joined with the Zambian Catholic Commission for Justice and Peace to launch a debt campaign in 1998; it was also running the Jubilee 2000 campaign in Zambia. By early 2000 its main focus was on making the PRSP process operate in an open, accountable, and effective manner. It worked to build the capacity of civil society groups to take part in the process and helped to coordinate it. As with the Uganda Debt Network, it ran its own website and had its own international and regional ties. In February 2000 it held a national conference on debt and proposed a Zambian Debt Mechanism to ensure that all debt relief goes to poverty reduction. The group’s coordinator summed it up succinctly: “Jubilee 2000-Zambia has come a long way in a short time. A silly idea, a crazy dream. But now the reality! Please keep giving us your hard work and dedication – we have a long ways to go yet. But we are moving and the goal – poverty reduction in a society of greater justice – is too great to be slow about.”
Similarly strong efforts appeared in Mozambique, Tanzania, and elsewhere. In short, African NGO work on debt is sinking real roots and moving beyond debt relief, facilitated by the victory of the international NGOs on the issue of the linkage between debt relief and poverty reduction, and more recently between debt and AIDS. They may be taking on viable social movement characteristics. In addition, it is now possible to find situations where African and international NGOs do not completely agree on how debt savings should be applied to poverty reduction in particular countries and where African NGOs are influencing the views of the international NGOs on this and other matters. This should be taken as a good thing.
Unforeseen events can get in the way, however. Although excluded from HIPC because it was servicing its debt, Ghana was included in EHIPC and should have been next in line after Uganda. It was not to be, despite Ghana’s expectation of obtaining much deserved early relief. Japan announced that any country that took advantage of EHIPC debt relief would forgo any further Japanese concessional aid. Japan was Ghana’s biggest donor country. As a result, one of Africa’s two star economic reformers “voluntarily” withdrew from EHIPC. As Kwesi Botchwey lamented with understatement, “It is worth noting that Japan’s decision to make countries, notably Ghana, choose between HIPC relief and continued Japanese assistance is an unfortunate development.” He added, “Ghana has in fact opted out of the HIPC Initiative for this reason, although it is by no means clear that this is in its best long-term interest.”
After vigorous public debate, Ghana eventually changed its mind and was granted EHIPC relief in February 2002.
On the donor side, the hope is that the EHIPC debt process would build legitimacy and “ownership” of structural adjustment programs without cutting the heart out of them. This may be difficult to accomplish. Expectations have been raised very high by EHIPC, and there is plenty of room for failed expectations. This is a dangerous situation, one created by the Bank and the Fund, the G-7, and by the NGOs (in this case because they think it will get them more relief over the longer run).
The PRSP process in its grandest form might be viewed as a somewhat meager attempt by creditor countries to extend their own “compromise of embedded liberalism”
to the poorest countries of the world, based, almost literally, on a relatively small “pot of gold.”
The longer run question remains how the partial extension of embedded liberalism might be financed. The major creditors are having enough trouble financing EHIPC as it is. But the summit on development finance in Monterey, Mexico and the G-7 meeting in Canada show that the battle continues. The political fact is, however, that the NGOs have won the battle over EHIPC debt savings; they are to go exclusively to “poverty reduction.” The primary focus of key NGOs and some debtor governments has been on health and education, with a secondary emphasis on rural and other infrastructure. In addition to EHIPC, a number of creditor countries, including the US, Britain, France, Canada, Germany, and Italy, have taken steps to write off significant amounts of bilateral concessional debt.
EHIPC is not a magic bullet; it is important for a number of countries but very far from turning Africa and other poor countries around.
It is very far from making a major dent in African structural dilemma. In this context, it is not clear that an exclusive focus on poverty is the correct approach. By EHIPC there was as a very clear sense that the process had acquired multiple objectives, but still had only one instrument. The objectives included debt sustainability, regularization of relations with creditors, poverty reduction, and, as a result of these objectives, growth. There was also an increasing perception that debt relief was but one part in a much larger picture, one that needed to be dealt with for real debt sustainability to be achieved. Real and significant tensions remain. There are two main ways to respond to the charge that HIPC is not dealing sufficiently with growth issues:  that the PRSPs really are about growth, and  that growth is being handled by the Fund, the Bank, the “donors” in ongoing structural adjustment work, especially via PRGFs. Neither response is satisfactory.
In sum, new actors and processes have been unleashed in response to the plight of African and other HIPC countries, which might significantly alter the way the larger development regime functions over the longer run. Under intense pressure, the IMF, the World Bank, and the Paris Club managed to get 22 HIPC countries well into the process by the end of 2000. HIPC has improved the coordination on debt, aid, capacity building, and negotiation processes in major ways. The PRSP process has reached far beyond HIPC, for example.In the long run, the most significant change may well not be EHIPC itself, but rather the new processes and perceptions that it has helped to unleash. The larger puzzle is important, but it is only partly about debt and development financing more generally. It is also about debtor administrative and absorptive capacity, type of economy, the nature of growth strategy, and trade access – in short, all issues raised by the earlier discussion of the structural dilemma.
Pressure for greatly increased debt relief will continue to mount on many sides, complicated in interesting ways by crosscutting politics among the major creditors. One of the main ways of providing more relief would be to breach the IDA-only line in the sand and extend Paris Club Naples terms to a larger number of countries. In the aftermath of 9/11, State Department desk officers floated such plans for “their” countries, while others at State and Treasury spent time knocking them down. The really explosive issue, one with real import for the viability of international economic governance, will be if, and under what conditions, formal international financial institution debt relief will be extended beyond HIPC. As for the HIPCs themselves, the issue of “topping up” – going beyond Cologne terms as needed -- will become more urgent. “Topping up” is already authorized under current EHIPC rules to deal with very special cases; these cases may increase in number very rapidly. This issue was likely to raise its head anyway even without the current economic malaise and strategic crises, as it became clear that EHIPC, like the first HIPC and the Paris Club menus before it, is inadequate to deal with the structural dilemma of the poorest and least developed. As one official put it to me, “The ball will be back in our court.”
Indeed, it is, and this raises the issues of leadership, communication, and cooperation. Yet Bank staff would like HIPC to remain “ring fenced” so that it can be fully and properly implemented, a view shared by most major creditors as well; there is no burning desire for a HIPC 3. According to this view, looking towards another round of HIPC would take the focus away from the larger issues upon which debt sustainability actually depends.
By the end of April 2004, 38 of the 42 HIPC countries were considered qualified or potentially qualified for debt relief. Of these, 13 have reached their Completion Points – the point at which they receive the bulk of their debt relief and topping up and thus allegedly have reached debt sustainability and exit HIPC from HIPC; the most recent to reach the Completion Point are Niger, Ethiopia, and Senegal. Fifteen countries were at or beyond their Decision Points and thus in what is called the Interim Period, Burundi being the most recent; two-thirds of these had “on track” structural adjustment programs. In short, EHIPC has accelerated its pace considerably over HIPC as well as dealt with difficult “post-conflict” countries, such as Chad, the DRC, Rwanda, and Sierra Leone. Ten other countries are still to be considered; many of these are affected by conflict, and some have substantial reserves. Debt sustainability analyses for Liberia and Somalia do not exist. Côte d’Ivoire’s current turmoil has kept in out of EHIPC, after receiving special treatment under HIPC. The final four HIPCs – Angola, Kenya, Vietnam, and Yemen – are considered to have sustainable debt levels. Nigeria was once a HIPC and still aspires to be one; at present it is maneuvering for substantial Paris Club assistance, which, in my view, it does not deserve but may get for geo-strategic reasons. Total debt relief amounts to $51.5 billion in nominal terms, $31.3 billion in discounted real terms (Net Present Value or NPV); the expected decline in total HIPC debt stock is expected to by about two thirds, an estimate that is probably high. Average annual debt service for the HIPCs in line is expected to be about 24 percent lower during 2001-06 compared to 1998-99. The NGOs believe this debt relief to be far too little and far too late. Sub-Saharan Africa’s total external debt peaked at $235.4 billion in 1995, just before the launch of HIPC, and has declined steadily if slowly to an estimated $219.7 billion in 2003.
The British have made it very clear that they wish to see HIPC accelerated and countries protected from falling commodity prices. In fact, shocks of all kinds are very much at issue now, from famine, war, AIDS, to environmental degradation. Many NGOs and other governments believe that these issues ought to be on the table. As one NGO official put it, “Our job is to never be satisfied.” This is really a battle over the nature and efficacy of global triage. In a report to G-7 finance ministers, Kevin Watkins of Oxfam made it clear that “the attacks of September 11 are creating an economic disaster in developing countries.”
Once the NGOs recovered their political footing, they and their social movements intensified demands for much more significant debt relief based on the knock on effects of 9/11.
The NGOs have already been using poverty reduction, the environment, and AIDS and other health issues as levers for more generous debt relief, and they are moving rapidly towards the much more thorny issue of trade. A number of policy proposals are now on the table about which there is already considerable disagreement.
The issue of an international bankruptcy procedure has moved to the fore much faster that many expected, although it clearly still has a long way to go. The US proposal to transform much of IDA’s work from loans to grants is another example. Issues now at the margin of the policy table may have to be taken more seriously, if not finally acted on. One example is the establishment of a Franco-German commission to study some form of Tobin tax -- an excise tax on cross-border currency and possibly other capital transactions that could be used for development purposes, including debt relief;
Few people really expect this type of dramatic change, however.
Will the institutions of international economic governance such as those on sovereign debt hold up under these new challenges? The jury is still out, but it is certain that major battles will be fought and tension will cross from one policy sector to another. Irritation will rise as creditor countries and institutions struggle over who will pay the cost, especially as the magic of the markets is not going to solve any new crisis by itself, just as it has not solved any of its predecessors. Cooperation between major powers to avoid beggar- thy-neighbor policies may be in short supply, while middle powers begin to play a more important role, particularly China.
The procedures of the Paris Club, the IMF, the World Bank, and now EHIPC are clearly in flux and the cost of more debt relief will be high. It is not at all clear how stable these structures of international economic governance will be. Managing these tensions will take considerable skill and luck. Despite the growing influence of NGOs and their social movements, it is still a distinctly state-centric world controlled by the OECD industrial democracies. Coping with complex new challenges requires leadership from the major powers and the most important international financial institutions, plus dialogue with NGOs and other civil society groups, both North and South. The role of the US and other major powers is central. G-7 tensions over unilateralism versus multilateralism are rampant. International economic governance is ultimately very political and requires hardheaded and informed engagement, not unilateral action or detachment such as we have seen with the Bush administration on debt
The NGOs pursue a simultaneous two-track approach to obtaining increased debt relief. The first track works within the existing strategic relationship and focuses on getting the most possible out of HIPC.
They continually push the HIPC envelope by closely following individual HIPC cases and making sure that their views are heard; they are often assisted by African debt NGOs in this endeavor, especially in the difficult task of “tracking” where HIPC debt savings actually go. NGOs have also worked to make sure the PRSP process works as it is supposed to, with very uneven results in their view. Above all though, they have focused on the sensitive and costly issue of “topping up” debt relief at the completion point if final HIPC debt relief will not bring a country within the Initiative’s debt sustainability ratios.
The most recent examples are Niger and Ethiopia, two of the world’s poorest countries. The U.S., Germany, and Japan held up these two HIPCs from reaching their expected Completion Points in a dispute over topping up – both the amount for each country and how it is generally calculated. On the other side, the UK, Canada, and
France pushed for more generous relief. A meeting on Niger was postponed in January because of this dispute. Projected topping up for Niger was to be substantial -- $142.5 million or 28.5 percent of Niger’s promised $500 million in HIPC relief. A Treasury official in the Bush administration commented that the U.S. was worried that more debt relief would be an excuse for more borrowing: “We are concerned about the Bank being in a position where it is in a continual cycle of lending and forgiving.”
The NGOs pushed very hard on these two cases. Jubilee Research changed that the U.S. and Germany were deliberately delaying and blocking debt relief at the same time the U.S. was trying to get Iraq relief from its “odious debt” – a term used by the Bush administration: “The double standards applied by Western creditors to these two debtor nations reveal that debt relief no longer conforms to a set of rules by the international community under HIPC but instead is subject to arbitrary geo-political considerations.”
Ann Pettifor – a main driving force behind Jubilee 2000 and now director of Jubilee Research in London – was very direct:
In Cologne in June 1999, Germany’s Chancellor led the creation of the ‘Enhanced’ HIPC Initiative. At that Summit, the US and other G8 leaders promised their electorates –led by Jubilee 2000 supporters – that countries like Ethiopia would benefit from debt relief. Today western creditors are playing fast and loose with that commitment, and with their own international rules and obligations. By bending over backwards to cancel Iraq’s debt, and at the same time willfully flouting their own commitments to Ethiopia, creditors are breaking promises to their own electorates, as well as undermining progress in heavily indebted countries. We call on the US and Germany to honour commitments made to Ethiopia – and immediately grant her the relief calculated as essential by officials in the World Bank and IMF.
Intense pressure from a wide variety of fronts finally led the Bush administration and Germany to relent and allow both Niger and Ethiopia to reach their Completion Points with considerable topping up assistance.
But the NGOs also operate simultaneously on a second, quite different track -- working toward much more dramatic change in the strategic relationship between Africa and powerful external actors. The NGOs consistently have maintained their demand for full debt cancellation and an end to structural adjustment, while arguing for substantial increases in aid to meet the Millennium Development Goals, especially a much larger reliance on grants. They link both of these issues to AIDS and the larger African health crisis, increased war and violent conflict, declining state services and infrastructure, and unfair trade practices by the industrial democracies. In regard to the latter, a recent Oxfam report on “fair trade” asserts that the G-7 is quite content to have debt remain the focus of debate in order keep systematic attention away from major trade reform.
The NGOs pursue this second track, however, without any viable counterfactual about how a total debt right off and an end to externally imposed structural adjustment might actually bring about the poverty reduction and sustainable development they say they want. They have never been able to square this circle, despite a great deal of fancy rhetoric. For their part, many African governments simply want full debt cancellation, an end to structural adjustment, and the ability to borrow more…
Demand for major change has recently come from another front -- from part of the epistemic community that works on Africa, if you will. In a small, but bold recent book, Africa’s Stalled Development: International Causes and Cures [ASD], David Leonard and Scot Straus argue for a dramatically different strategic relationship between external actors and African governments.
The core of their argument is summarized in the last chapter, and it is worth quoting at length:
…the combination of debt and overseas development assistance exacerbates this structural vulnerability of African systems. Most African countries are saddled with international debts that they have no prospect of repaying and are able to keep current only through high levels of ODA. The combination provides no incentive to African leaders to avoid unwise policies and causes them to orient their attentions externally to the international system rather than internally to the productivity and welfare of their own populations.In fact, the current extreme dependence on ODA is quite dysfunctional to governance in Africa. The thrust of reform should be to restructure the conditions under which African leaders work, so that there are incentives for better outcomes.
The authors endorse the Jubilee movement’s call that “most of Africa’s international debts be written off…. At a minimum, debt must be reduced to the level at which no ODA needs to be recycled to pay it. Debt cancellation also should be accompanied by a comparable reduction (but not elimination) in total levels of ODA. Foreign aid must not dominate the income strategies of elites and must be modest and concentrated on infrastructure and human welfare. In the long run, the elimination of debt and reduction of aid will change the incentives of African elites and stimulate their efforts to develop broad-based economies that can generate their own internal revenue.” They also believe that this new incentive structure of less external resource flow “will likely make the negative dynamics of personal rule costly for African leaders over the long run, and they will move away from it.” (105, emphases added).
In short, once the incentive structure is properly set [sound familiar?], African countries will respond appropriately and move away from a narrow economic base
that “has dovetailed with high dependence on foreign aid, crippling foreign debts, and a colonial legacy of domestic weak states in order to support a host of negative dynamics in Africa.” (108) They focus primarily on personal rule and violent conflict. But beyond calling for movement “toward [“rent-resistant”] diversified small and medium farm and industrial production,” (109) they do not provide even a basic outline of a counterfactual development strategy to the one inherent in IMF and World Bank structural adjustment programs. They find structural adjustment to be very damaging in both its policies and its conditionality and assert that “it would be well to end ‘policy lending’ and general budgetary support for African countries.”(32) ASD does admit, however, that African “leaders declare what states will do in order to secure financing but do not necessarily follow through on those plans”(30) – in short, there has been very little serious, sustained economic reform in Africa. HIPC is criticized for basing debt sustainability on the continuation of ODA and for attempting to “strengthen and continue Bank [and Fund] leverage over African economies,” while noting that the Jubilee proposals “would curtail the leverage of the Bank and IMF” (31). ASD does not agree, however, with NGO calls for at least keeping aid at current levels (the issue of “additionality”) or raising them significantly in order to help reach Millennium Development Goals. At the same time, the book claims that “the cancellation of Africa’s debts by itself would make it a much better investment risk and would create the incentives for local elites to adopt the policies that would make it more so” (32) without specifying what those policies might be.
Once you dig deeper, however, the basic deal seems to be “a cancellation of all (or at least most) debt” and “halving ODA,” which ASD asserts “would have no effect on net transfers to most countries” (32) – in short, a debt-aid exchange. At the last moment though, Leonard and Straus make an interesting restriction to the call for massive debt cancellation: “The foreign debt of all but the seriously corrupt African states should be promptly cancelled.” (35) This appears to be the obverse of the NGO argument about “odious debt,” and the book does not make any attempt to explain what “seriously corrupt” means, how such countries might be selected, much less why their debts should not be cancelled. The implication seems to be to wait until they have better governments.
ASD maintains that its proposals would “have positive development results,” and lead to “an Africa that once again has gained sovereign control over and responsibility for its economic development:” “Canceling most of the debt and reducing aid are crucial steps that will restructure incentives, leading to the development of more capable states, improvements in African governments’ social contract with their citizens, and over time stability and economic growth.” (35) But it goes even further to claim that external actors will benefit as well: “Renewed stability and growth in Africa also will reduce strains on the international system and create enhanced economic benefits for the industrial world.” (33)
The call is for “autonomous development” based on new incentive structures and the discipline produced by lower revenue levels, which will “return to Africans themselves the responsibility for making decisions about their own development.” Aid is not to be ended, however: “continuation of some forms of assistance is needed to cope with the magnitude of the refugee and health crises in Africa, the latter particularly but not exclusively from AIDS,” but it must be “carefully targeted.” ASD claims that “the important challenge is to be sure that ODA that does remain is channeled toward the sick and the poor,” (32), but no indication is provided of how this is to be achieved, especially since it seem to rule out any conditionality. The assertion is that “conditionality has not had a positive effect in Africa and may have had a negative effect.” (128n40)
The ASD proposals admit that the new incentive will work only in the long run, but it is never clear what will happen in the short and medium run. To their credit, the authors do address the issue of the “feasibility” of their proposals, but not in any convincing way. The authors admit that their sweeping proposals carry some risk:
The risks and challenges that go with being responsible for and dependent on the performance of a national economy are not trivial, and not all elites are equally prepared to take advantage of the new incentives the changes would create. Indeed, significantly reducing levels of foreign aid and writing off debt would require a fundamental restructuring of relations between governments and societies in Africa… Such a reorientation would create new winners and losers and thus would not be easy. (32)
It is true that governing elites who have deeply ingrained commitments to the worst forms of personal rule and its attendant economic policies will not respond quickly to the new incentives, and their countries therefore are poor targets for the [debt-aid] exchange we advocate. (34; emphasis added)
After all of ASD’s sweeping proposals, it turns out that the book has, in fact, a quite narrow range of countries in mind for its proposals, although there is no hint of which states they might be: “Where there has been a transition from a deeply patronage-ridden and corrupt regime to new modes of governing [left unspecified], however, it is important to move quickly from the old relationships of conditionality and dependence to the new patterns of autonomous responsibility. Some will argue that the patronage patterns of Africa’s personal rule systems are deeply ingrained and thus that assuming leaders will respond appropriately to the new incentives is risky. It is a risk. But the present system of debts, conditionality, and aid dependence is a demonstrated failure. A risky positive is preferable to a proven negative.” (34, emphasis added) I wish it were that simple, but it is not.
ASD’s proposals are highly risky and dangerous; the “risky positive” is based on an assumption -- an amazing leap of faith about how African leaders will respond to the discipline of lower revenue levels. This is a seriously flawed assumption. The record of African leaders responding to declining revenue flows runs directly counter to ASD’s assertions/predictions. The record of leaders in flailing or failing states points, in fact, to increased predation and pillage, not increased state building, all the while maintaining the external or outward orientation that ASD finds so pernicious. Oddly, ASD cites the work of Will Reno, but fails to square his close empirical work with its own grand assertions about the disciplining effects of declining revenue: “Warlords, [Reno] argues, seek to maximize the benefits of possessing the right to ‘juridical’ sovereignty, but without building their states. Indeed when facing armed rivals, leaders would rather weaken state institutions – that way, opponents will either have less incentive to capture the center or have weaker institutions if they control peripheries.” (11-12)
I would argue that Reno’s work holds for most of Africa’s weak states, not just ones with warlords or state leaders who act like them.
Thus, the grand schemes of both the NGOs (Track 2) and Africa’s Stalled Development for reorienting Africa’s strategic relationship with powerful external actors do not mesh well with current African realities. Among other things both are amazingly undifferentiated. Africa is going in different directions and needs policies that reflect this reality. In an effort to capture the importance of this differentiated condition, I published a piece a decade ago that sketched out three “Back to the Future” scenarios for Africa;
it has held up too well for my tastes. The first Back to the Future scenario was called “Back to the 1960s” in which some African states were trying to go back to the 1960s in the sense of resurrecting well functioning primary-product export economies and re-establishing democratic governments – in short, starting over. This has been the preferred option of the major external actors, even if they would not put it this way on the economic side. A handful of countries might fit into this important, but precarious category – Ghana, Uganda, Mozambique, Senegal, and Tanzania, for example. For these countries, HIPC has provided real if insufficient help.
The second Back to the Future scenario was called “Imagined Republics and Economies” in which a number of African intellectual and politicians, as well as sympathetic external observers, actually welcomed Africa’s economic marginalization, believing that it would eventually allow the continent to free itself from the imposed economic reform that they saw as leading to continued underdevelopment as well as from forced political reform that was seen as leading to a false, unauthentic democracy. Once free, Africa would be able to turn inward and find salvation in indigenous economic strategies and political models that have roots in Africa’s past. This scenario conveys a powerful image of an aggrieved continent escaping from an evil external world.
Many African leaders long for this imagined scenario as they try to cope with a host of intense, intractable realities.
The third Back to the Future scenario was called “Back to the Nineteenth Century” referring to the period mid century between the formal end of the slave trade and the actual imposition of colonial rule on the ground in Africa; it saw a mafia-like world of social, economic, and political disintegration, war, conflict, tribute, predation, and pillage – the criminalization of economic activity by warlords and leaders of flailing and failing states trying desperately to cling to power by extorting Africa’s most useful resources for sale to the highest international bidders, giving rise to tens of thousands of refugees and death to countless others. As other papers for this conference make clear, this third scenario is very real and probably intensifying. For some of these countries – Sierra Leone and the DRC, for example, structural adjustment, aid, and some potential debt relief from HIPC are really just a form of international triage without which conditions would be even worse.
The new strategic relationships imagined by the NGOs and Africa’s Stalled Development (but with their different views on ODA) have much the flavor of the second Back to the Future scenario. Their versions of autonomous development are more akin to marginalization and stagnation than creative attempts to cope with the powerful forces of globalization. The proposals for autonomous, non-dependent development sound wonderful and enticing, but, in fact, they are not based in Africa’s hard and differentiated realities; rather they are based on highly suspect counterfactuals. Imagining imagined grand schemes and incentive structures is very risky indeed. The road ahead is much harder and more demanding -- one of slow, incremental economic reform or stabilizing triage, hopefully with increased partnership, latitude, learning, creativity, and research based in varied local realities on the part of powerful external actors and committed states willing to engage them. There are no shortcuts, and no imagined cures that are likely to work.
So, what to do about debt? The G-7 has been content to stick with enhanced HIPC while resisting changes to reform it or consider grander forms of debt relief. This has certainly been the case for the Bush administration as it, with amazing but not surprising hypocrisy, now works to get the “odious debt” of Iraq cancelled while refusing to do so for the DRC’s Mobutu-era debt and resisting “topping up” for HIPCs such as Niger and Ethiopia. Interestingly, the NGOs actively support the cancellation of Iraq’s “odious debt” in the hope of establishing a precedent to be used elsewhere. At the same time, the Bush administration is beginning to consider debt relief for geo-strategic reasons for non-HIPC countries like Nigeria and Angola that do not deserve it and should not get it, while the Fund, the Bank, and other Paris Club countries try to hold the line. Here ASD’s lessons about the curse of enclave wealth are more relevant. As these countries demonstrate, however, Africa’s problems are far deeper than poverty and will not be resolved by large increases or decreases in external revenue or policy autonomy.
In my view, the best option is to broaden and deepen HIPC debt relief along the lines very carefully laid out by Nancy Birdsall and John Williamson of the Center for Global Development and the Institute for International Economics while ignoring the hard-line views opposing more debt relief by people like William Easterly, development economist and World Bank pariah.
Might such a reform of HIPC be possible? Widespread pressure to do so exists, obviously from the NGOs and African governments, as well as a number of smaller European governments, but also from some parts of the World Bank. Gordon Brown, the British Chancellor of the Exchequer, recently announced that “There is now a window of opportunity to make progress on this issue, and I’m hopeful that when we meet at the annual meetings we’ll have made the most of this opportunity.”
Brown believes this opportunity exists because, in its efforts to get major debt relief for Iraq, the Bush administration has indicated a softening of its position on HIPC reform; others are less optimistic. The Fund/Bank annual meetings will be in Washington in October, and HIPC has a sunset date of the end of 2004. It will be hard to roll it over with no modifications. As with the initial creation of HIPC in 1996 and its revamping in 1999, the support of James Wolfensohn will again be crucial. The battle for greater debt relief for Africa will be waged on many fronts; it will be very political and decided at the highest levels. In the mid 1990s, most people believed that a HIPC-like mechanism could never become a reality; they were wrong. Hopefully the pessimists will be proved wrong yet again; it is possible that the HIPC “slippery slope” will continue to operate. A reformed HIPC would be one positive element working to end Africa’s stalled development, but only one. The fate of many in Africa rests in part on it.
In addition to collected source material, this paper is based heavily on confidential interviews with officials from the IMF, the World Bank, the US, British, French, and several African governments, and representatives of NGOs working on debt, conducted in Washington, New York, London, Dublin, Paris, Berkeley, and Brussels between September 1997 and November 2003. It draws in part on Thomas M. Callaghy, “Networks and Governance in Africa: Innovation in the Debt Regime,” Intervention and Transnationalism in Africa: Global-Local Networks of Power, Thomas M. Callaghy, Ronald Kassimir, and Robert Latham, eds. (Cambridge: Cambridge University Press, 2001), pp. 115-148.
The IMF conducts the debt sustainability analyses, which have been the target of intense criticism, including from the World Bank’s semi-autonomous review unit in its review of HIPC in 2003. The Bank and the Fund have recently conducted a review of debt sustainability: IMF and IDA, “Debt Sustainability in Low-Income Countries – Proposal for an Operational Framework and Policy Implications,” February 3, 2004; it was discussed by the Fund Board on February 23, 2004, and a number of issues were raised that demanded further work.
See Thomas Callaghy and John Ravenhill, Hemmed In: Responses to Africa’s Economic Decline (New York: Columbia University Press, 1993).
See Margaret E. Keck and Kathryn Sikkink, Activists Beyond Borders: Advocacy Networks in International Politics (Ithaca: Cornell University Press, 1998).
There is amazingly little written about the Paris Club, and some of what has been written is wrong. The following are some of the most reliable sources: Alexis Rieffel, Restructuring Sovereign Debt: The Case for Ad Hoc Machinery (Washington: Brookings, 2003), “The Role of the Paris Club in Managing Debt Problems,” Essays in International Finance No. 161, December 1985, Princeton University; and “The Paris Club, 1978-1983,” Columbia Journal of Law, 23/1 (1984), pp. 83-110; David Sevigny, The Paris Club: An Insiders View (Ottawa: The North-South Institute, 1990) [I reviewed it in the Canadian Journal of African Studies, 27/2 (1993), pp. 318-20]; Charles F. Meissner, “The Workings of the Paris Club,” unpublished essay written for the Institute of International Finance, August 1985; Peter Mounfield, “The Paris Club and African Debt,” IDS Bulletin, 21/2 (1990), pp. 42-46; Age F.P. Bakker, “The Paris Club” in his International Financial Institutions (London: Longman, 1996), pp. 100-09; M. Camdessus, “Governmental Creditors and the Role of the Paris Club” in Default and Rescheduling: Corporate and Sovereign Borrowers, ed. David Suratgar (London: Euromoney Publications, 1984), pp. 125-29; Christian Noyer, “Le Club de Paris et le Fonds Monétaire International” in Bretton Woods: Mélange pour un cinquantenaire, ed. Thierry Walrafen (Paris: Editions Le Monde, 1994), pp. 389-95; Benoit de la Chapelle, “Le club de Paris et la dette mondiale depuis 1956,” Regards sur l’actualité (juin 1993), pp. 3-30; and various issues of the World Bank’s World Debt Tables, and more recently, its annual Global Development Finance.
On Indonesia see Thomas M. Callaghy, “The Vagaries of Debt: Indonesia and Korea,” Gregory Noble and John Ravenhill, eds., The Asian Financial Crisis and the Structure of Global Finance (Cambridge: Cambridge University Press), pp. 213-34.
The original 41 included Nigeria. It was later dropped, and the Gambia was added. There are now 42 HIPCs with the recent addition of the Comoros, making 34 African countries.
See Oxfam International, “Poor Country Debt Relief: False Dawn or New Hope for Poverty Reduction?” Washington, D.C.: Oxfam, April 1997). For data provided in this section, see Anthony R. Boote and Kamau Thugge, “Debt Relief for Low-Income Countries and the HIPC Initiative,” IMF Working Paper 97/24, Washington, D.C., International Monetary Fund, March 1997; World Bank, Global Development Finance 1997, vol 1: Analysis and Summary Tables (Washington, D.C.: World Bank, March 1997).
This is not to say that there are no problems with structural adjustment; there are. The nature and relationships of its various components could be modified productively while maintaining the coherence of the overall effort – the nature, degree, and timing of trade liberalization, for example.
This is precisely why John Ravenhill and I titled our 1993 book Hemmed In: Responses to Africa’s Economic Decline. It has a much more extended discussion of these issues.
On NGOs see, P.J. Simmons, “Learning to Live with NGOs, Foreign Policy, 12 (Fall 1998), pp. 82-96;Steve Charnovitz, “Two Centuries of Participation: NGOs and International Governance,” Michigan Journal of International Law (Winter 1977); Thomas G. Weis and Leon Gordenker, eds., NGOs, the UN and Global Governance (Boulder: LRP, 1996); Robert O’Brien et. al., Contesting Global Governance: Multilateral Economic Institutions and Global Social Movements (Cambridge: Cambridge University Press, 2000); Ann M. Florini, ed., The Third Force: The Rise of Transnational Civil Society (Washington: Carnegie Endowment for International Peace, 2000); Jo Marie Griesgraber, “Southern Governments and Northern NGOs: Antithetical Approaching?” paper presented at the annual meeting of the American Political Science Association, Washington, D.C., August 31, 1997; Paul J. Nelson, “The World Bank and Non-Governmental Organizations: The Limits of Apolitical Development,” paper presented and the annual meeting of the International Studies Association, Chicago, Illinois, February 1995; John Clark, Democratizing Development (West Hartford: Kumarian Press, 1991); Thomas F. Carroll, Intermediary NGOs: The Supporting Link in Grassroots Development (West Hartford: Kumarian Press, 1992); and Michael Edwards and David Hulme, eds., Beyond the Magic Bullet: NGO Performance and Accountability in the Post-cold War World (West Hartford: Kumarian Press, 1996). For an idea of the wide range of NGOs that work on debt, see Who’s Who on Debt and Structural Adjustment: A Directory of NGOs (Geneva: UNCTAD/NGLS, 1990), and David Kelleher, Grabbing the Tiger by the Tail: NGOs Learning for Organization Change (Canadian Council for International Cooperation, 1996).
For examples of this discourse, see US Catholic Conference, Relieving Third World Debt: A Call for Co-Responsibility, Justice, and Solidarity (Washington: US Catholic Conference, 1989); Missionary Society of St. Columban, Campaign on Debt and Development Alternatives, Beyond Debt: Relieving the Debt Burden on the Poor and the Environment (Washington: Missionary Society of St. Columban, 1996); and Elizabeth Donnelly, “Catholic Church Activism on Issue of International Ethics: The Case of Third World Debt,” paper for the 1995 APSA Annual Meeting, Chicago, August 31-September 3, 1995).
Taken from the Jubilee 2000 website on the Internet [www.oneworld.org/jubilee2000/], October 31, 1997. On the emergence of Jubilee 2000, see Martin Dent and Bill Peters, The Crisis of Poverty and Debt in the Third World (Aldershot: Ashgate, 1999).
On principled-issue networks, see Kathryn Sikkink, “Human Rights, Principled Issue-Networks, and Sovereignty in Latin America,” International Organization, 47/3 (Summer 1993), pp. 411-41; Keck and Sikkink, Activist Beyond Borders; Martha Finnemore and Kathryn Sikkink, “International Norm Dynamics and Political Change,” International Organization, 52/4 (Autumn 1998), pp. 887-917; Martha Finnemore, “Norms, Culture, and World Politics: Insights from Sociology’s Institutionalism, International Organization, 50/2 (Spring 1996), pp. 325-47; Audie Klotz, Norms in International Relations: The Struggle Against Apartheid (Ithaca: Cornell University Press, 1995). For one of the classic works on network analysis, see Jeremy Boissevain and J. Clyde Mitchell, eds., Network Analysis (The Hague: Mouton, 1973).
When asking whom I was going to see next, a senior European financial official said, “Please ask them to tell the nuns to stop writing; we get the point.” The nuns had been writing hundreds of letter advocating much greater debt relief, and the government had to hire people to respond to them. Prior to the 1998 Birmingham G-8 meeting, the British NGO Christian Aid, in a particularly creative ploy, had 15,000 postcards printed with the photograph of the signing of the 1953 London Agreement that considerably eased the repayment of Germany’s pre-war debt. The idea was to embarrass the German government into greater flexibility on debt relief. The flood of cards became such an issue that Chancellor Helmut Kohl took it up the with Prime Minister Tony Blair; see “Postcards Hit a Nerve in Bonn,” Financial Times, February 4, 1998, p. 2. At the Birmingham G-8 summit in May, Jubilee 2000 organized a human chain of thousands of people to encircle the meetings in support of large-scale debt writeoffs for poor countries. These two examples of debt NGO activity demonstrate the social movement aspect of the NGO networks.
See www.jubilee2000uk.org and www.j2000usa.org.
Talking about his political work in the U.S. Congress, Bono recently noted that he has a very useful credible threat: “And another thing, if ‘certain people’ fight it, tell them that U2 will come to their districts, get 50,000 kids in a stadium and put their photo on 30-ft. screens with the caption, ‘This guy killed African women and children;’” quoted in “Bono the Rock Star on a Mission, Time, April 26, 2004, p. 124.
For example, see: Jeffrey Sachs, Kwesi Botchwey, Maciej Cuchra, and Sara Serban, “Implementing Debt Relief for the HIPCs,” Center for International Development, Policy Paper No. 2, Harvard, August 1999.
For example: On October 17, 1995 seventeen NGO representatives met with the US executive directors of the IMF, the World Bank, and the regional development banks; and on March 17, 1997 NGOs representatives met with World Bank staff specifically about Uganda’s HIPC debt initiative situation. Eurodad even managed to organize two meetings on January 16 1996 and February 4, 1998 with the normally very secretive Paris Club staff, although the discussion remained strained and limited. Over time regular contact, both informal and formal, has increased in density and quality with the IMF and World Bank. Another example is that Eurodad, Oxfam, and Jubilee 2000 participated in a seminar on “Approaches to Debt Relief” with IMF, World Bank, and Paris Club officials at the October 1998 Joint IMF-World Bank annual meeting in Washington.
See Simmons, “Learning to Live with NGOs;” Ann Marie Clark et. al., “The Sovereign Limits of Global Civil Society,” World Politics, 51/1 (October 1998), pp. 1-35; Jan Aart Scholte, “The IMF Meets Civil Society,” Finance and Development (September 1988), pp. 42-45, World Bank NGO Group, Social Development Department, “Cooperation between the World Bank and NGOs: FY96 Progress Report,” World Bank, August 1977; and Nancy C. Alexander (from Bread for the World Institute’s Development Bank Watchers’ Project), “The World Bank’s New Strategic Alliances,” manuscript, 1997.
On epistemic communities, see Peter M. Haas, ed., “Knowledge, Power, and International Policy Coordination,” special issue, International Organization, 46 (Winter 1992).
Some examples: Percy Mistry (International Development Centre, Oxford University), “The Problem of ‘Official’ Debt Owed by Developing Countries,” August 1989, written for the Forum on Debt and Development (FONDAD), a predecessor to Eurodad; Jan Joost Teunissen, “The Scope for European Initiatives on Debt,” March 1989, written for FONDAD; Tony Killick (Overseas Development Institute London), “Solving the Multilateral Debt Problem: Reconciling Relief with Acceptability,” November 1995, written for the Commonwealth Secretariat; Marinus Verhagen (Utrecht University), “Economic and Social Indicators of Debt Sustainability: An Empirical Study,” January 1997, written for Eurodad; David Woodward, “The Multilateral Debt Facility Proposal: Comments” and “The HIPC Initiative: Latest Developments,” April 1997, written for Christian Aid, Debt Crisis Network, and Jubilee 2000; Matthew Martin, “Official Bilateral Debt: New Directions for Action,” April 1994, written for Eurodad; “Multilateral Debt: Key Issues,” a report to G24 and Commonwealth Ministers, London, 20 July 1997; and last but certainly not least, the wonderful set of research papers organized and edited by G. K. Helleiner of the University of Toronto for the Group of 24 under UNCTAD auspices and published in annual volumes of “International Monetary and Financial Issues for the 1990s,” United Nations, New York and Geneva, 1992-98; the 1997 volume, for example, included pieces by MIT and University of Maryland professors, a Brookings Fellow, senior officials of the Bank of Uganda and the Uganda Finance Ministry, two fellows of the Korea Institute of Finance, and officials of the State Bank of Pakistan and the Central Bank of Chile.
See Nicholas Stern with Francisco Ferreira, “The World Bank as ‘Intellectual Actor’” in The World Bank: Its First Half Century, vol. 2, eds. Devesh Kapur, John P. Lewis, and Richard Webb (Washington: Brookings, 1997), pp. 161-274.
Such “insider/outsider connections,” as Oxfam calls them, played an important role in the period that led up to the creation and operation of the World Bank’s special working group on multilateral debt between 1994 and 1996.
This confidence was been tempered by the involvement of the Museveni government in the wars in the Congo with the fear that it would endanger the striking economic progress made over the last eighteen years. Uganda also still confronts internal rebel challenges, especially from the Lord’s Resistance Army.
See Uganda’s IMF/IDA Decision Point Document, April 11, 1997.
In addition to confidential interviews, his section draws on: Government of Uganda, “A Strategy for Reducing the External Debt of Uganda,” report prepared for the Consultative Group, Kampala, 15 July 1995; Matthew Martin, Susan Lukwago, and Nils Bhinda, “A Sustainable Proposal for Reducing the Burden of Uganda’s Multilateral Debt,” February 3, 1995; Martin, “Multilateral Debt: Key Issues;” and Debt Relief International, “HIPC Debt Strategy and Analysis Capacity-Building Programme,” Programme Document, London, June 1997.
DRI also has its own publications series; see, for example: Matthew Martin and Alison Johnson, “Implementing the Enhanced HIPC Initiative: Key Issues for HIPC Governments,” No. 2, DRI, London, 2001; Juan Carlos Vilanova and Matthew Martin, “The Paris Club,” No. 3, DRI, London, 2001; and Matthew Martin and JC Aguilar Perales, “HIPC Capacity-Building Needs,” No. 6, DRI, London, 2001.
This section draws on confidential interviews and the following: Anthony R. Boote and Kamau Thugge, “Debt Relief for Low-Income Countries and the HIPC Initiative,” IMF Working Paper 97/24, Washington, D.C., International Monetary Fund, March 1997; World Bank, “Uganda: Preliminary Document on the Initiative for HIPCs,” IDA/SecM97-41, February 14,1997, Washington, D.C.; World Bank, “Uganda: HIPC Debt Initiative: Final HIPC Document,” IDA/R97-32, April 14, 1997, Washington, D.C.; World Bank, “Republic of Uganda: HIPC Debt Initiative: President’s memorandum and Completion Point Document,” IDA/R98-33, March 23, 1998, Washington, D.C.; Oxfam International Position Paper, “Multilateral Debt: An End to the Crisis?” October 1995; Oxfam International, “Poor Country Debt Relief: False Dawn or New Hope for Poverty Reduction?” Washington, D.C.: Oxfam, April 1997; Oxfam International, “Debt Relief and Poverty Reduction: New Hope for Uganda,” September 1966; and Government of Uganda, “Uganda and the HIPC Debt Initiative,” Kampala, November 1996.
See, for example: World Bank, “Debt Strategy and Its Impact on Development Prospects for All Severely Indebted Countries,” March 15, 1990, and “Progress Report on Implementation of ‘Debt Strategy and Its Impact on Development Prospects for All Severely Indebted Countries,’” October 14, 1991.
Michael Holman, “World Bank plans Dollars 22bn fund for poorest countries,” p. 1; Michael Holman, “Debt and Africa’s Poor: the World Bank relents – Michael Holman reports on a 180-degree policy shift on how to cope with the continent’s Dollars 160bn debt mountain,” p. 6, and [editorial] “New steps on debt,” p. 25, all Financial Times, September 14, 1995.
“A Debt Reduction Fund for Heavily Indebted Poor Countries,” Staff Working Paper, September 16, 1995, marked “Confidential Draft.”
“A Debt Reduction Fund for Heavily Indebted Poor Countries,” p. 2.
“A Debt Reduction Fund for Heavily Indebted Poor Countries,” p. 9.
“A Debt Reduction Fund for Heavily Indebted Poor Countries,” p. 13.
Quoted in Tony Walker, “World Bank sees debt write-off snag,” Financial Times, September 16, 1995, p. 3. Wolfensohn made the statement the day after the leak. It is my view that the leak of the report actually helped to overcome resistance by making opposition more open and public.
Quoted in Michael Holman, “IMF cool to World Bank debt plan,” Financial Times, September 15, 1995, p. 6. The statement was made the day of the leak. As one West African minister put it, “The Critical voice is that of the Fund, and I’m not going to celebrate until that institution endorses it. In the meantime, I’m not holding my breath,” quoted in Michael Holman, “Debt and Africa’s Poor: the World Bank relents,” Financial Times, September 14, 1995, p. 6.
It must be remembered that the French had fought tenaciously against any major role in debt relief by the Fund and the Bank since the 1950s.
Quoted in George Graham, “World Bank’s debt relief idea under fire,” Financial Times, September 28, 1995, p. 4.
Both statements in George Graham and Stephanie Flanders, “Enthusiasm cools for debt relief proposal,” Financial Times, October 4, 1995, p. 4.
Quoted in George Graham, Financial Times, October 10, 1995, p. 5.
Quoted in Michael Holman, “IMF cool to World Bank debt plan,” Financial Times, September 15, 1995, p. 6. Oxfam issued a report in support of the proposal at the time of the annual meetings in early October, “Multilateral debt: and end to the crisis.” The Commonwealth secretariat commissioned a study by Dr. Tony Killick of London’s Overseas Development Institute, entitled “Solving the Multilateral Debt Problem,” which it issued in early October.
Quoted in, Andrew Bauck, “Oxfam and Debt Relief Advocacy,” Cascade Center for Public Service, Public Service Curriculum Exchange, 2001, p. 10.
World Bank/IMF, “Analytic Aspects of the Debt Problems of Heavily Indebted Poor Countries,” and “Debt Sustainability Analysis for the Heavily Indebted Poor Countries,” January 31, 1996.
IMF and World Bank, “A Proposed Initiative for Assisting HIPCs,” March 6, 1996.
According to Webster’s Ninth New Collegiate Dictionary (1983), Rube Goldbergian is an adjective named after an American illustrator that means, “accomplishing by complex means what seemingly could be done simply” as “a kind of Rube Golberg contraption…with five hundred moving parts.”
Confidential interviews; also see “Summary: Seminar on Multilateral Debt,” Archbishop’s House, Westminster, London, February 12, 1996, Cardinal Basil Hume presiding. Contact with Catholic NGOs continued as HIPC was implemented; see “Briefing Notes: Michel Camdessus, Managing Director, International Monetary Fund, May 30, 1997,” typescript, about a meeting between Camdessus and two well informed Catholic groups in Washington on that date.
The emergence of these menus was tied to the annual G-7 meetings; hence the menu names come from the city in which the meeting was held in that year.
Thailand and other middle-income countries suggested that states that were concerned with this problem and “with vested interests in the HIPCs” should finance the initiative. This was a reminder that other developing countries saw HIPC as an initiative of the big powers that served their interests; hence they should pay the cost. A good number of other middle-income countries also had real ambivalence about HIPC.
In discussing track record, Argentina cautioned that the assumption that good economic policy leads to improved economic conditions was based on thin evidence and thus that it is important to factor in the possibility that in some countries the supply response of reform efforts may not come quickly. While not intending to do so, this important Latin American country, one now is serious trouble -- yet again, made a shrewd comment on the nature of the structural dilemma that led to HIPC in the first place.
See, for example: D. Kitabire [Finance Ministry official], “The HIPC Debt Initiative and Its Implementation in Uganda,” presentation to the Eurodad Annual Conference, the Hague, January 28, 1997; J.S. Mayanja-Nkangi, Minister of Finance, “Delayed debt will cost Uganda dearly,” Letter to the Editor, Financial Times, March 10, 1997. On NGOs in Uganda, see Susan Dicklitch, The Elusive Promise of NGOs in Africa: Lessons from Uganda, (New York: St. Martin’s, 1998).
Justin Forsyth, Oxfam International press release, “Oxfam condemns delay on Uganda’s deb relief: A betrayal of the commitment to reduce poor country debt,” Washington, April 23, 1997.
On the Uganda Debt Network (affiliated with Jubilee 2000), see http://www.uganda.co.ug/debt.
Quoted in “Uganda Debt Deal Seen Boosting Investor Confidence,” Reuters, April 9, 1998 [Internet].
The seven were Bolivia, Burkina Faso, Côte d’Ivoire, Guyana, Mali, Mozambique, and Uganda; packages for Ethiopia and Guinea-Bissau were discussed but put on hold due to armed conflict (a criterion never applied to Uganda, however). Benin and Senegal were evaluated and declared to have sustainable debt.
“Financing for Development: Current Trends and Issue for the Future” paper for UNCTAD X, Bangkok, February 12, 2000, p. 12.
HIPC Review Seminar, July 29-30, 1999, Addis Ababa, hosted by UNECA. It was attended by 21 African countries, including Nigeria, Ghana, and Sierra Leone; donor countries such as Canada, the Netherlands, Switzerland, the United Kingdom, and the US; international organizations such as the ADB, IMF, World Bank, IDB, OECD, UNICEF, UNDP, WHO; research organizations such as the Institute for Development Studies and the Overseas Development Institute; and NGOs such as AFRODAD, Uganda Debt Network, EURODAD, Oxfam, Christian Aid, World Vision, Debt Relief International, and Jubilee 2000. Honduras, Russia, and the European Commission also attended the meeting. On the consultation process, see www.worldbank.org/hipc/hipc-review.
“US Debt Reduction Activities FY 1990 Through FY 1999,” Public Report to Congress, Feb. 2000, p. 9.
IMF and IDA staff, “Poverty Reduction Strategy Papers--Status and Next Steps,” November 19, 1999, at www.imf.org/external/np/pdr/prsp/status.htm.
Lawrence H. Summers, “Conference on Debt Relief and Poverty Reduction,” Washington, DC, Treasury News press release, July 26, 1999 at www.ustreas.gov, emphasis added; Michel Camdessus, “From the Crises of the 1990s to the New Millennium,” remarks in Madrid, Spain, November 27, 1999, www.imf.org/np/speeches/1999.
Oxfam, “Outcome,” p. 7.
Demonstrating influence, however, is a methodologically difficult task; one way is process tracing via numerous and carefully crafted interviews that attempt to verify information via “triangulation”. This section draws on a series of such confidential interviews.
See Bauck, “Oxfam and Debt Relief Advocacy,” pp. 16-17; this is a fascinating and very complex story, one that I have good interview data on. The latest twist is Bono taking US Treasury Secretary Paul O’Neill on an Africa debt relief tour.
Kwesi Botchwey, “Financing for Development: Current Trends and Issue for the Future” UNCTAD X, Bangkok, February 12, 2000, p. 12. Ghana made the decision hastily and without running adequate net resource flow calculations because it was dealing with a major crisis with Ashanti Goldfields. Mozambique, on the other hand, made the decision to stay with HIPC and do without Japanese assistance. Other major donors did not place much pressure on Japan to change its position, hesitating to rock the boat, given what they considered to be more important crosscutting issues. Personal communication from Kwesi Botchwey, March 25, 2000.
Embedded liberalism is the notion that industrial democracies have long handled the processes of economic adjustment, especially to external changes, by buffering the social and political costs of adjustment in ways not necessarily congruent with neo-liberal economic doctrine and that they have preached the latter to developing countries while doing the former. See John Gerard Ruggie, “International Regimes, Transactions and Change: Embedded Liberalism in the Postwar Economic Order, International Organization, 36/2 (Spring 1982); “Political Structure and Change in the International Economic Order: The North-South Dimension” in his edited volume Antinomies of Interdependence, Columbia University Press, 1983, pp. 423-87; and "Embedded Liberalism Revisited: Institutions and Progress in International Economic Relations,” in E. Adler and B Crawford, eds., Progress in Postwar International Relations, (New York: Columbia University Press, 1991), pp. 201‑34. The Paris Club countries have never applied embedded liberalism--what they practice, not what they preach--to the debtors; also see: Thomas M. Callaghy, "Toward State Capability and Embedded Liberalism in the Third World: Lessons for Economic Adjustment" in Fragile Coalitions: The Politics of Economic Adjustment, ed. Joan Nelson (Washington, D.C.: Overseas Development Council, 1989), pp. 115-38. On the fraying of embedded liberalism in the industrial democracies, see Richard Clayton and Jonas Pontusson, “Welfare-State Retrenchment Revisited: Entitlements, Public Sector Restructuring, and Inegalitarian Trends in Advanced Capitalist Societies,” World Politics, 51/1 (October 1998), pp. 67-98.
See the recent report by the new Center for Global Development and the Institute for International Economics that calls for the use of IMF gold to fully fund EHIPC as a first step to reinventing the “international aid architecture;” it is written by two leading “insider/outsider” economists: Nancy Birsdall and John Williamson, Delivering on Debt Relief: From IMF Gold to a New Aid Architecture (Washington: Center for Global Development and the Institute for International Economics, April 2002).
For a good analysis of the limits of EHIPC, see General Accounting Office, “Developing Countries: Debt Relief for Poor Countries Faces Challenges,” Report to Congressional Committees GAO/NSIAD-00-161, Washington, D.C., 2000. To view the current status of HIPC, see the IMF and World Bank HIPC websites: http://www.imf.org/external/np/hipc/hipc/htm and http://www.worldbank.org/hipc/.
Confidential interview, Washington, D.C., October 23, 2001.
Kevin Watkins, quoted in FT.com, October 12, 2001, and cited on the Jubilee Plus web site.
See the dispute over Oxfam’s recent report “Rigged Rules and Double Standards: Trade, Globalization and the Fight Against Poverty,” 2002, and Martin Wolf, “Doing More Harm than Good,” Financial Times, May 8, 2002, plus the letters to the editor in response to Wolf’s attack on the report. The NGOs are likely to find trade a more difficult issue to organize around than debt.
On the Tobin tax and related proposals, see the Tobin Tax Initiative in the US at www.ceedweb.org/iirp/ or www.tobintax.org; the UK’s Tobin Tax Campaign conducted by War on Want at www.tobintax.org.uk/; the Halifax Initiative in Canada at www.halifaxinitiative.org/hi.php/Tobin/; and in Italy the Campagna Tobin Tax at www.manitese.it/tt/tt.htm.
For similar views able the nature and importance of major power leadership and the tensions between unilateralism and multilateralism, see Joseph S. Nye, The Paradox of American Power: Why the World’s Only Superpower Can’t Go It Alone (Oxford: Oxford University Press, 2002).
In this section, HIPC will be used to mean Enhanced HIPC.
Quoted in Alan Beattie, “Debt relief for poor countries held up by rich world discord,” Financial Times, February 14, 2004.
Jubilee Research Briefing Paper, “Doing nothing for Ethiopia: A briefing on Ethiopia’s debt,” February 2004.
Juibilee Research Press Release, “US brokers debt relief for Iraq – but blocks relief for poorest country in the world,” April 2, 2004, emphasis added. The emphasis indicates a key aspect of HIPC – the shift to rule-based decision-making rather than the more ad hoc procedures developed by the Paris Club.
Oxfam, “Rigged Rules and Double Standards.”
David K. Leonard and Scott Straus, Africa’s Stalled Development: International Causes and Cures (Boulder; LRP, 2003); all page references are in brackets in the text, for example (105).
ASD makes a strong argument about the causal effects of “enclave economies.” While not completely wrong, the argument is applied much too broadly, with very little empirical evidence, and, most importantly, no detailed explanation of how African countries might move away from dependence on enclave production.
They cite William Reno, Warlord Politics and African States (Boulder: LRP, 1998).
See William Reno, “International Actors and the Transformation of Decaying African States: ‘Greater Liberia’ and Zaïre,” paper presented at the APSA meetings, New York, September 1994; and Corruption and State Politics in Sierra Leone (Cambridge: Cambridge University Press, 1995). Also see, Jeffrey Herbst, “Responding to State Failure in Africa,” International Security, 21/3 (Winter 1996-97), pp. 120-44; and Christopher Clapham, Africa and the International System: The Politics of State Survival, (Cambridge: Cambridge University Press, 1996).
Thomas M. Callaghy, “Africa: Back to the Future?” Journal of Democracy, 5/4 (October 1994), pp. 133-45.
For this second scenario, I drew, among other things, from a fascinating paper by Claude Ake, “The Marginalization of Africa: Notes on a Productive Confusion,” paper presented at a Council on Foreign Relations Africa seminar, New York, February 8, 1994.
Birdsall and Williamson, Delivering on Debt Relief. Also see the assessment of HIPC by the World Bank’s semi-autonomous evaluation unit – the Operations Evaluation Department, a review in which I participated: Debt Relief for the Poorest: An OED Review of the HIPC Initiative (Washington: World Bank, 2003); and Bernhard Gunter, “Achieving Long-Term Debt Sustainability in HIPCs” in Ariel Buira, ed., Challenges to the World Bank and IMF (London: Anthem Press for the G24 Research Program, 2003), pp. 91-117. For a recent view of HIPC that is more reflective of the current U.S. position, see Alexis Rieffel, Restructuring Sovereign Debt, pp. 178-87, and a blistering review of it by the former head of the IMF’s powerful Policy Development and Review Department (PDR): Jack Boorman, “A Compact but Unconvincing Case,” Finance and Development (March 2004), pp. 53-54; Boorman is particularly distressed by the failure of the IMF’s Sovereign Debt Rescheduling Mechanism (SDRM) proposal, which was blocked by key G-7 governments, especially the U.S., and by very intense private sector opposition. For Bill Easterly’s contrary views about debt relief, see William Easterly, “Think Again: Debt Relief,” Foreign Policy (December 2001), pp. 20-26, “The Cartel of Good Intentions,” Foreign Policy (July/August 2002), pp. 40-49; also see his controversial book, The Elusive Quest for Growth: Economists’ Adventures and Misadventures in the Tropics (Cambridge: MIT Press, 2001), which goes to the heart of the structural dilemma that led to HIPC, and “The Failure of Development,” Personal View, Financial Times, July 4, 2001.
Christopher Swann and Ed Crooks, “World Bank: Low levels of aid for poor ‘unacceptable,’” Financial Times, April 26, 2004; also see Larry Elliott, “US softens line on debt relief,” The Guardian, April 26, 2004.
Published: Friday, April 30, 2004
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