STATEMENT BY
THE HONOURABLE MINISTER OF FINANCE AND DEVELOMENT PLANNING
TO THE PARLIAMENT OF THE KINGDOM OF LESOTHO ON NEW PROPOSALS
BY G-8 FOR DEBT CANCELLATION OF HIGHLY INDEBTED POOR
COUNTRIES (HIPC)
Madam Speaker
As part of their preparation for the Summit of the G8 Heads
of Government and States at Gleneagles, Scotland, the G8
Finance Ministers announced, following their recent meeting
in London, their recommendation to the Summit to assist the
Highly Indebted Poor Countries (HIPC) reached the Millennium
Development Goals (MDGs). This will involve “100 percent
debt cancellation of outstanding obligations of HIPCs to the
IMF, World Bank and African Development Bank”.
Since then several questions have been raised by members of
this Honourable House, the Media and the public.
These include, among others:
• Which countries constitute the HIPCs?
• Why were they or are they being singled for cancellation
Commercial and multilateral debt which still exerts a heavy
burden and a drag on the growth of the poor low income and
non-HIPC countries?
Let me answer these questions, Madam Speaker, by giving:
First, a brief history of the debt crises and the origins
and objectives of HIPC initiative;
second, progress under HIPC, Poverty Reduction and Growth
Facility of the IMF;
third, the current G-8 proposal; and,
finally, let me outline Lesotho’s.. to the issue of debt
cancellation of multilateral debt.
The Honourable House will recall that in the late 1960s, and
early 1970s, the World prices of oil and other commodities
increased sharply. This resulted in an increase in
international liquidity and lendable funds in the
international banking system. International banks responded
by lowering lending criteria. They granted loans to many
developing countries for all types of projects including
weapons purchases and projects that have since become
white-elephants. Some of the leaders engaged in conspicuous
consumption and corrupt practices.
By the 1980s many of the poor low income countries that had
contracted these loans were unable to repay them. Those
which had incurred official loans from bilateral sources
sought debt rescheduling under what is called “The Paries
Club”. This is a group of OECD countries that give loans to
various developing countries: They meet from time to time to
decide on how much debt to reschedule for a particular
country and on what terms.
Those countries that had contracted debt from private banks
and other private sources went to what is called “the London
Club” to seek rescheduling.
While the system gave temporary relief in terms of debt
service, the volume of debt continued to grow due to the
capitalization of interest and payment of interest on
interest.
Many poor low income countries found themselves getting
deeper and deeper into debt. The era of what was called a
“Debt Crisis” emerged and many countries found themselves
caught in a “Debt Trap”.
II
Studies by the World and the IMF concluded that the only way
these countries could get out of debt and begin to improve
the quality of life of their people was to focus on
adjusting the structures of their economies and on promoting
growth. They introduced “Poverty Reduction and Growth
Facility” in the IMF whose resources were contributed by the
richer Member Countries and whose terms were softer than
normal IMF funds.
Lesotho and other low-income countries whose debts were
considered manageable or serviceable benefited from this
programme and from the soft terms of the International
Development Association (IDA), an Affiliate of the World
Bank.
For those poor low-income countries whose debts were
considered unsustainable, unserviceable or unmanageable
given the level of their export earnings, a HIPC programme
was devised. The number of these countries was twenty seven
(27).
The aim of the HIPC program was to assist thee Highly
Indebted Poor countries by canceling part of their debt so
that what remains could be serviceable, manageable and
sustainable. This would put them on the same footing as the
other non-HIPC low-income countries. Multilateral debt was
excluded in all these programmes.
Again resources for HIPCs were contributed voluntarily by
member States. The World Bank and African Development Bank
Managements proposed contributions from the profits of these
institutions.
All Governors agreed and the respective Boards of these
institutions approved these proposals and contributions were
made to the HIPC Programme.
Experience with HIPC programme showed that the debt of those
countries whose debts had been cancelled to what was
considered sustainable levels, was in effect not
sustainable. Two reasons were adduced:
first, that export earnings had fallen due to a fall in
commodity prices;
second, the methods of calculating sustainable debt were not
so accurate.
As a result, the bilateral and multilateral debts of these
countries were growing and thereby acting as a constraint to
their growth and to implementing their poverty reduction
programmes that would enable them to reach the MDGs. Let me
note that attaining MDGs is a problem for HIPC and non HIPC
that also have debts but are making sacrifices to pay them.
The British Government came up with an initiative that would
raise additional funds for …. Millennium Development Goals.
This initiative is called the International Finance
Facility.
All low-income countries applaud this initiative which we
strongly support. It is innovative and feasible and should
be implemented quickly. The World Bank and IMF have been
asked to study is implementation modalities including
financing implications. IFF would cover all low-income
countries and assist them to reach the internationally
agreed MDGs.
III
The British Government Commission on Africa, especially
Chancellor Gordon Brown, proposed that multilateral debt be
forgiven but that the proceeds should go t financing
Education and other MDG goals. Again, most developing
countries including Lesotho supported the idea.
What has been Lesotho’s stand in all these?
First, Lesotho supported the initiative to bring down the
debt of the HIPCs to a level which they could service
sustainably. This would bring them in line with all other
low-income countries that were not included in the HIPCs.
This position was taken in solidarity with other developing
countries and not because we were not struggling under the
heavy burden of debt.
Second, when the idea of when multilateral debt write-off
came, Lesotho felt that whatever arrangements are reached,
they must cover all low-income counties because they have
contributed through their capital to the funds that were
used for those loans
Download Format (PDF) |
